Schemes such as Trinity Leeds are taking up the slack left by crisis-hit high streets in one of the most seismic shifts retail has seen. In our Retail Talks round table, held in the UK’s only centre to open in 2013, experts discuss how changes continue apace
Trinity Leeds is 90% let. What is different about this scheme?
AD: Over 22% of the scheme will be food and beverage, and that’s been driven by a huge demand from restaurateurs to come in. We’ve seen in our own portfolio that the area of real growth out there in the retail world is F&B.
How is Trinity taking account of the multi-channel world?
AD: We think this will be the most digitally enabled scheme delivered in the UK so far. We’ve worked very hard with the retailers to provide a full range of services. We will have Wi-Fi throughout, top-of-the-range, full-format digital screens to allow a marketing brand immersion, interactive screens in play and a customer service lounge will allow people to do their research while they’re here. Plus our staff will have iPads.
Ian, how have you dealt with the competition between web and store?
ID: We’ve actually had to link them. Previously web was the enemy of the store, mainly on the returns basis. It was killing stores’ P&Ls, so we’ve had to change the way we credit invoicing and return policies. But we’ve also embraced m-commerce and e-commerce from the outset, to the extent that we have to change our bricks and mortar now so they become much more experiential to mirror what’s happening on the web. This is an 18 to 24-month strategy; we think 25% of sales will be via the internet at some stage, while currently it is 15% – up from 6% 18 months ago.
How will the stores themselves change in that time?
ID: They will become fewer, larger and much more experiential. We are going away from fixed counters; we have customers with iPads, we even have iPads in the changing rooms. So if, for instance, she likes the green hot number, she goes and gets it, sees on the iPad that there’s a yellow and red one as well, taps a button and we’ll bring the products to her. We have 1,800 stores world-wide, including Coast, Warehouse, Oasis and Karen Millen, and the trend for fewer but larger stores will impact more on the UK than international. We could go down from between 50 and 85 to as low as 30 to 40 stores per brand.
What’s your prognosis for the health of the industry given Jessops and HMV have gone into administration?
AG: First of all, there’ll be divergence between those stronger-performing assets and weaker secondary shopping centres and weaker high streets. Retail has had lots of negative press, but it cannot be generalised. Prime assets are stabilising and seeing better tenant demand and consumer growth. On the investment side, there is a lot of sovereign capital out there looking for the best assets and that may start to actually drive some further yield compression.
Where does that leave secondary assets?
AG: Perhaps with a changed use. I do believe there will be some secondary assets that will no longer be viable as retail just because of the lack of retailer demand.
ID: In 2013, I think tenants are going to be exercising the brakes wherever they can. Lease renewals are going to be very, very, difficult for landlords because tenants will either use it as a means of negotiation or a means of exiting from poorly performing stores. Internally, I think retailers have got to look at themselves, about their own internal cost base. You’ve seen it recently with Mothercare having a restructure to slim down the head office teams. I think you’ll find more and more head office teams shrinking, and to give more hope to stores to perform on the P&Ls.
So the tenant’s hand is pretty strong in negotiation?
ID: Yes, and I’d say it is for most retailers. At Cribbs Causeway, for instance, lots of retailers are saying they’re going to pull out unless there’s negotiations. So, landlords have got to make a fundamental change in their mindsets about what is viable as a retail store now. They can no longer rely on Zone A rates being at a certain level; it’s not working. There are inflationary pressures on every other cost line, bar rents.
Andrew, it’s looking tough for you and your peers
AD: Remember, we’re in Leeds now with the biggest good news story on your doorstep. And our scheme in Buchanan Street – a smaller scheme – is strong, too. There is still good demand for a strong scheme in a strong city.
Where is this new demand coming from?
AD: There are new entrants to the market, of course, such as Superdry and Hollister. They were brands not in Leeds because there wasn’t the right scheme with the right size units to accommodate them. But, by providing the right product in the right place, we’ve moved Next from 20,000 sq ft in Leeds to 57,000 sq ft and all of Ian’s three brands have moved into much better completed units, too.
Ian, is the Portas Review helpful, or are you thinking about exiting the sort of areas she’s seeking to tackle anyway?
ID: We’ve either exited or have never been in those areas that she’s tackling. Those locations are almost a lost cause. The government missed a trick in that the whole of the UK population is geared towards discounts and sales. If they regulate when you could go on sale, then the margins would be back and the shops would be viable, but at the moment everything is being hit on the margin.
Are government policies, such as those on ratings, helpful?
ID: Not as much as they should be. They’ve really got to understand just how big a sector retail is and how many people are at risk of losing their jobs if it carries on as bad as this. They need to get their act together and offer a lot more assistance.
What is the retail environment going to look like physically and virtually by, say, 2015?
AD: I expect what we’re delivering in Trinity Leeds to be the prompt and the guide for a lot of what we do in future. It will be more experiential, you’ll see more digital interplay, there’ll be much more of an inter-relationship with the retailers around the click-and-collect and that sort of thing, there’ll be more leisure, customer service will be key and the food offer will grow further. Whether capacity will be reached I’m not sure, but I think the diversity, the range and the quality will increase, and you’ll see bigger, better, more dynamic centres, but fewer of them.
AG: We are forecasting a return to rental growth for the strong assets and destination or convenience assets are going to outperform, thanks to time-poor consumers.
ID: A word of warning to landlords: everyone’s talking about leisure to get people into schemes. However, not so much that the retail becomes secondary. Shops have got to offer more than the web to get people there in terms of experience, product mix and staff. Our stores will consolidate into more prime locations. And we’re going to see a growth in distribution companies as they try to service to web, so there will be structural changes going on in the marketplace as well.
The panel
• Chaired by Damian Wild, editor, Estates Gazette
• Andrew Dudley, development director, Land Securities
• Ian Dudley, group property director, Aurora Fashions
• Angela Goodings, associate director of research, property, Henderson Global Investors
