What is in store for the future of the retail market?

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Retailers are having to reconsider their space requirements as the internet continues to change the way people shop. Arcadia Group has said that they will not be renewing their leases of 250 shops and Aurora Fashions, which owns Oasis, Warehouse and Coast, is talking about reducing its portfolio of 766 UK stores. Recent research by CBRE suggests that two-fifths of retailers worldwide now have an online browsing catalogue. Does this mark the end of the traditional bricks and mortar retail model?

Former Marks and Spencer chairman, Sir Stuart Rose, has recently commented that fully integrated multi-channel retailers of the 21st century needed “everything” including property. The big question for retail bosses is therefore the optimum number of shops required for the “multi-channel” model to work and also how they can update their formats possibly by embracing technology to attract customers.

Finding the correct balance will not be easy. As Jonathan De Mello (Head of Retail Consultancy at CBRE) warns “although the number [of new stores] may get smaller, it will reach a point where any further shrinkage will be damaging. You need a physical presence to maintain the brand.”

Many retailers are experimenting with the format of their stores and House of Fraser has already opened ‘shops without stock’ in Liverpool and Aberdeen. In these shops no products are immediately available but customers can order items online and collect the following day. John Lewis has expanded its click and collect service so that items purchased via its website can be collected in Waitrose as well as the John Lewis stores themselves. This allows John Lewis to “cross sell” footfall between its formats and use its on-line business to support its bricks and mortar business.

This integration between high street and online shopping is a popular option being explored; the use of smart phones and apps can help consumers find location based deals and review and compare items. Retailers are also experimenting with the technology to provide customers with ’tills in their pockets’, an online app through their mobile phones allowing them to scan items and pay, without the need to queue.

However great the success of these new initiatives by retailers the reduction of their high street presence seems inevitable. There will be a consequent surplus of property supply and Landlords will need to think about making their properties the most attractive in the market. Landlords have traditionally done this by offering incentives such as lower or all inclusive rents but is a more fundamental shift required? The idea of upwards and downwards rent reviews is still unpalatable to the market but will the flexibility and simplicity offered by the RICS recently produced short form retail lease provide the answer; watch this space.