Whatever field you are in, the newcomer always has to make an impression. Retailers are no exception. Overseas brands that come to the UK to set up shop are entering a competitive retail playing field and need to establish a name for themselves. And they need to do it quickly.
One of the crucial questions is where to open the first store. Do you splash out and open in a high-profile spot like London’s West End, as a number of retailers such as Banana Republic have chosen to do? Or do you take a store in a cheaper, out-of-town scheme, or a city outside the capital?
There is another option: pick a shining new urban shopping centre and benefit from the buzz and publicity that comes with its opening. This is exactly what an impressive array of international retailers have done during this year’s flurry of shopping centre openings. As American Apparel UK director Brent Chase says: “Your first store in a new country is pretty scary. The stores in new schemes seem to work out pretty well.”
Despite the benefits, a new scheme is a distorted environment that doesn’t reflect the wider market. So with a recession now upon us, how will this year’s latest arrivals fare in the real world?
This year has been one of the busiest ever for new shopping centre openings. The UK shopping centre scene now includes Liverpool One, Eden in High Wycombe, Victoria Square in Belfast, Grand Arcade in Cambridge, Highcross Leicester, Bristol Cabot Circus and, most recently, Westfield London.
For international retailers, this wave of new space provides just the opportunity they have been waiting for to plant their flag in the UK. For instance, Westfield London attracted more than 15 retailers that were signing their first store or signed as part of an initial opening phase. One of these, Hollister, took the decision to open its first two stores in Brent Cross and Westfield London, and is already on the prowl for more sites in shopping centres around the country.
Another retailer taking its first UK store this year – after leaving in 2001 – is Marlboro Classics, which is part of the Valentino Group. UK and Europe director Paolo Vazzoler says Westfield London was the ideal destination. “Westfield was the perfect way to come into the UK. Everybody was going to come here and I really like to be where other people are and I’m not scared about competition. I prefer to be responsible for how the brand is communicated. My problem is to make the British understand what there is behind the window.”
Given how difficult it is to compete in the UK’s crowded and mature market, it is vital that newcomers make their mark immediately. A major new shopping centre attracts not just local, but national attention, and so half the PR battle is won.
Womenswear fashion retailer A-wear, which has 25 stores in the Republic of Ireland, opened its first mainland UK store in Highcross Leicester in September. Financial director Mark Naughton-Rumbo says: “There are advantages to being in a centre, in that there’s a lot of razzmatazz and noise about new shopping centres that you can piggyback on.”
Aside from the natural buzz that casts plenty of light on all the retailers inside a scheme, there can be attractive deals to be done. Financially, moving to a new country is a big risk and anything that can help alleviate the cost is appealing. As Naughton-Rumbo says: “Going into new shopping centres is a lot more attractive financially because landlords are offering very good incentives.” Retailers can often negotiate up to two years rent free, get help with fit-out costs and secure other added bonuses such as reduced service charges. Compare this with a high street where you might only expect three months rent free and the maths is simple.
Savills director Rob Hargreaves was the agent behind bringing French fashion retailer Etincelle to the UK, in Westfield London. He explains that the retailer was considering a variety of sites but the deal it managed to secure at White City made the decision a simple one.
He explains: “Etincelle wanted to be in London but they didn’t know where they wanted to be. We found plenty of locations we thought would suit them but they weren’t inspired. Going into Westfield will have more impact for them than it would on other streets and they got a good deal. You get the added PR and that was one of their main drivers.”
Another distinct advantage international retailers have in focusing their sights on shopping centres is that they can get a sense of the type of retailers that have signed to the scheme – or are expected to. Furthermore, you have more freedom to choose your location. Hargreaves says: “Within a scheme you know which sort of retailers are there and you know what level it is and you can position yourself around them.”
Chase backs this up. “It’s good to be able to set yourself up next to who you want to be near. When we were looking at it there were a lot of locations we were looking into. With a centre you can look at the plans and you can decide where you want to be, which helps the deal,” he says.
For retailers it is a fresh start and an opportunity to open in a new catchment. Their final decision is even easier to make as a landlord will do so much research of the catchment and the demographic and will also offer incentives.
For their part, landlords like bringing in new international retailers because their presence adds something fresh and will be accordingly flexible to their needs. Hammerson has a good track record in attracting overseas players to its schemes, both historically and in this year’s latest wave of openings. In 2002 it brought Massimo Dutti to the UK with Brent Cross, where Hugo Boss also opened its first British store last year. This year its new international tenants include A-wear at Highcross Leicester and Lipsy at Brent Cross.
Hammerson managing director David Atkins explains: “For an international retailer coming into the UK for the first time, clearly there’s risk. What can a new shopping centre offer? It’s a controlled environment. It’s clean and safe, they understand the service charge, they know the owner and the agents. On a high street you don’t know who your neighbours are going forward and there isn’t a tenant mix policy.”
He also points out that shopping centre landlords have reams of demographic and footfall data that is vital for retailers. “They probably won’t be able to get hold of that for a high street location. It’s enormously important to a retailer. We’re saying we’re helping you in your first initial stages of expansion in the UK. By the time you pay rent you will be more established and you can determine your strategy going forward,” he says.
Of course, in today’s market nothing is certain. While it might be beneficial on several levels to open in a new scheme, it’s not without risk. It doesn’t matter how much research a landlord does, there are still many unforeseen factors that can come into play.
As Naughton-Rumbo says: “There’s also a risk that it might not work because it’s a new centre and no one really knows how it will do. On a high street there’s already footfall, it’s well trodden. If retailers have a long-term strategy, now is the right time to be taking sites. If they need those sites to be performing well now, they will struggle.”
As with most things in retail, preparation is key. If a retailer has done its homework and is prepared for the realities of trading in the UK, then it can and should make full use of the honeymoon period it will enjoy by opening in a new centre. The rent-free phase, coupled with the natural PR boost it can get by being there, gives rise to a rare opportunity to make an instant impact on the UK market.
However, the fact there are such good deals to be had in new schemes can be a double-edged sword. While it helps a retailer make its first few steps, it doesn’t necessarily prepare them for what is around the corner. When reality kicks in and retailers start facing full rent bills it can be a shock, especially if they haven’t taken full advantage of the initial soft landing.
International expansion can be a risky business – and never more so than now, given the Bank of England’s warning last week about the severity of the recession ahead. Without a proper plan in place for the long term, life in the real world for some of the newcomers could prove tough.
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