Retailers bet on a rebound for real life shopping as as a string of brands open new West End shops

·5-min read
Christmas lights have been switched on in parts of central London  (REUTERS)
Christmas lights have been switched on in parts of central London (REUTERS)

After so much pain for London’s physical retail sector this year, from supply chains woes, to lockdowns hammering trade and famous chains such as Debenhams and Topshop permanently disappearing from high streets, choosing to invest in shops must be very hard. But, despite the challenging environment, a string of brands have just revealed West End deals.

Covent Garden landlord Capco has said 10 brands have just opened or will open sites on its estate, while California-headquartered activewear label Fabletics has picked Regent Street for its debut UK pop-up shop.

Why are businesses choosing now to invest in London stores, at a time when footfall is still suffering from fewer tourists and office workers being in town, and online competition is fierce?

Here we look at what is enticing some firms to sign leases, and what challenges still remain for companies with physical stores.

Availability

Lockdowns left some tenants unable to pay rent during the pandemic and forced some businesses to rethink stores. That, coupled with some well-documented brands disappearing from town centres due to restructures or going into administration, has left some gaps in desirable shopping spots.

Linda Ellett, UK head of consumer markets at KPMG, says some retailers that have decided to move quickly to secure sites, are “finding there are some good opportunities in the deals available currently on prime high street and city locations”.

Ellett adds: “Following the pandemic, retailers still hold some of the cards as landlords need to find new tenants, particularly ones who will attract footfall to the high street.”

Research firm GlobalData’s retail analyst Emily Stella thinks in some cases it is a “buyer’s market and big-name retailers have leverage of their ability to attract footfall to an area”.

Signs of improving footfall

The City and West End saw shopper numbers plunge during the coronavirus crisis, with travel restrictions and work from home guidance leaving streets much quieter. Conditions are still tough, but GlobalData’s Stella says “footfall has recovered somewhat since the height of the pandemic”.

In an encouraging sign for central London occupiers, business lobby group New West End Company said West End footfall on Saturday November 13 was up 13% compared to 2019 levels. That was shortly after Christmas lights were switched on in the area.

Gavin Redrupp, head of London retail at BNP Paribas Real Estate, says: “Retail leasing activity in the West End is being driven by two quite simple motivations. Rents continue to soften and have been for some time, so quality locations are looking like very good value. This has been coupled with a continued improvement in footfall in recent months and that is giving major retailers the confidence to take space in prime destinations.”

New rental models

Phil Cann, head of UK retail investment at property agent CBRE, says: “We are seeing household names taking key store space across central London and landlords are increasingly considering base and turnover leases, resulting in more of a partnership approach with occupiers.”

Typically rents have long been on fixed leases, and often lease structures can include upward only rent reviews.

However, a turnover-based rent model is a way of allowing tenants to pay rent based on how sales perform. This can allow landlords to enjoy the good times, but equally share some of the pain when trading conditions are harder.

Cann anticipates a strong end to 2021 as “occupiers continue their search for flexible lease structures”.

Having a store front is still important

While online sales boomed for a number of brands during the pandemic, and proved a vital income stream for many businesses, several retailers have this year said having physical stores still remains important.

Jewellery firm Astrid & Miyu is opening three more London shops in time for Christmas, while shoe retailer Kurt Geiger launched new branches earlier in the year.

Kurt Geiger’s boss Neil Clifford told the Evening Standard in April: “Whilst we have a strong online business we know that stores and digital working together is the perfect retail cocktail. Customers love choice and where we have a retail presence we achieve an almost 40% better online business in that area.”

Meanwhile FTSE 100 property giant British Land said the value of its retail parks division increased 7.1% in the six months to September 2021.

These sites may not be in central London, but many are in the outer transport zones in the capital. The landlord says: “These [sites] are increasingly preferred by retailers, as they are affordable and support an online offer by facilitating click and collect, returns and ship from store and we see this as a long term structural trend.”

Having stores remains tough

One headache that retailers with physical stores continue to grapple with is business rates. The tax is on most non-domestic properties and firms have long complained at how high and unfair the rates can be. The rates do not take into consideration how sales are doing. They are also based on property values from years ago, which does not reflect the downturn many brands experienced during the pandemic.

The House of Fraser store on Oxford Street is due to close in January 2022 (AFP via Getty Images)
The House of Fraser store on Oxford Street is due to close in January 2022 (AFP via Getty Images)

A spokesman for Frasers Group, which is closing its House of Fraser branch on Oxford Street in 2022, said in November: “As a business, who is continuing to invest significantly into the British high street, we feel it’s only fair to recognise and request an urgent review of the current archaic business rates, which continue to be astonishingly outdated. If business rates were reviewed it would support the future of House of Fraser. Without this, further store closures are inevitable.”

Memories of restrictions are still too raw

Although lockdowns have been lifted, a number of bosses won’t ever forget how tough they were on high streets. It is possible some companies will not feel confident enough to commit to new stores until life feels more back to normal.

KPMG’s Ellett says: “The big question on the minds of both retailers and landlords right now is how long will consumer confidence continue or could further pandemic waves or inflationary pressures force discretionary household spending to become lower than hoped.” Any decision to launch a new site will still feel like a gamble.

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