The depressed economy has had a prolonged and devastating effect on the retail sector, with very few retailers left unscathed. But there is one notable exception. While not immune to the effects of the downturn, and even more so to the vagaries of the weather, the garden centre sub-sector has proved comparatively resilient.
In part, this has been due to the willingness of many garden centre operators to diversify and develop, changing not only the way they trade, but also their range of products and general offering to meet the expectations of their consumers.
Far from being a seasonal operation, the advent of the garden centre as a destination or focal point with cafés/restaurant facilities, extended opening hours and farm shops in pleasant surroundings and with knowledgeable staff has given customers an improved and appealing retail experience.
This has also enabled garden centres to overcome some of the competition arising from online sales. Although retailers cannot ignore the impact of customers’ willingness to shop from home, much of the success enjoyed by garden centres over the years can be attributed to the destination experience enjoyed by all ages and both genders. Customers enjoy accessing the sheer variety of products, from books and furniture to quality plants, and seeking expert advice as part of the buying process.
Equally, the customer profile for many garden centres is either those in an older, and largely more affluent age group (who may be less disposed to buy online) or those consumers for whom gardening, or at least visiting garden centres, is a leisure pastime. Shoppers in this profile may have been less affected by the economic downturn and are also more inclined to look for a relaxed, less pressured, shopping experience rather than the speed or convenience associated with online sales. However, the success of gardening websites, such as Crocus, shows garden centre operators cannot afford to be complacent.
Garden centres, in turn, have shown a willingness to embrace technology, recognising that an increasing number of consumers now research ideas for their gardens online and that internet information will influence them in their choice of supplier. The increasing access to, and acceptance of, technology among customers of all ages means garden centres have to make use of the opportunities that come with that technology rather than seeing it as a challenge to in-store sales. It is critical for them to continue to do so in order to attract and inform prospective customers in younger age brackets.
Despite the retrenched investment market and scarcity of bank funding, garden centres have provided good returns for those who have invested in the sector, which in some cases has proved to be the best-performing sector for property funds in recent years. The increased footfall that garden centres can generate has made them attractive propositions as the focal point of retail development, becoming a new breed of anchor tenants.
Unlike many retailers, garden centre operators still prefer long leases and the nature of their business and real estate use ensures a higher level of business continuity and security for investors’ income stream. The use of indexation of rents and turnover rent provisions have also enabled investors to maintain returns, while the nature of their real estate may leave open the prospect of long-term redevelopment opportunities.
The garden centre sector landscape has changed over the past five years through a mix of acquisition and organic growth. As the table below shows, back in 2007 the sector was dominated by Wyevale, which had acquired Blooms that year, bringing its total of centres to 114. Dobbies was also a major operator with a portfolio of 20 centres. Klondyke Garden Centres, Notcutts, Blooms of Bressingham, Hillier and Squires were the other double-digit centre operators.
Today, many of these companies remain favourite household names. Wyevale and Blooms of Bressingham were consolidated into the 129-centre Garden Centre Group and continue to trade under their own brands. The Garden Centre Group was acquired earlier this year by private equity firm Terra Firma. Dobbies was acquired by Tesco Group in 2008 and operates as an independently run company, having grown its portfolio by about 60%.
Currently operating 32 centres, Dobbies has ambitious growth plans to become a £1bn business with 100 stores. Guernsey-based Blue Diamond has expanded by more than 60% over the past five years and the family-owned Notcutts has increased the size of its group by over 45%, having acquired the six-centre NWF Group in 2008. Both Klondyke and Squires have expanded their portfolios significantly, with Squires bolstering its operations through the acquisition of the three-outlet Shoots Garden Centres.
Weathering the storm?
This year’s record-shattering weather conditions have had a dramatic effect on garden centres. The wettest summer in 100 years, combined paradoxically with a three-month hosepipe ban in some parts of the country, has resulted in 2012 being the first year on record when the sector has seen negative growth.
Although some centres are expecting turnover to be as much as 25% down year on year, the reality has been that a drop of 9% to 15% seems more realistic. This downward turn should be tempered by the fact that garden centre retail enjoyed unprecedented growth of 20% in 2011 and, statistically, weather conditions are unlikely to be as appalling next year. This has not stopped some commentators questioning whether this year’s performance can be attributed solely to the weather or whether there are underlying reasons for concern.
An appetite for expansion still exists among many groups and independent owners, although the banks are still reluctant to give out loans. However, whatever the economic backdrop, there are always opportunities for some.
Consolidation within the sector has been going on for a number of years and a significant number of independent centres have changed hands, particularly over the past 18 months. The sale earlier this year of the enlarged Garden Centre Group to private equity firm Terra Firm for £276m attracted significant attention to a sector that is still led predominantly by independents.
As the table shows, a number of groups do exist, although in comparison with high-street and out-of-own retailers, the size of garden retail groups remains at best average and, arguably, small.
Supermarkets are profiting from the UK’s love of gardening, with many setting up pop-up plant marquees in the spring. Tesco is driving Dobbies’ aggressive expansion strategy, albeit through new sites, which will have a slow but inevitable impact on the market.
Waitrose has plans to develop stores alongside garden centres in Shrewsbury and Northampton. Forward-thinking mainstream retailers, including Next, are also recognising a market that appeals to their customers and are moving into garden centres, driving footfall and increasing dwell time. Many observers will not be surprised if Marks & Spencer and others follow suit.
The year 2013 could become known as the year of the discount retailer in the garden centre sector. With most high streets having a value offer, it looks as if this economy trend may be replicated in garden centres.
QD Stores has an ambitious expansion programme, a garden centre has opened up at a factory outlet near Stoke, and there are reports that this value sector has coped with the wet weather better than the more traditional horticulture-based centres.
Clearly, garden centres will continue to face challenges and, although they remain popular, recognising and meeting those challenges will be a key factor in their enduring success.
Teresa Edmund is a partner at Bristows and Mike Gilbert is a partner at Gilbert Evans
