Retail Revolution

Jessops has been the first high profile casualty in 2013 of the squeeze on ‘traditional’ retailing. The closure of the chain’s 187 stores will further swell the pool of vacant high street premises. The latest data compiled by the British Retail Consortium showed that town centre vacancy rate in the UK was already at 11.3% in October 2012 (high streets and shopping centres), the highest figure since the survey began in July 2011.  

This vacancy rate is likely to be swelled further over the coming year as the retail property market is hit by further consolidations and closures. Research by business recovery practice, Begbies Traynor, into the corporate distress levels among UK retail businesses found that almost 140 were facing “critical” financial issues in the run up to Christmas, even though many were at the peak of their annual cash cycle. In addition the number of retailers facing less immediate, but still “significant” financial issues had risen by 35%. 

Whilst weak consumer confidence and poor retail sales have been a key factor behind the decline in high street retailing, fierce competition from supermarkets and on-line retailers as well as technological change are adding to the retailers woes. Strikingly Begbies Traynor report that those retailers that have experienced the highest increases in “significant” distress include specialists in books, news and stationery (up 85%), pharmaceutical and personal care (up 80%) and alcohol (up 38%): Sectors that are under intense competition from supermarkets and online retailing. Internet sales averaged £711 million a week in November, an 8.1% increase on a year earlier. The amount spent online is account for an estimated 10.8% of all retail spending during the month. 

Chart: Online retailing has more than doubled its market share over the last five years 

These structural changes will continue to reshape the nation’s retail estate as the UK economy gradually emerges from recession and consumer confidence improves. 

However, many established retailers are adapting to the new trading environment. The number and size of stores operated by the national chains is set to shrink as firms increasing integrate their on-line presence with their traditional outlets; offering consumers increased choice and convenience, for example through the provision of ‘click and collect’. The introduction of these new services also has implications for the operation and layout of the existing retail premises. For example, retailers may increasingly be looking to remodel their stores to accommodate collection services. 

Accordingly refurbishment and fit-out work is expected to account for a growing proportion of retail construction activity over the next two years as retailers focus on increasing footfall at existing premises. In contrast the overhang of vacant premises will deter investment in new facilities. 

Longer term, however, the growing pool of vacant retail premises will offer fresh opportunities for the construction industry. Given the shifting demand for retail space, investment in many cases will be required to adapted or redevelop vacant sites, often for alternative, non-retail use.