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What’s behind UK Retail’s Perfect Storm?

by | Dec 21, 2018

We recently published a new report describing the “perfect storm” that UK retailers are currently facing. The adverse circumstances contributing to this perfect storm are a combination of structural, cyclical and temporary factors. In this blog I explore some of our findings.

Looking at the actual data, existing perceptions about the UK retail market (for example, that recent failures are all due to ecommerce) can be challenged. The challenging retail market conditions in the US, arising from a significant oversupply of space, raised fears that the UK has a similar oversupply of space and therefore will face a similar fate. Respected retailer Sir John Timpson this week claimed that the UK has twice as many shops as it needs. By contrast our report argues that the UK is not over supplied with retail space.

Figures 1 and 2 below show that countries with higher retail sales areas per capita, like Norway, Luxembourg, Belgium and Austria, tend to have higher in-store retail sales per capita. UK retail sales area per capita is just half that of the US, and slightly below the average across Europe (Figure 1). However, on an in-store retail sales per capita basis (Figure 2), the UK is noticeably above the European average. This implies that UK retailers make relatively efficient use of space compared with many other EU countries, and that the UK retail market has a healthy amount of retail space overall. At the very least, it would be very difficult to argue that the UK is an inefficient outlier in its use of retail space.

The report also explores how retailers are weathering this “perfect storm”. Various retailers have optimised their portfolios either by closing stores or by reducing rents. So the location of stores has come under increased scrutiny.

CBRE’s Retail Analytics team examined decisions made about 1,419 stores by a mixture of retailers and casual dining operators who went through the CVA process. Our findings, illustrated in Figure 3, challenge some common assertions about the causes of retail distress.

For example, in London only a small percentage of stores benefited from rent reductions, even though the revaluation of business rates affected London more than anywhere else. Furthermore, London experienced a high store retention rate, which suggests that turnover and profitability is often high enough in London to outweigh higher costs.. This indicates that despite the cyclical and structural factors which are currently affecting retail, the London market is proving resilient with retailers being tolerant of originally agreed rent levels.

The two examples showcased how perceived views about the market can be challenged when looking at the actual data. More examples are available in the report, which you can find here..

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