Swimming against the tide

The year began with some of the biggest names on the high street reporting disappointing sales figures over Christmas and New Year. Since then, many high-profile retailers have looked to safeguard their businesses by taking steps to account for the shift towards online shopping. Most recently, Marks & Spencer has announced that it will close over 100 stores by 2022 after its most recent financial results showed a 62% fall in pre-tax profits. 

M&S, more so than some of its rivals, seems to have been slow to react to the trend for consumers to shop online. While some retailers have managed to offset weak performances on the high street with strong online sales, M&S has lagged behind in its online presence. Steve Rowe, CEO of M&S, is looking to increase the speed and modernity of its website as part of a “transformation plan” to make M&S a more digital business.

Giving up on physical stores?

With even the slow-turning behemoths of the high street now prioritising online growth, it could be only a matter of time before many retailers give up on the idea of physical stores altogether. Those at the head of large and successful online sales companies may decide that it is not worth paying high rents, business rates and employee salaries for a service that is merely complementary to the core online business.  

Some retailers are starting to adopt unconventional methods to maintain footfall and store viability. For instance, there has been an increase in smaller retailers sharing space with one another, a practice that until recently was largely the preserve of concessions within department stores. Others, particularly those in the technology sector, are trialling the use of augmented reality to attract a new generation of shoppers. M&S has itself tried to stem the flow of lost customers by installing online terminals in its stores. Although we are not seeing a marked decline in store acquisitions from all of our retail clients, they are all trying things outside the scope of what would be considered traditional.

Flexible property

It is likely that most retailers who already have a strong national presence will decrease the size of their property portfolios in the coming years. That may or may not be the case in terms of the number of stores, but there will almost certainly be a reduction in occupied floor space. There will be a number of ramifications for those of us in the property industry. One of those is that, in order to maintain their rental income, landlords (and their agents and solicitors) will have to show more flexibility than has previously been required. The days of rolling out the same old 10-20 year lease and insisting on its virtue may be coming to an end as the high street becomes more of a buyer’s market. But it remains to be seen whether landlords will agree to Next’s reported demands for its rent to be reduced if rival retailers enter into a company voluntary arrangement.

Warehouse investment

One growth area we are seeing is investment by both landlords and retail tenants in warehouse distribution centres. With the rise of online sales showing no sign of abating, retailers may look to differentiate themselves from their competitors by diverting funds from stores to maximise the efficiency of the delivery process.

Marks & Spencer and other well-established retailers are swimming against the tide when it comes to bringing customers through their doors. The traditional model is not working any more, and retailers will have to decide whether the benefits of having a physical presence outweigh the costs