Analysis: What attracts international retailers to the UK?

It’s not so much an invasion as an international romance. With nearly 15% of the UK’s stores empty, high streets and shopping malls could benefit from finding some new friends with money to spend. Many British retailers are closing stores as they downsize their portfolio in line with shoppers’ move online and the impact of the recession on consumer spending and behaviour. But international retailers such as Forever 21, Bosideng, Victoria’s Secret and J Crew are keen to present their brands to British shoppers.

Retailers from the US have noted the success of Apple, Banana Republic and Urban Outfitters and are keen to join their compatriots while the recent arrival of China’s Bosideng could mark an influx of east Asian brands.

Despite the economic downturn, the UK is still a big draw for international brands. London is the most attractive international destination, according to a recent survey of European retailers by Jones Lang LaSalle, while Birmingham and Manchester also feature in the top 50.

“London attracts international brands for a number of reasons including size, maturity and transparency of the retail market, in addition to the track record of retailers who have successfully opened here,” says Jones Lang LaSalle head of EMEA retail research and consulting James Brown.

On the other hand, international players are unlikely to come knocking at lacklustre shopping centres or ailing high streets. Retailers may be seeking a range of store sizes and formats depending on their particular needs, but agents say they are looking for prime locations and mostly in central London.

“In the past couple of years, retailers have very much focused on looking for prime sites. They do not want to take the risk of secondary locations in the current environment,” says James Ebel, director of property agent Harper Dennis Hobbs.

Duncan Gilliard, associate at agency Cushman & Wakefield, agrees that “international retailers increasingly seek larger stores in order to make a bigger impact and fully showcase the brand when expanding in a new retail territory”.

On the whole, retailers want to kick-start their presence in the UK with one large store that can establish the profile of the brand rather than several secondary stores. Ebel suggests that they are likely to look to Paris, Berlin and Munich for follow-up stores rather than to Birmingham, Manchester and Glasgow.

Oxford Street, Westfield London and Regent Street are all big draws for mainstream retailers, Bond Street continues to attract luxury brands, while areas such as Mount Street and Albemarle Street are increasingly attracting high-profile international retailers including Marc Jacobs and Lanvin.

Centre involvement

Shopping centre developers have become increasingly innovative in attracting overseas tenants. Hammerson, for example, teamed up with one of its shareholders, Cadillac Fairview, to swap best practice and recommend retailers that could travel between North America and the UK.

The two companies later joined forces with Macerich, which owns and operates shopping centres on both the west and east coasts of the US. The companies informally refer retailers to each other and share knowledge about potential partners and their requirements, reducing the need to rely on property agents.

“These companies have built up trust already and that’s important in building new relationships with retailers,” says Sheila King, leasing director for new business for Hammerson. She says international retailers coming to the UK look for a lot more information on sales data, potential competitors and footfall than their UK counterparts. Having direct contact with retailers rather than going through an agent helps smooth the process.

Westfield London has also done a good job of persuading luxury retailers to consider shopping mall property. Westfield director of operations Bill Giouroukos says that the strong aesthetics of its “iconic” malls as well as services such as valet parking, free wi-fi and regular events have helped to attract new brands.

Victoria’s Secret opened its first UK store at Westfield Stratford, and Westfield benefits from existing relationships with retailers in their home countries because of its global group of shopping centres.

“We get close to retailers and partner up to share business plans and understand what they want,” says Giouroukos. “Many years ago when retailers were hot to expand, just doing a good deal was maybe enough. Today they are far more discerning.”

Good neighbours

Giouroukos says the developer works with retailers on store design, the potential for mezzanine floors and on installing the latest technology and services.

Westfield also focuses on one of the most important factors for many retailers entering the UK – getting the right mix of neighbours. Signing Louis Vuitton was a vital part of its campaign to bring luxury retailing to Westfield London by helping to set the right tone. It proved that it could attract a new type of customer just a stone’s throw from London’s historic luxury heartlands of Bond Street and Sloane Street.

“Bringing in similarly minded co-tenants, quality real estate and public realm as well as iconic buildings can all attract international tenants,” says Kevin Farrow, a senior director at property consultancy CBRE.

Regent Street worked on all those measures to turn itself into a sought-after destination for international brands after years in the doldrums. It is home to Spanish retailers Zara and Mango, US brand Anthropologie and Japan’s Uniqlo, as well as more international brands such as Hoss Intropia and Coach.

Landlord The Crown Estate has introduced attractive dining and entertainment areas just off the main drag and improved the paving and condition of the buildings to attract tenants. The new restaurants have brought in more shoppers and improved dwell time.

The Crown Estate also made some bold moves in bringing in experimental international brands to give the street a higher profile. Apple’s huge London flagship near Oxford Circus was one of the first arrivals.

“Bringing in Apple was a brave call, before it had any significant retail experience. Who would’ve thought that sort of store could drive such amazing footfall and become a benchmark for other retailers,” says Farrow.

In addition, Gilliard points out that many of Cushman & Wakefield’s international clients launching in the UK will look to areas already boasting retailers of the same nationality. “A large amount of French brands have opened first stores in either South Molton Street or Westbourne Grove where there are many existing French retailers,” he says, citing French lingerie brand Aubade, which opened in both places to be close to French retailers such as The Kooples and Zadig & Voltaire.

Service and support

It’s not just a case of ‘if you build it they will come’, however. Landlords need to back their promises and investment in infrastructure with research demonstrating the kind of shoppers they can attract and how they are likely to spend. Wayne Zhu, chief executive of Bosideng, which recently opened on London’s South Molton Street, says: “Service and support provided is very important for a new overseas brand like Bosideng. Data on local demographics, street footfall, trading patterns and peer store performance provide key points in making a decision. Also a new retailer needs to get assurance of full support if something goes wrong.”

Bosideng assesses the potential of a market using a sophisticated model that incorporates demographics, local purchasing power, customer buying patterns, competitor brands and occupancy costs. And it’s certainly not alone.

But the clamour for premium sites by brands such as Bosideng has driven up rents in some prime locations while other less salubrious sites struggle to attract tenants. The demand in the most sought-after spots is high so it can take some time for retailers to get their dream site.

Away from the capital

Regional centres can offer an attractive alternative to the congested London scene. Forever 21 launched in the UK in Birmingham’s Bullring while it waited for a large enough site to become available on Oxford Street. Meanwhile, upmarket coffee brand Nespresso opened in Manchester before finding a London flagship on Regent Street. And many brands are keen to find the right demographic outside the capital. Abercrombie & Fitch’s sister brand Hollister is expanding across the UK in areas with a relatively affluent catchment and young demographic.

Hermes Real Estate Investment Management asset manager Ben Tolhurst says: “It’s not about whether the store is in London or not, but whether the customer profile is right.” Regional centres have to make international retailers and their agents aware of the potential spending power of their shoppers and the advantages of larger space and potentially lower rents. Tolhurst says that, provided the customer profile is correct, these advantages can mean greater returns for brands.

Hermes Real Estate invested £40m in repositioning The Friary Centre in Guildford, Surrey to enlarge stores and attract brands such as Armani Exchange and Hollister.

Forever 21 is looking at sites across the country, Bosideng is considering Manchester and Edinburgh and Apple is moving into regional centres such as The Glades in Bromley.

Regional centres may not be able to invest in enlarging stores but all are capable of adding value through offering modern services such as wi-fi, and drawing customers in through better dining and entertainment spaces, a more considered mix of tenants and exciting marketing using social networking or events.

With international retailers still on the hunt for space in the UK there’s plenty of opportunity to tempt them.