Author: Andrew McVicker, 04 May 2017

FSP sales director Andrew McVicker was last week invited onto the BBC's Look North programme to comment on the forthcoming closures of Zara and Dorothy Perkins in Hull City Centre. Whilst the programme only allowed for a brief review of this issue, Andrew had drawn from the extensive resources of FSP in his research for the piece and found a number of key issues which affect numerous other locations, not just Hull.

To a degree, the closure of Dorothy Perkins is a separate issue.  Arcadia's future plan is to focus on Outfit stores, both in-town and out-of-town, as it allows them to provide the critical mass of brands all under one roof, with reductions in overheads (rent, depreciation, staff etc.) from operating multiple stores.

Zara's decision to close is again reflective of business strategy but driven by wider industry trends. The cost of producing clothing is increasing at a time when competition from online providers has never been stronger. To compete, Zara is increasingly focusing on more profitable flagship stores, supported by a better online presence.  As leases for existing stores come up for review/renewal, a number of locations which don't make a substantial return, even if profitable, will find themselves facing closure.  Hull is one such case, not aided by its demographic profile, which contains fewer potential customers than many other Zara locations.

This is clearly disappointing for the City of Hull and the first response is often to question the landlord - was the requested rent too high? Without knowing the details it is difficult to assess, though as a responsible landlord, well aware of the pull of a brand such as Zara, we would suggest the fact that this is a large, prime unit in a top 30 UK retail destination gave British Land little 'wriggle room' to negotiate. The hope is that a relevant retail offer/offers can quickly be found for the space to minimise the potential migration of Zara customers to Leeds, Sheffield, York or online.

In terms of its ability to attract quality brands in the future, Hull faces the same challenges as a number of other large Sub Regional locations - too much retail space, conflicting asset strategies and a lack of effective city-wide management.  As a result, these locations do not have a continuous, cohesive retail offer, instead stretching too few quality brands over too much retail space, diluting sales densities and profits, forcing landlords to fill units with whoever will take space, giving rise to increased number of value operators, charity shops and services.  

Shopping

These issues have been talked about for nearly 30 years and so the potential solutions for Hull are not new.  However, they are difficult to achieve without the co-ordinated and co-operative efforts of stakeholders as they include:

  • Consolidation of the retail offer, to create a core of quality prime retailing in which the offer and environment can be carefully curated and managed
  • Repurposing of under-performing peripheral space for residential use, taking advantage of existing services and infrastructure. This also creates a ready-made audience for retailing on the doorstep
  • Stronger and more effective management of the city centre through strategic co-ordination of public and private sector asset management activity and budgets
  • Exploitation of market opportunities such as F&B, other leisure uses and retail sales gaps.  As many towns have reached capacity and F&B chains are beginning to fail, a robust evidence base is essential to direct strategy and prevent further dilution of business
  • Innovation in terms of new cultural or social uses for redundant properties or new business models.  Realm's plans to bring Outlet to Hull’s Princes Quay Shopping Centre for example, offers an intriguing prospect, potentially bringing upscale brands to the city, using what is often acknowledged as the most profitable of retail channels.  If successful, this is a format which could be rolled out at appropriate locations elsewhere

In term of practical short term solutions, it is critically important to prevent the loss of brands such as Zara from becoming the catalyst for a decline in local shopping patterns.  Proactive investors will have already identified the brands most suitable to replace Zara and taken steps to encourage these to take space by providing appropriate evidence of the customer opportunity and offering a sustainable rental package.  More reactive investors may find that the most ideal replacements for Zara are already fully committed elsewhere and that their options in this case are very limited. 

The clear messages from the likes of Zara, where the business plan focuses on formats, sizes and catchment profiles, along with recent high profile failures (e.g. Jaeger, Agent Provocateur and Jones Bookmaker), are that the UK is enduring a period of economic uncertainty and landlords need to be better prepared to resist more shocks.  It is imperative that asset management activity seeks to maximise occupancy, maintain footfall and focus upon delivering the strongest opportunities for growing sales and rental income.    While a quick review of Zara’s portfolio will identify towns under similar threat to Hull, FSP’s market intelligence and leasing support services plus our unrivalled experience of similar past periods makes us ideally placed to offer practical solutions and help achieve success. 

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