‘Fewer, better stores will be a focus for many retailers in 2024’

As 2023 comes to an end, it is important to look at recent trends that will likely shape how retailers fare in 2024.

While it is too early to predict how Christmas 2023 will pan out for UK retail – 2022 surprised many with positive sales figures for some of the UK’s major high street multiples – Black Friday, which has become a key Q4 date for many, failed to resonate well with shoppers this year.

Data from Barclays shows that transaction volumes on Black Friday 2023 were down year on year compared with Black Friday 2022.

While retailers appear to be more savvy with their discounting, offering significantly less deep discounts versus last year, according to Which?, it seems that shoppers have been equally savvy, preferring to limit their spending and potentially wait for deeper discounts to come as we move toward Christmas Day itself.

Black Friday is fundamentally margin-dilutive and, at a time when retailers need to be selling product as close to full price as possible given rising costs, it is understandable they have not discounted as deeply as prior years so far. However, rising stock levels given lower demand may ultimately force them to do so.

“With residential rents continuing to increase, more fixed-rate mortgages running out and inflation staying high, the first two quarters will likely bring lower consumer demand”

Retailers will be banking on strong Christmas sales to see them through to the end of the quarter. As with Christmas 2022, I expect in-store sales to outperform online sales and retailers with a strong omnichannel offer (and, of course, Primark) will be among the true winners.

Moving into 2024, with residential rents continuing to increase, more and more fixed-rate mortgages running out and inflation staying relatively high, the first two quarters at least will likely bring lower consumer demand and a concurrent impact on retail sales and margins.

There are two key areas from a retail property perspective worth focusing on: a higher business rates burden and increased retail park demand.

The changes to business rates set out in the recent autumn statement will help smaller businesses but do little to lessen the burden on multiple retailers.

While the small business multiplier will be frozen and retailers will be provided with 75% rates relief up to a cap of £110,000 per business, this doesn’t really help retailers with more than a handful of sites.

London retailers face a double whammy of rising rates given that the bulk of the capital’s retailers are multiples and business rates in London are significantly higher than the rest of the UK – a number of retailers exceed the £110,000 cap from one site alone.

In the context of continued high inflation and rising costs across the supply chain, many retailers will have been hoping for more assistance from the government – perhaps freezing the multiplier for all retailers instead of just small businesses, for example.

Higher business rates come on top of an increase in the energy price cap and a significant hike in the national minimum wage next year.

“Retail parks have proved to be a hugely resilient asset class, with large stores positioned close to residential areas and free parking”

These increased costs may impact retailers in new store investment and acquisition decisions, and force more active estate management, including potential store closures.

Retail parks proved to be a hugely resilient asset class during Covid, with large stores positioned close to residential areas that could be driven to directly and free parking. Their popularity has continued post-Covid for similar reasons.

For retailers, they provide modern, purpose-built accommodation and a generally affluent, family-oriented shopper. That is why more and more comparison goods retailers are keen to trade in retail parks.

For retailers such as Next and Marks & Spencer, who have been trading on retail parks for some time, these stores are among their best performing.

With a broadening of the offer away from just bulky goods, and more food and beverage operators seeking to trade on parks, they are increasingly providing a real alternative to high streets.

“High streets need to provide something retail parks can’t and that often includes a mix of retail, food and beverage, leisure, offices, residential and health and wellness”

The challenge for high streets is to reinvent themselves in light of this, providing more of a community hub and offering a mix of uses to visitors.

High streets need to provide something retail parks can’t and that often includes a mix of retail, food and beverage, leisure, offices, residential and health and wellness.

There is a place for both to co-exist in today’s retail world, though creative solutions are needed to maintain high street health in light of the growth of retail parks to mitigate the structural vacancy following various high-profile failures over the past few years, such as Debenhams, Arcadia and, more recently, Wilko.

Retail parks are here to stay, and park performance in 2024 will continue to improve relative to other asset classes as the tenant mix continues to broaden and strengthen.

While inflation has abated somewhat globally, it still remains relatively high in the UK, with concurrent high interest rates impacting consumer demand and costs continuing to rise for retailers in 2024.

Retailers are battle-hardened after Covid and the better-managed ones – such as Next, Primark and Inditex – continue to outperform.

For the rest, continued careful cost control is key across the value chain. This includes actively managing the store portfolio to ensure stores are the right size and in the right place.

This will include continued movement towards retail parks for some, though trading stores in stronger, higher-footfall high streets and malls will, as ever, continue to be important for brands to drive ‘halo’ to their other distribution channels.

Fewer, better stores will be the focus for many retailers, with stores often segmented into ‘brand builders’ and ‘profit makers’ as a result.

2024 will be a challenging year for the sector, for sure, but the best retailers will continue to thrive.