As retailers re-evaluate their store portfolios, an increasingly radical range of options and uses are being trialled by some of the UK’s biggest retail chains. In the first instalment of Retail Week’s examination of how Covid has changed the store, Mark Faithfull looks at some of the tests and pilots under way and how they might inform the next generation of stores.
Co-working on aisle 12? Meeting local makers in a shopping centre that’s not a shopping centre? Collaborations with rapid-delivery companies to use supermarkets as convenience dark stores?
All these options and more are being tested in the UK right now, aiming to make sense of consumer behaviour that – amplified by the pandemic – has seen priorities shift; how and where people work change; and what and when they shop alter.
Retailers, trying to judge the direction of the wind in a swirling tumult, are also attempting to innovate at a time when the in-store experience has never been more important in the midst of a labour crisis straining customer service.
Speaking at Retail Week Live in London, Portas Agency founder Mary Portas dubbed the situation the “Wild West”.
“It’s all been crazy, I’m not sure anyone is winning or losing, we are just trying to work out where we’re going. Covid was a catalyst for a lot of changes that were bubbling under for a long time. But the heart of retail has always been to surf the changes.”
Radical times call for radical measures and a number of the UK’s most influential retailers have begun to experiment with physical space, not least Swedish furniture and homewares giant Ikea.
Cindy Andersen, managing director of Ikea’s property arm Ingka Centres, launched the Ikea-anchored Livat shopping centre in Hammersmith earlier this year, which from June has also become host to the UK’s first Atelier100 store in collaboration with H&M.
“Our urban meeting places have been designed to reflect modern, inner-city lifestyles, with more regular visits and fewer journeys by car,” says Andersen. “The important thing is to create places which are of their community and where everyone is welcome. Meeting places are more important than ever, we have to get away from this idea of either/or for online and physical space.”
“Meeting places are more important than ever, we have to get away from this idea of either/or for online and physical space”
Cindy Andersen, Ingka Centres
Ingka Centres is seeking out further sites across major cities in Europe and the US, with the next developments in San Francisco and Toronto. It has also earmarked £1bn for investment in London over the next three years, with the headline act a new Ikea store on Oxford Street, to open in Autumn 2023.
In June, Ingka Centres also introduced a recycling and rental-led store concept called Circuit in Birsta City Meeting Place in northern Sweden, and the 7,530 sq ft Hej!Workshop at its Kungens Kurva Meeting Place in Stockholm.
Of course, the advantage Ingka has is that it owns its real estate and has deep pockets, so while these initiatives will not match retail rents they are strategic decisions to bolster the performance of the entire location.
Retail and workspaces
Ikea is not the only retailer to test introducing workspaces within retail environments. Office provider IWG is testing out a 3,800 sq ft flexible working area within Tesco’s New Malden supermarket, hosting 12 private desks, 30 co-working spaces and a meeting room.
Called Spaces, it joins other Tesco partners including Decathlon, Pets at Home, InPost parcel lockers, Holland & Barrett, Timpson and Vision Express, which have all been introduced to widen the offer and to monetise Tesco’s spare capacity.
IWG founder and chief executive Mark Dixon says: “People don’t want to spend hours commuting, and instead want to live and work in their local communities. A Tesco Extra in a suburban location, in the middle of a vibrant local community, is the perfect location for flexible office space.”
Omnichannel retailers are also increasingly determined to leverage their store space as part of their logistics platform. The move reflects a resetting of retail priorities after a never-ending series of supply chain disruptions over recent years have shifted the mantra from just-in-time to just-in-case.
While there has been an increasing onus on nearshoring – bringing manufacture and assembly closer to the end-consumer – the other main strategy has been to increase inventory, which inevitably demands more storage space.
Although current circumstances are amplifying this, it’s worth noting that as far back as 2018 Zara introduced a robotic picking arm for its online order collection area at its Westfield Stratford City store.
Ikea has pledged €3bn (£2.6bn) to revamp its stores as it looks to streamline its online shopping, with Ingka Group retail manager Tolga Öncü saying that the warehouse sections of the retailer’s existing out-of-town stores could become increasingly automated: “We have realised that by including stores in our last-mile and fulfilment design network we can create a win-win situation. Instead of building central warehouse capacity for online, why don’t we send it from our Ikea stores?”
Collaborations with rapid delivery
Supermarkets have been at the vanguard of double-purposing their stores, using them both for in-store customers and also online product picking. The latest example of this has seen collaborations with super-fast rapid delivery specialists, which are desperate for space.
Getir has pledged to quadruple its London fulfilment centres to 20 by the end of the year, rival Gorillas occupies 35 micro-fulfilment centres in the UK already and Gopuff plans to expand nationally following a $1bn (£828m) investment last July.
Given this race for space, there is potential to make dual use of existing retail sites. Tesco and Gorillas are trialling micro-fulfilment centres at five large Tesco stores. Asda launched a similar partnership in March with Buymie, allowing customers in Leeds and Bristol to access Asda’s full online range from 10 stores.
While much of the focus has been on fulfilment from c-stores, Savills global head of research, product strategy and development Andy Allen believes larger supermarkets also offer the potential for alternative uses.
“Supermarkets work on the back of not only people shopping conventionally, but with pickers or back-of-house fulfilment. The envelope [large size] of the store permits things like micro fulfilment and working with quick delivery companies.”
With so many moving parts, the question is whether the legacy estates of most retail chains are suitable to make similar changes possible and the reality is that the potential for most is limited. The impetus may instead have to come from shopping centre developers and landlords.
The few developments that have been completed recently bear little resemblance to malls of the past. Nuveen’s St James Quarter, Edinburgh, features a hotel, gym, residences, a cinema and leisure, while Battersea Power Station – the centrepiece of a huge urban regeneration in south west London – includes a leisure offering, bars based out of the two former control rooms and a co-working space by IWG.
Leisure, co-working and healthcare
Revamped shopping centres such as Southside, also in south west London, are increasingly anchored by leisure spaces rather than department stores – in this case by a multi-leisure Gravity offer in the scheme’s former Debenhams.
For landlords these are tough calls. Leisure will not achieve anything like the same rental income, but filling an empty department store anchor is hugely problematic and leisure is a proven footfall driver.
Where department stores are not disappearing, there are plans afoot to repurpose upper levels as offices or co-working – such as John Lewis’ idea for its Oxford Street store. Renting this space, alongside the 10,000 build-to-rent properties it is looking to construct by 2030, would diversify JLP’s income streams.
This strategy, dubbed ‘densification’ by mall owners, is an increasingly popular approach that effectively means creating additional and alternative income from the same floorspace, by using upper floors or space unsuitable for retail.
Other developers are even incorporating healthcare offerings into new developments, such as the attached hospital in the Ubbo scheme in Lisbon, which is owned by Eurofund Group.
These sorts of changes to shopping centres will inevitably lead owners to have a rethink about what the associated retail offering is for, while pop-up operators such as Sook, which has locations in London’s West End and Hammersmith Livat, will increasingly attract pureplay brands to try out physical space.
There is also a new breed of non-traditional investors seeking value in shopping centres around the UK, according to Steve Wickes, head of retail UK and Nordics for Nuveen.
“The new investors are companies prepared to take a bit of risk and bring in good asset managers to run the centres on their behalf,” he says, citing the sales of Silverbun, Glasgow, and Touchwood, Solihull.
More individual shopping centres are being redeveloped to accommodate new uses as well as added leisure and hospitality offerings. Many of these new landlords are also offering more flexible leases to lure new brands as they are no longer burdened by legacy debt or reliant on longstanding rent levels for their centre’s valuations.
Retail rents may be lower but business rates, energy costs and labour challenges provide little room for respite, and the ability to flex space remains as challenging for many retailers as ever. So it is those that can make strategic, longer-term calls who are pushing ahead.
And that could help usher in a new breed of stores according to Portas, who believes many of the best examples of innovation are coming from curated digital brands.
“Great editorial creative brilliance is coming back into retail, a curated type of retailer. It’s about bringing the editorial brilliance back,” she said, emphasising the need to create great destinations that people want to visit, with the “by-product” that they stay to buy.
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