Recovery? Real, respite or rubbish?
The last two weeks have seen a plethora of data about the economy and the state of retail in general. Today the latest ONS figures show retail sales up 5% year on year for December with independents fairing well. How these figures are derived I have no idea but what is clear is that it was a mixed Christmas trading period with a real spread of performances. The variances of what L4L sales are vary from retailer to retailer but it is clear to me that the one word that sums it all up is ‘polarisation’. Polarisation in the context I mean is related to sales. Those retailers that are growing sales and profitability (Next), those that are growing sales at the cost of profits (Debenhams) and those doing neither (Morrisons and Mothercare).
The same is true of locations and this week I was at the JP Morgan Real Estate conference where there was lots of positive talk of a recovery with the UK leading the way. For the property people this is being driven by a belief in rising rents and Chris Grigg (CEO British Land) forecasted that property returns will be 7-14% in 2014. 14% I hear you all shout! Well Mr Griggs considers that British Land will be at the top end. So my question to Mr Griggs on Wednesday was ‘is this realistic with so many retailers profits falling and is he talking about the top 25 retail destinations in the UK which do not include Preston, Stockport, Rochdale, Margate, Newport or Ayr. In short the answer was yes! I am about to start analysis of vacancy rates in H2 2013 across several thousand towns, shopping centres and retail parks, and I think that this will clearly show polarisation by location however unpalatable it may be.
So we have a recovery by many macro economic indicators and with certain retailers in certain locations but we are far from a national recovery but perhaps one with a London/SE bias. In light of the HS2 debate would this further polarize matters or create greater equilibrium. As this is not a political blog I will defer from answering and leave it up to you to comment!
So back to shops and do we need them. In short yes but the big question is where? Those retailers performing well are doing so because they now understand, implement and drive a digital strategy of which shops are in a supporting role. In the case of Next and an increasing number of others from Poundland to M&S the location of choice are retail parks or big mall shopping centres. In the case of the troubled supermarkets, they are now realising that they have too much big box space and big box space does not marry well with convenience. Hence why, this week, Sainsbury’s declared they will have more Sainsbury’s Locals out there than Sainsbury’s. They are currently equal but the former are growing at 27% and the latter at 1%!
Asda this week published a joint report with the RSA (#2020Retail) about bringing communities into their stores where they now have excess space. They call this ‘community venturing’ and as supermarket competition is exhausted they believe this is the way to win customers. Social value is the new frontier for competition! The most worrying thing that was mentioned within the report was that whilst the public sector is retreating, Asda is stepping into the void! Do we, as citizens want our communities run by the supermarkets? How can commercial organisations be balanced with social profit sapping goals?
On that note I will leave you to ponder and answer these questions over the weekend!