Analysis: Supermarket giant Tesco turns town centre investor

Tesco is used to criticism from high street campaigners. Its aggressive expansion has in the past been vilified for taking trade away from town centres, and the grocery giant has been the target of protests aplenty.

But while such protests have garnered headlines, Tesco has been quietly investing in and developing a handful of town centres as it works to make sure its new stores benefit surrounding areas.

It has funded schemes in Gateshead and Woolwich, but its current project is the biggest so far. The retailer is investing a reported £200m in West Bromwich town centre and has worked hard to ensure its new Extra store will help trade on the high street.

The New Square project is a bit of a building site at the moment, but by the summer it will have evolved into a completed retail and leisure area. As the tendrils of investment spread, the hope is the city will begin to transform and regenerate.

Despite the incessant rain, which turned much of the site into a quagmire on the day of Retail Week’s visit, it is on schedule to open on time. Tesco expects the project to boost West Bromwich’s economic fortunes through increased footfall and the easy links between the old high street and the newly developed site.

The complexity of developing in town meant Tesco had to be focused, especially when it is better known for its out-of-town schemes. The overall process took 12 years to come together as bureaucracy was confronted, although the grocer is at pains to praise the local council for its support.

But the town appeared ripe for investment - it has not had any new retail development for several decades, and was the target of an impending influx of students as a new college opened. It also has a burgeoning catchment area, thanks in part to a new residential quarter. The council was positive about Tesco’s proposed retail-led scheme, although, even with political backing, the planning and compulsory purchase process took the best part of a decade. During that time, Tesco was required to invest in improvements to the area before work could start on the retail elements.

Despite the challenges, Gemma Pratt, senior leasing manager at Tesco New Square, says the grocer could see the potential prize. “The opportunity at West Bromwich was that we could give consumers the convenience, the range of retail and the size of stores they want,” she says. “It’s how we approached the project and how we executed the development.”

New leisure quarter

The bulk of the scheme opens at the end of June, while Primark and four units either side of it will in the autumn. The scheme sits immediately adjacent to the existing town centre, and the two parts of the expanded town are threaded together by a recently built arts centre and new public square, meaning it will provide not just new shops but a leisure quarter, including a cinema and restaurants.

The site is substantial and takes in more than 473,000 sq ft, with 248,000 sq ft dedicated to retail and 36,000 sq ft for the multi-screen cinema and restaurant space, plus car parking spaces for 1,900 vehicles.

Tesco will anchor the site with a 139,000 sq ft Extra superstore at the furthest end of the scheme from the existing town centre.

The grocer’s presence on the scheme has also attracted big names including a 50,000 sq ft Primark, plus big box units for Arcadia and Next, as well as stores for retailers Bank, JD Sports, Sports Direct, Deichmann, Phones 4U and restaurant space for Nando’s, Harvester and Prezzo.

There is no doubt West Bromwich was desperately in need of regeneration. The existing shopping offer had been badly hit by the recession and both the main high street and the covered Queens Square shopping centre - where a Tesco store is located at present - are tired-looking and full of empty shops.

Linking the new project with the existing offer was vital, according to Pratt. She says that was achieved firstly through attracting new retailers into the town and secondly through ensuring easy access between the two sections. “From the outset it was vital that we didn’t simply isolate the original shopping centre. The rationale behind the project is retail-led regeneration. We set out to attract retailers who perhaps liked the West Bromwich catchment but felt the existing stock was not suitable, or that the current retail offer did not support them.”

She adds: “I’m sure West Bromwich was on a lot of retail to-do lists but didn’t get beyond that point. With a new project under a single landlord we were able to build critical mass, starting with our Tesco, Primark, Next and leisure as the anchors.”

Moira Hamilton, associate director at leasing agent Savills, says once plans for the Tesco were in place, Savills was also able to point potential tenants towards other Tesco-anchored schemes such as St Stephen’s in Hull, Silverburn in Glasgow, Surrey Quays in London and Serpentine Green in Peterborough in terms of footfall and tenant mix.

Much-needed TLC

Having established a strong mid-level fashion offer at West Bromwich, which is about 70% let with five or six more units going through the legal process, Savills aims to bring in service providers such as mobile phone stores and card retailers. Hamilton acknowledges that value retailers are likely to be another element of the mix. “This is designed as a value and mid-market scheme and you can’t ignore the role of value retailers,” she stresses. “They are important to sites such as this.”

Councillor Steve Eling, deputy leader of Sandwell Council, the local authority in which West Bromwich sits, is frank in his assessment of the prevailing conditions. “West Bromwich is the largest of the town centres that fall within our metropolitan borough and it has been on its uppers for some time. The last major injection of commercial retail real estate investment was in the 1970s and it has effectively stagnated since,” he says.

Eling says Marks & Spencer pulled out of West Bromwich and Dudley to go to Merryhill in the 1980s, after which a number of other high street retailers gradually exited the town centre. He points out: “It is those parts of the town with the highest number of small landlords and independent retailers that have survived best in the downturn.”

The Tesco site is not the only area in the locality to receive an investment boost. Queens Square shopping centre has been the victim of under-investment for years, as owner after owner went bust, but the centre is now getting some much-needed TLC.

Current leaseholder Tyburn Stockland went into receivership in November 2011 but, on behalf of the administrator, project manager Fairacre has been cleared to spend some money on the centre in the hope of boosting its value. As a result, nearly £7m, including a £3m contribution from Sandwell Council, will be invested in improving the centre in the coming years.

Discouraging defectors

Refurbishment work will include a new main high street entrance, general mall improvements and new toilets, and there are plans to introduce more daylight into the shopping centre. The first phase of work, which will see the new entrance installed, got underway at the beginning of this year and will be completed by spring 2014. Fairacre, which has been involved with the Queens Square shopping centre since 2010, has taken control of its day-to-day running as part of the new lease.

The aim of the project is to improve the retail offer in the town to a level that prevents shoppers defecting to the nearby Westfield Merryhill shopping centre. But while Tesco and its partners are hopeful that the combination of top-name retailers will ensure its success, local competition is stiff. West Bromwich shoppers also have Bluewater owner Lend Lease’s Touchwood in Solihull -another urban scheme - and Hammerson’s Bullring shopping centre in the middle of Birmingham to tempt them away from their local stores.

While it is hoped the retail scheme will turbo-charge West Bromwich’s recovery, the project is not the first part of the regeneration to be completed.

“The retail part has taken so long that I think many in the town didn’t really believe it was ever going to happen, so when the stores started to emerge from the ground it created a lot of excitement,” recalls Eling.

He says a poll by the local Star & Express newspaper showed that the dominant reason why people were not visiting the town centre was the poor retail offer. “We are hopeful that the new retailers will make a huge difference to the town and help to regenerate the current middle,” he says. “It needs to be remembered that it’s not just about retail. The town needs services and culture - like the arts centre that links the old and new town centres - to bring it to life.”

Tesco may not be well-known for its efforts to regenerate town centres, but its West Bromwich project appears to be well on track. Such partnerships may well be the answer to a troubled high street’s prayers.