The flight to value

Glaring out from the plethora of retail data that landed in late June, the same message shone out again and again. In a time of expensive debt, escalating petrol and energy costs and an increasing squeeze on consumers’ purse strings, shoppers are turning to the value sector.

Amid the seemingly endless tide of financial gloom, the performances from retailers such as Primark, Matalan and TK Maxx have stood in sharp relief. Even in the relatively strong grocery market, the latest TNS figures show that it is the value players such as Aldi, Lidl and Iceland that are gaining market share.

The continuing and growing importance of the value sector to property developers was further underlined by Land Securities last month, when it confirmed that it is to plough £100 million into the redevelopment of the St John’s centre in Liverpool, which focuses on value and the mid-market. The extension will add 118,000 sq ft (10,960 sq m) to the scheme, taking it to 479,000 sq ft (44,500 sq m). The mall is anchored by Wilkinson, Argos and Woolworths and sits between Lime Street station and the city’s main shopping area.

So, as more consumers turn to the value sector, are value retailers likely to Play a bigger part in shopping centres in future?

Andy Clarke, Asda retail director and chair of the CBI Distributive Trades Panel, believes they might prosper at others’ expense. “What the current trends show is not just a downturn in consumer spending, but winners and losers. Those focused on the value proposition will gain from the climate, as costs come under even more pressure.”

Another possibility is that food could play a bigger part in retail centres. King Sturge partner Mark Rudman says that while much is being made of the growing market share of Aldi and Lidl, the two German hard discounters tend to prefer freehold and free-standing units. “However, Tesco, Sainsbury’s and Morrisons continue to expand and I can foresee more activity on that front in local centres,” he adds.

Indeed, having stores that address basic shopping needs, such as supermarkets or health and beauty retailers like Boots is now more important than ever, according to Mark Holmes, head of asset management for investment company and centre operator Moorfield Group. Moorfield runs a number of schemes in city centres including The Ridings in Wakefield and Cornmill in Darlington. “At the moment, having those types of retailers in your scheme is helping to maintain footfall,” he explains. Holmes believes that value players, which are showing year-on-year growth on Moorfield’s schemes, are just part of the allure. “We’re definitely seeing increased footfall in city centre locations where people can leave their cars behind and save on the petrol and parking,” he says.

Peter Todd, director at investment company Resolution Property, believes that value offers will become increasingly important as the economic bite continues. “At the moment we are seeing polarisation, with consumers diverging towards the premium and the value retailers,” he says. “But I don’t think there is any doubt that there is more pain to come. We are still fairly early in the downturn and closely managed centres with a strong value proposition are well placed. But they also need to make sure they are keeping up with their refurbishments and remain good environments – value shoppers are still aspirational.”

Secondary centres also need to ensure that they provide the retail space that the value sector requires. TK Maxx and Matalan have both made a virtue out of going out of town and others could be tempted to refocus their location strategies if suitable high street sites are hard to come by, warns Atisreal head of retail agency Ian Parish. “Take Wilkinson. It’s very hard to get the sort of large, easy-to-shop square boxes it needs to operate effectively. A retailer like that could be persuaded to look at retail parks instead,” he says.

However, despite the increasing presence of value retailers on parks, Jones Lang LaSalle director and retail advisory team head Vince Prior thinks it is unlikely many more from the sector will move in this direction. “Quite a few of the value retailers have moved into parks – TK Maxx, BHS and Primark are all good examples of businesses that have made a real impact,” he says. “However, there are opportunities opening up for value retailers on the high street and in shopping centres. Value operators have plenty of options in all sorts of locations.”

As for value’s bull run in a bear market, there seems little doubt that its ascent will continue while the rocky climate pervades. “At the same time as retailers are relocating to some of the big town centre schemes that are opening this year – such as Liverpool One – space is being freed up on secondary schemes,” says Prior. “For those centres that deliver the right offer, there should be some very interesting options for value players.”