Retailers appreciate the importance of physical activity

Have we finally reached the point at which retailers are comfortable in an omni-channel world?

By Charles Maudsley, executive director and head of retail at British Land

The shining example is Next, where revenues for 2014 were 5.4% up to £3.7bn and pre-tax profits rose a stonking 17% to £553m. What was most interesting was the balance that the group achieved, with the Next Directory leading the way with profits up 18.7%, although Next Retail also turned in a healthy 5% uplift in underlying profit.

Argos has wrestled with the issue of digital retailing more than most, and is getting back on to the front foot with six “digital stores” now open, including one at our Tollgate Centre in Colchester, where catalogues have been replaced with iPads. A trial at 150 locations also lets customers pick up eBay orders.

Retailers and locations that are multi-channel are picking up a head of steam. At British Land, we help our occupiers to adapt to this change in retail. As a result, our portfolio is 98% occupied. As part of our focus on understanding occupiers’ needs, we conduct regular research. The encouraging news is that retailers are increasingly back in expansion mode for physical formats and are confident about the need for physical space as part of their strategy to adapt to this omni-channel world.

Our survey revealed:

  • 58% of retailers will need more stores in the next year
  • 25% of retailers would like to increase the average size of their stores
  • 42% have a preference for retail parks
  • 54% are planning to increase “click and collect” provision
  • 79% of respondents are trialling new physical store formats
  • 88% of retailers are feeling positive overall.

Intriguingly, the rate of online sales growth is slowing. Having peaked at 30%-plus in 2007, online sales growth is closer to 10% this year. A contributory factor could be that how people shop is becoming even more multi-faceted: according to retail data specialist Verdict, more than 60% of consumers used omni-channel means to shop in 2013. When a shopper arrives in a store, picks what they want, points their phone or iPad at it, saves the barcode and then returns home to complete the deal, where is the point of sale? We know that the shop is still a key element in that chain: according to CACI’s Shopper Dimensions white paper, nine of the 10 shopping channels touch a physical store.

A reflection of this is that the retail property market is far more confident than it was 12 months ago and we are seeing considerable sovereign wealth and overseas institutional interest in investing in the south-east and regional shopping centre markets.

I also believe strongly in the future of food stores as a property investment. All the big grocers are planning a major expansion of their estate, and Kantar’s March figures show grocery sales growth at 2.2% over the previous 12 weeks — well above the all-important grocery inflation figure. New institutional buyers are emerging in the sector, with sovereign wealth funds such as Malaysia’s Employees Provident Fund investing heavily this year on property let to Tesco. The bonds market also still has a strong appetite for Tesco credit, indicating robust prospects for the company for years to come.

It is unlikely that online shopping will reduce the demand for floorspace from food stores, as groceries are not inherently suited to internet retail (only 4% of food store sales are online). The perishable nature of food makes an Amazon-type start-up unlikely to disrupt the status quo, with superstores under-pinned by the fact that they fulfil most home delivery orders.

An omni-channel world bodes well for food stores, as retailers begin to understand how formats can be co-ordinated to work best for them.

Paraphrased from the article published in The Property Week - subscribers can view the article online here

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