When Retail Week broke the news a fortnight ago of Fnac’s plans to arrive on UK shores, the French entertainment and electricals retailer became the latest in a string of international store chains to look for space in the UK.
The shifting property landscape has left plenty of opportunities to acquire space, which other overseas companies will inevitably be eyeing in the same way that Fnac is. But will the new wave of foreign arrivals struggle as others before them have, or is this internationalisation the future of retail property?
As many have found, a formula that has succeeded abroad often gets lost in translation. Tchibo’s decision to close many of its UK stores and focus on concessions in January was a plan B being put into action and was evidence of the need to carefully research the development of a UK property portfolio. The disposal of more than half of its stores was a case in point for international retailers considering a similar move that it often pays to take a cautious approach at the offset. With Abercrombie & Fitch having stuck to this mantra with its one Savile Row store and so far reaping the rewards, this is likely to be a recurring theme.
However, at the same time, it would not be surprising to see overseas retailers taking large chunks of property. With disposal lists from the latest casualties still floating around, rent-date looming and bills for the new empty property rates winging their way to retailers this week, the amount of new property taken by home-grown businesses looks set to slow. This, in turn, may leave the door open for foreign retailers, which can exploit the situation to get better deals.
The UK is in the middle of a busy period of arrivals. With the unveiling of Banana Republic’s long-awaited debut store on Regent Street this week and Nokia’s arrival there last month, the dynamic of the famous shopping destination has started to change. Regent Street is often a barometer for wider patterns and, with its increasing dominance by international brands, it is safe to say that these and other overseas retailers will want to expand.
Figures released by CBRE at the beginning of the month revealed that the UK is the most international retail market in the world. Out of 250 of the world’s top retailers surveyed by the property consultancy, 55 per cent had a presence in the UK. The trend of foreign retailers coming to the UK and often succeeding is likely to continue.
The CBRE report points out that some types of retail are much better at making the journey abroad than others. The figures reveal that luxury retail is the best traveller of all, with almost 90 per cent being represented in more than 10 markets, compared with just 60 per cent of grocery food and drink retailers and 54 per cent of clothing, footwear and accessories retailers having a presence in more than 10 markets.
Against that background, the opportunities for international retailers to acquire space are certainly there. In areas where landlords are struggling to fill spaces, such as at out-of-town retail parks, there are plenty of opportunities for retailers to increase their portfolios and to do so on more flexible terms than they are used to. This might give internationals the incentive they are looking for to commit to building a UK property portfolio. Scandinavian homewares retailer Jysk is one example of a retailer taking advantage of this.
“This is a great opportunity for new entrants to acquire small and large groups from retailers that have gone into administration or cherry pick their best stores on a nationwide basis,” says Cushman & Wakefield partner Toby Comerford. “Those groups have spent years carefully acquiring those sites and there are significant savings with lower premiums from a welcoming landlord who faces a gap in his income.”
A Hartnell Taylor Cook survey, published in January, revealed that 11 per cent of retail property directors wanted to dispose of more than a quarter of their portfolios, with 5 per cent saying that they would like to release between 51 and 75 per cent. Compare this with the 75 per cent who said that, in 2007, that they would like to dispose of some of their units, with none wanting to part with more than a quarter and a picture begins to emerge.
But it’s not just existing space. With a wave of in-town developments reaching completion this year, space is plentiful. New builds in towns and city centres, which are likely to continue given the emphasis the Government has placed on urban regeneration, coupled with how hard it has proven for retail park landlords to fill voids in older schemes, mean that if a retailer wants space, now is the time to acquire. This fact has also placed landlords in their weakest position for years, with tenants demanding more imaginative marketing strategies and flexible leases.
But if a retailer from overseas is going to consider a move into the UK, it must be aware of the gulf between the in-town and out-of-town markets. Within Europe, a North-South divide is emerging in out-of-town fortunes. According to research from Verdict, a slowdown has begun in the North among the more mature out-of-town markets of the UK, Germany, France, Scandinavia and the Netherlands, but in southern Europe, it continues to grow. For retailers coming into new markets, it is crucial to understand how market conditions differ from their homelands.
With the opportunity for snapping up space so clear, it is likely that overseas retailers, which may have patiently researched prospective sites for years, will also seek to make the leap into the UK.
“I think international retailers will definitely exploit the slowdown,” says DTZ chairman of retail Martyn Chase. “There are all these shopping centres coming out this year and landlords will be under increasing pressure to agree better terms and do creative deals and that gets these international retailers in on a competitive basis.
“It depends on the brand and the landlord’s view on what types of retailers they want to attract to make the shopping centre fly.”
Yet, despite the present climate meaning that there is plenty of space up for grabs and excellent deals to be had, the flipside is that success may be harder to come by once the retailer has set up shop. The tightening of belts that is predicted in the coming months might cause UK shoppers to be more conservative in their habits and stick to well-established brands offering value for money. This could have an effect on retailers such as Whole Foods Market and Abercrombie & Fitch, which have opted for a more tentative approach, opening minimal stores.
The high-price strategy that Abercrombie has employed will only pay off if it can keep up its phenomenal footfall. With household name value retailers such as H&M wanting to expand further, it is a strategy that could cause problems for Abercrombie if a downturn finally takes shape. The answer in Abercrombie’s case, which is widely tipped to be a success, is the phenomenal strength of the brand.
The success of a foreign arrival depends largely on what type of retailer it is, according to Comerford. He says: “Fashion and jewellery, in particular the higher end, travels the best. The UK market is well-catered for in terms of mid-market fashion, but recent failures – particularly in footwear – may open up opportunities.”
Foreign retailers that are eyeing space in the UK must be aware of three key factors. Firstly, not every type of retail travels well and the ones that do have done their homework thoroughly before setting foot in the UK. Secondly, although there is space out there, it falls into two distinct categories – in-town and out-of-town – which face very different prospects, and it is especially important that retailers wanting to take space understand how the locations they are examining are likely to perform.
And finally, the economic climate must be taken into consideration. A market that favours store acquisitions will not necessarily breed high sales and footfall from the off and, after the initial novelty of a new retailer coming in, the same difficulties facing UK retailers will come home to roost.
As is invariably the case, preparation is the key. We can expect to see plenty of acquisitions by foreign retailers, especially in town centres, but their success will depend on both the progress of the market in the coming months and how well they know the market before they set up shop.
“The UK is a global stage and there will always be a lot of interest from international retailers,” explains Chase. “It’s a stepping stone to the rest of Europe.”
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