Author: Ken Gunn, 17 May 2017

We're seeing a lot of discussion about the state of play of retail space, with retailers thinking ever-more innovatively and differently about how they use it.  From stand-alone flagships through to unexpected pop-ups, retailers and brands are being ever more creative with their space. Last week, Retail Gazette published a piece including opinion from FSP's MD, Ken Gunn, which he explores in more detail here.

Chanel Old Spittalfields

On the surface, the combination of property scarcity, rising business rates and pressure on margins, together with the impact of multi-channel retail has driven this shift.  Retailers have been compelled to rethink the role of the physical store within this mix.  But, it’s not so much that retail space has become scarcer, rather, the right space in the right locations has.  And, as high street sales are diluted by different channels, understanding the changing value of their space is an increasingly complicated challenge for landlords.

Space and internationalisation

From FSP’s perspective, the scarcity of space comes into play in major cities in particular, with the internationalisation of the high street.  If we look at what’s happening in London, brands such as Coach, Under Armour and Adidas are chasing higher footfall but also enhancing customer experience by combining bigger, better flagship stores with technology to deliver an human experience that digital architecture cannot replicate.  However, we also see different formats and alternative locations.  For example, Chanel’s pop-up shop in Spitalfields or Dr Martens flagship at Camden Lock allows the brands to capture people in a different mind-set, reaching a different audience and attracting consumers looking for affordable treats. 

Dr Martens Camden

Space and localisation

In contrast, the key trend amongst comparison goods retailers in the provinces is to maintain smaller networks of stores.  There’s been a definitive focus on enhancing customer experience through bigger, better flagship stores in the largest regional centres at the expense of less profitable smaller locations and formats.  Zara, for example, recently decided to leave Hull, expecting customers in the city to either travel over an hour to Leeds, Meadowhall or York or to shop on-line.  This is something of a wake-up call for landlords who will increasingly face the choice of modernising tired shopping centres to become brand supportive, consumer immersive, mixed use environments or managing a changing role, which increasingly focuses on convenience retailing, top up comparison goods, services and leisure

Brand building through stores

As retailing evolves to embrace a true omni-channel sales strategy -  incorporating a variety of online, full price and outlet channels - retail success is increasingly about brand recognition.   Flagships offer an immersive experience to bring customers closer to brand ideals – and can’t get online.  As brands work harder to stay relevant, this means creating that immersive presence through stature, rather than product.  However, it’s not just about getting the largest store in the best location but fitting the brand into the occasion people find themselves in.

The future of retail space?

The physical store is by no means dead.  Stores encourage human interaction, stimulate new ideas, create memorable experience, facilitate brand engagement and can define local identity in a way that digital shopping cannot.  However, falling margins, rising costs and the scarcity of space in the right place are challenging traditional retailers to think about the right space in the right place. 

Bond Street London

Leading brands have always recognised that good space enhances but poor space undermines brand values.  As such, the value of a good location can exceed the level of rent which can be sustained by direct sales through a store.  Iconic shopping streets such as Bond Street, Fifth Avenue and The Avenue des Champs-Élysées have long benefitted from brand enhancing environments but with shifting demographics and widening consumer demand, it is increasingly important to locate in high footfall locations which are relevant for the next generation of customers.   Brands are therefore increasingly looking beyond traditional pitches and the concept of flagship stores is extending to the largest regional centres (e.g. Missguided at Bluewater or Tesla at Victoria Gate, Leeds). 

As many traditional retailers seek to position themselves as lifestyle brands and more e-tailers such as Made and Missguided recognise the benefit of a physical presence, this will inevitably maintain demand at the strongest (not necessarily always the largest) centres.  Weaker centres however, will increasingly need to survive by evolving to provide a menu of top up comparison goods, convenience retailing, services and leisure, serving shorter catchments. 

Zara’s decision in Hull suggests that brand relevance is now more important than simple scale.  This should give landlords hope that with the right combination of local demographics, flexible space, innovation and creativity, it is possible to craft appropriate retail assets into attractive, profitable environments which will continue to attract consumers and occupiers for many years to come.  Achieving this however, will require vision, commitment, perseverance and support from the select group of advisors who truly understand how to realise the future value of locations.

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