Philip Smith finds foreign retailers boosting demand and rents in London and the provinces.
It’s a veritable list of who’s who in the world of high fashion . . . Donna Karan, DKNY, Louis Vuitton, Prada, Armani, Bugs Bunny … Bugs Bunny? Well, Warner Bros at least joins the others in the list of foreign newcomers to the British market in the past three years.
A giant cartoon rabbit sitting in a fountain in Manchester’s Arndale Centre, where Warner Bros has a store, can teach UK retailers a few lessons in style, reckons Tim Buckley, director of Colliers Erdman Lewis’ retail department. “UK retailers and the general public have never been treated to such sights until Warners and Disney came over. It demonstrates that retailers should be proactive about their products.”
Peter Galley of Jones Lang Wootton agrees: “US retailers have brought new concepts. They have shown how to market a universally popular brand like Disney and have introduced different ideas like T K Maxx, where they are selling designer fashionwear at significantly discounted prices.”
Buckley adds: “American retailers have introduced quality awareness into UK retailing when looking at the style of presentation. I think in the US everyone has to compete far more directly with their ‘neighbour’.”
Peter Morgan, European retail director at DTZ Debenham Thorpe, agrees about the competitive nature of the US market. It breeds winners, he says: “The attitude is ‘if you ain’t got it right, you go out of business, mate’!”
In areas of central London, this influx of foreign retailers during the past two to three years has caused considerable rental growth, says Jones Lang Wootton’s Nick Ware. The UK franchise of the Donna Karan Collection, for example, is paying about £1,991 per m2 (£185 per sq ft) zone A for its store in New Bond Street.
Chris Phillips, a partner in Healey & Baker’s London retail department, points out with a certain amount of understatement: “They are just not in the same league as the multiple UK retailer.”
Certain locations in London are desirable because of their international reputation. A flagship store in New Bond Street means that a company can complete the London – Paris – New York equation. “New Bond Street has always been the location for fashion houses. International retailers which want a presence in the major cities will consider Sloane Street, New Bond Street and Knightsbridge,” states Ware.
Phillips believes that it is the size of the units needed for flagship stores which is triggering rental growth. He says that occupiers such as Armani, DKNY, Donna Karan, Louis Vuitton and Gianni Versace want large space, which is less readily available.
He comments: “These retailers want a larger unit which allows them to establish a flagship store in London. The interest in the UK market is coming from Italy, France, the US, and, increasingly, more retailers from Germany.”
According to Phillips, in the past few years larger units have come on to the market in response to demand and “also, it is partly coincidental, the luck of being in the right place at the right time”. Of the two larger units which Phillips is marketing in New Bond Street, one is under offer. Next to Fenwicks, a 790m2 (8,500 sq ft) unit at no 55 is in solicitors’ hands for a rent in excess of £500,000 a year. Possibly the last major vacant unit on the street is the 465m2 (5,000 sq ft) development at nos 78-79, which is Healey & Baker is marketing for Lincoln National and Victory Land. A rent of £260,000 pa is quoted.
Only a select few locations fit the bill. New Bond Street goes without saying, and Sloane Street is also making a recovery, says Phillips: “Sloane Street has turned the corner and rental growth is happening.” He points to the Pollini Shoes deal at no 47 and lettings to Armani and Prada, averaging a zone A rent of £2,153 to £2,691 per m2 (£200 to 250 per sq ft).
Regent Street has also benefited, although Phillips thinks it has a less rarefied appeal: “Some retailers think it has a much broader cosmopolitan attraction than, say, New Bond Street. It has become more popular in the last few years.” Ware suggests that zone A rents have risen from £1,722 per m2 (£160 per sq ft) to £2,368 per m2 (£220 per sq ft) in Regent St in the past three years, principally because of the arrival of overseas retailers such as Disney, Warner Bros and Hugo Boss.
UK retailers have followed this lead, he says, citing deals involving Racing Green and French Connection for shallower units on the West side of the street. “Deals here and in New Bond Street are demonstrating that once the foreign retailers have created the splash, UK retailers follow the lead and will take the slightly more secondary units.”
For American operators such as women’s fashion retailer Talbots, which entered the UK market in September 1994, the appeal of expanding across the Atlantic is obvious. “There is no language barrier,” says Betsy Thompson, Talbots’ public relations manager.
The company, which has 460 stores worldwide, believes it already had a profile here with US ex-pats and travellers to the US. “We serve a well-defined customer niche,” says Thompson, estimating that the typical UK customer has an income averaging £57,000 pa near London and £43,400 elsewhere. “Talbots stores are known for offering a consistent assortment of high-quality clothing. It offers fashion that is current, not trendy.”
Talbots now has three shops: at the Bentall Centre in Kingston; St Ann’s Square, Manchester; and Brent Cross. Next month it will open a 363m2 (3,906 sq ft) unit in Sheffield’s Meadowhall Centre and in May, on Guildford High Street. It has decided to stay out of central London for the moment: “It’s safer in a way to go to a smaller town,” admits Eric Eastman of Michael Peddar & Co, UK agent for Talbots.
Peter Galley believes that foreign newcomers that have stayed out of central London, like Talbots and “off-price” designer fashion retailer T K Maxx, have increased demand for retail units: “These retailers have not had the same effect in starting new rental growth, but they have added to the existing market and demand.”
T K Maxx, which offers labels such as French Connection, Nicole Fahri and Jasper Conran, is taking space which other retailers might not consider, explains Galley. This is because it sees itself as a “destination” store, says T K Maxx marketing manager Deborah Dolce: “We sell high-quality merchandise and well-known labels, so we generate a lot of customer loyalty. Our stores are usually on the High Street and are accessible, so once people know about us we hope they will come back.”
Galley sees the new influx of foreign retailers following in the footsteps of now-established names: “Ten years ago there were very few foreign retailers here, but both Benetton and The Gap were very ambitious, expanded and were fairly aggressive in terms of acquisition.”
Provincial centres are also benefiting from recent interest by foreign retailers. Glasgow, Edinburgh, Leeds, Manchester, Birmingham, Bristol, Cardiff and the “touristy” sub-regional cathedral towns such as York, Chester and Bath are all popular, says Galley. Eastman reveals that Talbots is looking for space in Birmingham, Bristol, Norwich and Brighton.
DTZ Debenham Thorpe is about to start an acquisition program for another newcomer to the UK market. American stoneware manufacturer Pfaltzgraff is looking to take six or so factory outlet stores for its ‘tabletop’ goods over the next two years, says Morgan.
And once the UK is conquered, what next? China and the Far East, is Morgan’s bet. The population, and potential customer base, are growing: “They are also growing in terms of wealth and there are no retailers there to speak of. There is a political risk, granted, but it’s one worth taking. It is a huge great fat pig that they want to get stuck into.”
Key transactions
- 41-42 New Bond Street, London W1: UK accessories and fashion retailer Mulberry has taken a total of 691m2 (7,440 sq ft) . A rent of £380,000 pa was agreed on a 25-year lease with five-yearly rent reviews. Nelson Bakewell acted for Mulberry. Ian Scott and Healey & Baker acted for the landlord.
- 19-20 New Bond Street, London W1: The UK franchise of Donna Karan has taken a unit incorporating 877m2 (9,442 sq ft) spread over basement, ground, mezzanine, first and second floors. The unit is on a 25-year lease at £440,000 pa, equating to £1,991 per m2 (£185 per sq ft) zone A. Jones Lang Wootton and Michael Peddar & Co acted for the tenant. Drivers Jonas acted for the landlord.
- 17-18 New Bond Street, London W1: Louis Vuitton has taken a unit consisting of 878m2 (9,450 sq ft) at basement and ground level on a 20-year lease with five-year, upwards-only rent reviews. The rent achieved is close to £750,000 pa. Jones Lang Wootton and Hatter Laurie acted for the tenant and Leslie Perkins acted for the landlord, a private investor.
- 47 Sloane Street, London SW1: Pollini Shoes has taken a 260m2 (2,800 sq ft) unit covering basement, ground and upper mezzanine levels from the Cadogan Estate on a 10-year lease. A rent in the region of £170,000 pa was achieved with a seven-month rent-free period. Healey & Baker acted for Pollini and Richard Ellis for Cadogan.
- 133-135 High Street, Guildford: Fashion retailer Talbots has taken 330m2 (3,555 sq ft) of retail space on a new 25-year lease from TSB. Rental levels equate to £1,378 per m2 (£128 per sq ft). Dagleish & Co represented TSB, while Michael Peddar & Co acted for Talbots.
