Author: Andrew McVicker, 20 June 2018

House of Fraser

With too much physical retail space across the UK, the raft of retailers using CVAs as a way of jettisoning underperforming stores is causing huge issues for property landlords and investors.

A case in point is House of Fraser, which recently announced plans to close 31 of its 59 shops, affecting 6,000 jobs, as part of a rescue deal. The stores scheduled for closure, which include its flagship London Oxford Street store, will stay open until early 2019. The stores to be closed are a mix of shopping centre anchors and standalone stores; in some cases these stores hold the only aspirational retail offer within a town, while others have concessions for brands which would otherwise regard the market as too small for a standalone store.  Whichever the case, the forthcoming closures will provide a huge challenge for landlords, who in some cases are being hit by M&S exiting towns and may still be trying to fill the spaces formerly occupied by BHS. 

FSP’s recently launched Virtual High Street shows that department stores are highly leveraged and susceptible to decreases in sales due to a number of factors including;

  • a historic lack of investment and innovation in upgrading their stores, product ranges and online offerings;
  • their unique selling point of offering a host of different brands under the same roof has been weakened as online shopping rises in popularity;
  • too much discounting, subsequently squeezing margins, leaving department stores with even less to spend on improving their store
  • long tails of poorly performing stores which has reduced profitability and harmed customer perceptions
  • the need for comparatively high staffing levels to provide the level of customer service demanded vs. increasing staff costs due to a rise in minimum wage

Due to these factors, there are few ready-made replacements. Debenhams has said it could close 10 outlets and is in talks with landlords about reducing space at 30 more as profits fall, whilst large space occupiers such as B&M, TJ Hughes or Wilko provide a significant discrepancy in terms of the customer served.

To succeed in protecting and driving maximum value from their assets, landlords need to create a vision of what the future holds for their specific asset in its specific location, based around a detailed understanding of location dynamics and customer requirements.  It may be that a non-retail use is the most appropriate way forward; for example, the landlord of House of Fraser’s Cardiff store is currently in discussions with a number of hotel operators to open a boutique hotel in the 270,000sqft space that will be left vacant once the store closes.

But this won’t be the case for all landlords, who need to carefully look at all options available. The space may need to be reconfigured to share between occupiers, or change use altogether to encompass leisure, residential, offices and beyond. Sadly there isn’t a one-size-fits-all solution; however, fundamental across all locations is the consumer.

Discussing ideas

As the pace of change has never been faster, there is an increased need to engage with consumers to find out what they do and don’t want, what would meet their needs and what would excite and delight them. Too many landlords shy away from engaging with their true customers, seeing it as an added cost when considering limited interest from the market. However, it is only through speaking to customers that a cohesive vision of the future can be created and bought into by investors, landlords, retailers and customers alike.   

Focus group work underpins the vast majority of major retail developments, ensuring the customer is placed at the heart of design and the decision making process. With times as challenging as these, it is time to ensure the customer is placed at the heart of all we do, otherwise we will continue to repeat mistakes of the past.

Contact Andrew McVicker to find out how focus group research could put the consumer at the heart of your decision making process.

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