Opinion: Why the reliance on department stores as centre anchors is waning

BHS has shuttered all of its 163 stores after tumbling into administration, Beales has entered into a CVA in a bid to turn the business around, and high street stalwarts such as Marks & Spencer and Debenhams have struggled to maintain the consistently high footfall for which they were once renowned.

This isn’t just a problem for UK retailers – a similar pattern of department store fatigue has hit Australia, continental Europe and the US too.

There have been several reports of some of the most iconic retail giants in the US succumbing to pressure and poor trading figures, with Macy’s announcing the closure of 100 stores earlier this month.

While this is a valuable wake-up call, perhaps the news shouldn’t have come as such a huge surprise.

Complementary business

Traditionally, large-format department stores have anchored UK shopping centres, helping landlords attract other tenants and boost mall sales and footfall.

However, the combination of economics around shopping centre development and large-scale refurbishment, changing consumer attitudes and the convenience of ecommerce has radically re-shaped the playing field.

“The trend of co-anchoring and smaller format department stores is likely to be the shape of things to come”

Increasingly the tone of a shopping centre is now being set by ‘on-trend’ high street fashion retailers, along with good quality food and drink and – where appropriate – leisure.

The subtle mood swing for shoppers is from transaction to entertainment and experience.

Never has a sense of theatre been more vital to the retail environment – take for example Apple in its bricks-and-mortar offer.

The traditional reliance on a dominant anchor is being diluted, but to the benefit of centres and shoppers.

Hugely popular retailers such as Primark have joined the anchor offering, taking on prime space at four destinations, with large food outlets such as Waitrose, Tesco and M&S Simply Food semi-anchoring at other centres.

More fashion retailers like H&M and Zara will become the biggest draw for customers with newer, fresher stores that keep pace with fashion trends.

The result of this shift is that sales and profitability are being squeezed in traditional department stores.

Their once dominant position of variety and buying power is being eroded by a broadening marketplace exacerbated by ecommerce.

In turn, this reduces both the traditional stores’ capacity for capital investment in order to refresh their look and feel, and the appeal to younger fashion-forward shoppers.

A shift in demand

The department store model is being challenged further by long-standing concession brands such as cosmetics, watch and jewellery retailers shifting their focus to standalone stores, in the way that the likes of Bobby Brown, Pandora and Mac have.

There is, however, one exception: John Lewis. For the majority of landlords, it is the most sought after anchor store for a major shopping centre or retail park, having retained the essence of department store retailing by successfully combining key international and national brands, while maintaining traditional departments.

Its biggest strength is the seamless combination of its digital and bricks-and-mortar models to drive strong sales and excellent customer experience.

It is why this brand continues to have such broad appeal, and retain its position as a major anchor in the UK.

This new ‘normal’ in terms of the retailer mix at shopping centres won’t necessarily sound the death knell for department stores as anchors.

What looks increasingly likely is that these retailers will review how they present themselves. With typical lease lengths of 20 years plus and significant capital investment by the retailer, store size will be an important consideration.

We’re already seeing more department stores reduce floor plates so they can more easily and economically co-exist alongside large fashion or food brands.

The trend of co-anchoring and smaller format department stores is likely to be the shape of things to come.

• Ed Jenkins is head of UK retail real estate at Standard Life Investments