- Single ownership could rescue many high streets that are currently locked in a spiral of decline
- Experienced asset managers hold the key to revitalising high streets
- Compulsory purchase orders may often be necessary to effect beneficial mix change
- Use and access controls (including decisions on the scale of parking provision required) need to be vested in asset managers too
- Managing high streets as single shopping centre assets could attract very substantial funds from turnaround players, private equity and foreign investors
Much has been said about the death of the high street and the subject has spawned numerous reports with government and retail experts putting forward a plethora of palliative proposals. But serious solutions to the deeply rooted high street problems have yet to emerge. This is surprising as high streets are, in effect, just shopping centres. Commercially managed shopping centres continue to operate successfully despite the long-run downturn. If the political will was there, implementing solutions would be expected to be quite straightforward. So what is wrong with the ‘high street’?
The KPMG-Ipsos Retail Think Tank (‘the RTT’) met in October to discuss the key issues facing the high street and to consider the steps needed to revitalise failing high streets.
Why has it come to this?
Seismic changes have rocked the retail landscape over the last 50 years, from rapid growth in car ownership and out of town shopping development to the internet. And now we are beset by the longest run economic downturn in a generation: a recession that has caused structural damage to retail markets and accelerated high street decline. Underlying everything is the long-run migration of chain operators from small markets to large that has left a trail of obsolete shopping in its wake.
Nick Bubb, independent Retail Analyst, said: “In any recession there is the inevitable shake out of those weaker retailers. However, ordinarily new retailers eventually replace those who have left, and the high street would recover. This recession has been so deep, and so long, that the tide has not come in and this second wave of retailers has not arrived, leaving washed up shops and widespread structural problems in the high street.”
David McCorquodale, Head of Retail at KPMG, said: “UK high streets have divided into a two tiered environment of the thriving and the merely surviving. Some, like Bond Street and Buchanan Street with their eclectic mix of shops and strong community programmes, are prospering whilst others are blighted by vacancies as retailers flee the confines of their slowly dilapidating surrounds in favour of a modern purpose built shopping centre with ample parking - and bypasses that take passing traffic away from town centres.”
The average UK high street now consists of a patchwork of unit shops owned and managed by individual landlords, leasing their units on the terms that best suit them and their business. Securing and maximising revenue must of course be their top priority, and it is unlikely the average single unit landlord will turn away a secure tenant because their use doesn’t complement the overall retail mix.
This is one of the key problems facing the high street according to the RTT. The mix and type of retailers on the high street need to be proactively managed to create a vibrant centre, but multiple ownerships often make this impossible.
In certain extreme examples where high streets have become severely dilapidated, are riddled with vacant units and are not delivering for their local community, the RTT believes the only way to overcome this problem is for properties to be brought under single ownership so that the high street can be actively managed as an entity in the same way as a purpose-built shopping centre.
Single ownership can deliver the substantial, and radical, change necessary to rescue many currently moribund high streets. Indeed, it is lack of high street mix control (commonly in tandem with poor accessibility due to inadequate parking provision and shopper-unfriendly parking controls) that has resulted in mainstream investors progressively turning their backs on the high street in favour of modern purpose-built shopping centres. Investor flight has compounded the high street problem by draining stock-renewal cash away.
Fixing the mix
Mark Teale, Head of Retail Research at CBRE said: “A lot of high streets have nothing intrinsically wrong with them as shopping vehicles, subject to inadequate parking provision and unit size distribution problems being addressed. It is the absence of mix control, due to multi-ownership, that is the real bugbear. Mixes are not self sustaining: they need continuous work for high streets (or shopping centres) to be sustained as shopping attractions. A lot of currently failing high streets would be fine if only they were managed in the same way as purpose built shopping centres.”
But multi-ownership is also damaging the high street. Individual owners are understandably apt to go for the highest rent possible, paying little regard to how their lettings impact the wide tenant mix. This approach is in stark contrast to the attitude of a shopping centre owner who is commonly prepared to take a hit on rents if it means securing a tenant whose business will strengthen the mix, enhancing the value of the overall asset.
Everything comes back to ownership. Without single ownership there is no mix control. And without mix control, and control over accessibility (including parking provision), it is all but impossible to reverse high street decline. However politically unpalatable it might initially appear, a lot of high streets would be far better off under the control of professional shopping centre asset managers than a plethora of individual owners. Achieving that requires an extension of compulsory purchase powers together with the vesting of use and access/parking controls in the hands of asset managers, as occurs with purpose-built shopping centres.
Neil Saunders, Managing Director of Conlumino said: “A single owner would take greater care of the environment around the high street and it would be in their interest to organise targeted events which would benefit the local community and encourage them to visit, a bit like the initiatives we see in shopping centres. They could also buy and control local car parking and remove charges which are dissuading visitors. By owning the retail environment they could make commercial decisions to suit the local market and make the high street as successful as possible.”
The issue of parking also needs to be addressed. Mark Teale of CBRE says: “Accessibility is important. Parking provision needs to be brought up to the levels necessary to serve the shopping offer present. Rationing parking to generate parking revenues for local authorities is pernicious from the shopping perspective because it deters shoppers, undermining high street prosperity. The milking of town centre visitors to generate parking revenue is like a hotel owner charging guests to use the lifts or stairs to get to their rooms. Parking is just part of the accessibility arrangements, not a business end in itself. The long-run failure to invest in town centre parking has inevitably resulted in many high streets becoming hopelessly uncompetitive compared with modern customer friendly purpose-built shopping facilities.”
Address regulation that’s no longer fit for purpose
Mark Teale of CBRE said: “The sort of short-term high street fixes we have seen bandied about over the last three to four years can only fail because they address superficial symptoms (vacancies or current rating anomalies) not the underlying reason for high street decline at individual town level. Much of the decline is self-inflicted due to inappropriate planning controls and counter-productive central and local government taxation activities.
“Some high streets can be radically improved simply by bringing them under single management, as long as the shopping stock is still viable. Other high streets, for stock obsolescence reasons, are no longer viable for shopping, whatever you do. The UK is littered with small-scale Victorian and Edwardian unit shopping, originally developed prior to the car as walk-in shopping for local residents that has been redundant for years. Given a great deal of it was originally carved out of residential stock there is an implicit hint regarding a viable alternative use for much surplus stock.
“Creating a sustainable town-centre mix however needs a very clear strategic goal for all the commercial/residential uses present, not an anarchic free-for-all where everything is left to the whims of individual owners. Planning type use controls are useless here: it needs cohesive estate management to sort the high street mess out. Bringing stock under single ownership can be win-win for everybody: the community gets better shopping; shop occupiers make more money; the shopping stock appreciates in value sustaining stock renewal; investors get higher returns and the local authority gets greater rating income. It needs however the political will to relinquish control to asset managers.”
Neil Saunders of Conlumino, said: “We need to remove regulation and let market forces shape the high street. The current regulation in force was designed for a post war Britain when retail was very local, very fragmented and before chain retailers even existed.”
Richard Lowe, Head of Retail and Wholesale at Barclays believes high streets would benefit if more businesses were encouraged to return to town centres. “A high street relies on a buoyant local economy and what better way to drawing in hundreds, if not thousands, of workers from the suburbs and beyond than by incentivising businesses across all industries to relocate to our city and town centres,” said Lowe.
“We have already begun to see some forward thinking town planners break with tradition and incorporate services and local amenities into the traditional high street. GP surgeries, libraries and other health services have begun to pop up in between convenience stores and chemists whereas traditionally they have been set back from the main thoroughfare. Employers could help boost numbers further if the right incentives were introduced.”
A new investment opportunity
The RTT believes that introducing cohesive asset management to currently multi-owned high streets would restore the attraction of high streets to investors. “You only have to look at Marylebone High Street, Regent Street, Sloane Street, and Mount Street et al to see the potency of single ownership asset management at street level. However, in most high streets, bringing stock under single management can only be achieved by compulsory purchase. There are examples – such as Queensway – where investors have painstakingly purchased multi-owned stock but the process is simply too time consuming to be used in most high streets”, said Mark Teale of CBRE.
“The approach would also provide the opportunity for high street planners to jump ahead of shopping centres by creating connected communities via the powers of the internet in much the way Bill Grimsey described in his review,” commented Tim Denison, Director of Retail Intelligence at Ipsos Retail Performance.
Overstocked and overtaxed
The RTT agrees with the point made by many commentators regarding unviable shopping stock in many locations. On the one hand the UK has a huge surplus of redundant tertiary shopping and, on the other, a chronic shortage of larger high-productivity unit stock in primary high-volume shopping destinations: on a per capita basis, less than a third of US levels. Clearing redundant stock needs a major shift in central and local government attitudes regarding use controls and business rates.
The need to overhaul the business rate system was seen as particularly urgent by the RTT. Tim Denison of Ipsos said: “Rates are a totally rigid cost which have far outpaced rents and driven many smaller operators out of business entirely. Bringing forward the next revaluation is not the solution. We need more radical re-thinking on a fair and just means to raise sufficient funds to be in a position to re-engineer and re-energise the high street.”
The bringing together of the high street under single ownership is a radical approach and isn’t suitable for all high streets. However, the RTT believes it could help rescue some of those marooned in secondary and tertiary locations which investors have previously shunned. There is a lot of good high street shop property out there that just needs commonsense management.
The RTT advocates that some test bed sites are used to determine whether such a radical approach may work and to shake down and resolve the teething issues.
David McCorquodale of KPMG said: “Now is the time for action and for commitment from the Government to act on the reviews and industry feedback they have been given. This is not an issue that can be punted into the long grass and forgotten about.
“The potential long term solutions must involve active asset management by experts in the retail industry, who know the local market and can look at the high street commercially and make the changes needed to secure its future prosperity.”
Martin Hayward, Founder of Hayward Strategy and Futures said: “The economics of retail have changed forever and the economics of town centre management need to catch up. Without customers there will be no shops, and with no shops there will be no revenue from rent, rates, parking or otherwise.”
Richard Lowe of Barclays said: “Despite the media headlines the high street will continue to play an important role in our communities, however it must evolve to meet their changing needs. This will only happen with the sustained support from central and local Government, retailers and the local communities themselves.”
Part II: In detail – Individual views of the RTT members
Nick Bubb, Independent Retail Analyst
A review into why there have been so many reviews of the high street would probably conclude that neither Mary Portas nor Bill Grimsey were ideal choices to front up high-profile investigations into the state of the high street, although both made contributions to the debate.
Mary Portas may be nostalgic for a time when butchers, bakers and greengrocers ruled the high street, but her vision of the importance of local community received shamefully little support from the Government. Bill Grimsey took a more hard-headed approach, rightly focused on the importance of business rates reform, but his report was rushed and his idea of a turnover tax on big retailers was not well thought through.
The background problem is, of course, that untrammelled expansion by online retailers, out-of-town retailers and big supermarkets has taken a lot of consumer spending away from town centres, leading to a polarisation of “the high street” between prime shopping streets/regional shopping malls and secondary/tertiary shopping locations and it is the latter where the problem of empty units and “too many” charity shops and pound shops is most prevalent.
If the Government really wanted to reverse the shift in consumer shopping behaviour that has decimated many small towns and high streets then it would be looking at a tax on out-of-town car parking or a tax on online shopping, to make it more expensive to neglect high street shops or to at least level the playing field with the high street.
If the political will is not there to actively discourage online shopping or out-of-town shopping by the feckless consumer, then, as Bill Grimsey identified, the question arises of who will pay for local councils to restructure the weaker high streets. Some of these do have a future of a different kind (a sunlit vista of thriving cafes, farmer’s markets and art galleries and online parcel pick-up points?), even if the scope for conversion to residential usage is limited.
If nobody is willing, in these times of economic austerity, to fund a restructuring of the weaker high streets or actively incentivise high street shopping, then it is very difficult to see much changing in the situation, although there is surely still room for a more coordinated effort to improve the public face of, and encourage more professionalism in, the fast-growing charity shop sector.
Tim Denison, Director of Retail Intelligence at Ipsos
I, like many, welcome the recent contribution that the Grimsey report makes to the debate about how to resolve the ills of the high street, not least because it is grounded on evidence-based analysis, something that was sorely missing in the Portas review.
To my mind his top-line conclusions settle in the right space:-
Investment, of course, is at the heart of matter. The proposed levy on national retail and leisure chains to amass a development pot seems unfair and implausible. The elephant in the room is the business rate tax mechanism which is simply no longer fit for purpose as the principal on-going funding generator. Bringing forward the next revaluation is not the solution. We need more radical re-thinking on a fair and just means to raise sufficient funds to be in a position to re-engineer and re-energise the high street. Perhaps introducing footfall as a unit of high street activity has a role to play here.
The need for Government action to facilitate change and encourage investment is clear, however, the speed with which it can make decisions and enable any grandiose plan to progress is a worry. In the meantime there is a responsibility on local authorities to seriously question how they can work differently to prevent the hearts being taken out of their town centres. As we have proposed before in the Retail Think Tank, a good starting point is for local authorities to tackle empty, obsolete property through a change-of-use process. Store closures on high streets are much about long term structural changes to the sector, so facilitating change-of-use programmes is a necessity.
I will finish where I started. Planning is at the centre of Grimsey’s recommendations.
Whilst his report is constructed from evidence-based analysis, most of the facts are sourced through private enterprises rather than public authorities because they do not exist within. For high street planning to be anything other than piecemeal in the future, we need to have access to more retail data publically about the mix of usage and sales performance so that planners and managers alike can measure their success.
Richard Lowe, Head of Retail and Wholesale at Barclays
The pace of technological change has resulted in a natural reduction in the size of store portfolios and an increase in the number of empty retail units on our high streets. Despite the media headlines the high street will continue to play an important role in our communities, however, it must evolve to meet the changing needs of communities. This can only happen with sustained support from central and local Government, retailers and the local communities themselves.
The issues at the heart of the problem are extensive, ranging from business rates and petrol prices to infrastructure and simply selling the right product mix at the right price. For example, the increasing price of parking and petrol means that popping to the shops for a few groceries can be a costly experience so it is no surprise that many consumers have been driven out of our town centres to retail developments which offer free parking. Reducing parking costs or, even better, offering free parking for an hour could act as a stimulant and draw shoppers back to the high street.
Private sector employers across all industries could also help our high streets by locating more jobs in and around town centres. A high street relies on a buoyant local economy and what better way to drawing in hundreds, if not thousands, of workers from the suburbs and beyond than by incentivising businesses to relocate to our city and town centres. We have already begun to see some forward thinking town planners break with tradition and incorporate services and local amenities into the traditional high street. GP surgeries, libraries and other health services have begun to pop up in between convenience stores and chemists whereas traditionally they have been set back from the main thoroughfare. Employers could help boost numbers further if the right incentives were introduced.
So while Mary Portas and Bill Grimsey lock horns over how to revive the fortunes of the great British high street one thing everyone agrees on it that short-term retail friendly fixes are not going to save our shopping parades but, long-term and sustained planning will.
David McCorquodale, Head of Retail at KPMG
UK high streets have divided into a two tiered environment of the thriving and the merely surviving. Some, like Bond Street and Buchanan Street with their eclectic mix of shops and strong community programmes, are prospering whilst others are blighted by vacancies as retailers flee the confines of their slowly dilapidating surrounds in favour of a modern purpose built shopping centre with ample parking – and bypasses that take passing traffic away from town centres.
For years the evolution of the high street was natural as increased car ownership and town centre congestion drove retailers to seek new frontiers. The pace of evolution was glacial and, in an environment of ever-increasing consumerism, it was argued that ‘pedestrianised’ high streets would bring independent stores and boutiques to life.
However, developments in the last five years accelerated the pace, and altered the direction, of change. A perfect storm of the deepest, longest recession ever, coupled with the seismic shift brought about by the internet has rapidly changed consumer behaviour. Consumer hardship coupled with digital commoditisation of the retail sector has driven massive structural change. Against this backdrop, an archaic property and rating system hasn’t allowed retailers to cut their property costs in line with their falling markets.
The result? Consumers flew to value; the collapse of Woolworths made way for growth of value retailers in lower cost locations. Fashion brands re-appraised the optimal size of their UK estate down from around 250 to 60 stores and a great website. Penetration of online shopping damaged store profitability, leading to closures and failures. Local councils, suffering spending freezes, sought to raise funds from car parking. Together, these actions combined to impact detrimentally town centres in areas of consumer hardship or in close proximity to successful out of town shopping malls. However, the internet age now puts the consumer in control of how and where he/she shops.
Looking forward, the internet and car ownership are here to stay. The economy will recover and consumer spending will increase again. Evolutionary development will continue – already the grocers are returning with a convenience offering. However, tomorrow’s cyber consumer will determine where and how they want to shop. I expect to see the social evolution of high streets return in time with a mixture of residential and leisure mixing with retail. Why shouldn’t joiners, designers and dentists fill the vacancies and leisure units like nurseries, day care centres etc use the space? If consumer behaviour determines that retail turns its back, rents will come down and councils must work with landlords to drive the necessary changes to recreate a social hub – this must also involve the motor car too though!
There is no quick fix to this tale of two high streets – the evolutionary glacier will wind its way.
Neil Saunders, Managing Director of Conlumino
If the rise of online has done anything it has reshaped where we shop, including how we use our high streets. On its own the online dynamic was always sufficient to cause significant disruption to the established order but the recent downturn has had the effect of amplifying and accelerating the trends already prevalent in UK retail.
The fundamental issue facing high streets is that, following the pre-recession boom years, retail now finds itself with overcapacity. This is one of the reasons why so much space has become unprofitable and has closed. In a sense retail is rebalancing supply relative to demand. As harsh as it may be, this is not necessarily a trend we should try to buck as it’s merely a function of natural market dynamics.
That said, there are a number of factors which are unhelpful to high streets which are not necessarily part of the natural dynamic of change. The first of these is the punitively high level of business rates. These are set outside of market forces and have been damaging to many retailers and therefore to high street vitality. If high streets are to be given a fighting chance, this burden needs to be reduced or, better still, removed. The second issue is parking charges and restrictions, especially those set by local authorities. Again, many of these are not subject to proper market forces and, as such, dampen footfall from high streets.
Regardless of the causes of decline, the impact of changing habits is not even across all high streets. Those locations which are bearing the brunt are typically smaller, more secondary town centres – particularly in the north – which are experiencing high vacancy rates, as already under pressure discretionary demand is drawn elsewhere. Difficulties in these locations have been compounded by high profile retail casualties of large multiple retailers which would previously have been key footfall drivers.
Nonetheless, while the more general picture for high streets is uncertain, strong locations, offering varied retail mix in addition to leisure and food service, have actually continued to prosper. The situation on the ground, then, is both polarised and complex, which renders ‘one size fits all’ solutions – as often heralded by various reviews – rather inappropriate.
Mark Teale, Head of Retail Research at CBRE
What we are seeing playing out on the high street is nothing new. It is just that longstanding high street fault-lines have been brought into unusually sharp relief due to the longevity of the current downturn. Unlike the short-sharp recessions of the past (which also saw vacancies proliferate), we are now six years down the line with no hint yet of an end to the seemingly inexorable income squeeze (or the recessionary vacancy problem), the longest in living memory and the reason why high street attrition has proved both so pronounced and now appears so intractable.
The underlying problems however remain the same as they have always been. It is not the economic downturn that is the issue or online shopping or our archaic golden-goose killing rating system. Nor is it inept planning controls or money-grubbing local authorities abusing parking controls to milk shoppers: albeit all play a part in undermining the productivity of high streets. It is stock obsolescence and multi-ownership that are the real villains of the piece.
The more modern shop space that we have added; the more shopping centres and retail parks and superstores and outlet centres that we have built the more chain operators have migrated from small shops in small trading locations to larger, higher productivity, modern shop space in bigger markets. This long run migration (it started in the 1960s) has left a trail of redundant small-scale tertiary/poor secondary high street shopping in its wake.
There is no magic planning wand that can render unviable shop property productive. Short of subsidy, Canute like attempts by central and/or local government to sustain obsolete stock in shopping use is as doomed to failure today as it was 30-40 years ago. Belatedly the Government (but not yet many local authorities) has recognised this, proposing allowing some of the huge surplus of tertiary small-scale unit shopping to change use to residential, whence a lot of it came. There are however many high streets where the problem is multi-ownership, not stock obsolescence and/or accessibility problems.
Self-sustaining high street mixes built around local walk-in shopping ended with chain retailing. Mix control and accessibility is everything in retailing now. Balanced mix-uses attractive to shoppers rarely happen organically and, when they do, are rarely sustained. The free-for-all of mixed-ownership almost always results in the entry of occupiers that undermine mixes; it can often take just a handful of inappropriate occupiers to tip otherwise attractive shopping destinations into a spiral of decline. The UK is littered with high streets with hopelessly damaged mixes.
Bolt on the widespread abuse of parking controls by local authorities, with an eye to revenue raising rather than accessibility improvement (lack of parking investment and inflated parking charges/fines renders many high streets both hopelessly uncompetitive and hostile to shoppers); use controls that suited 1950s shopping but not modern shopping needs and a hopelessly-flawed rating system than can and does force healthy retailers out of business, and it is unsurprising that so many high streets are now in difficulty. And, as the problems are for the most part self-inflicted and resolvable, it is a tragedy.
An obvious solution (albeit politically unpalatable), is to bring failing high streets under single ownership, managing them commercially as shopping vehicles. But first it needs local authorities to be taken out of the loop, vesting use controls and parking in asset managers instead. Doing so would allow the common-sense mix controls used in shopping centres to be applied in high streets as well, free of the conflicted central and local government revenue raising goals that cause so much damage in shopping areas. The potency of high street mix management can be seen all over Central London in areas owned by landed estates and commercial estates: it just needs Government to have the political will to act.
Martin Hayward, Founder of Hayward Strategy and Futures
Both Portas and Grimsey have, in their own way, brought to life the changing role of the high street in modern life. At the heart of both their analyses lies an acknowledgement that shoppers used to need high streets, but now have to be encouraged to want them.
It is now perfectly feasible, if rather depressing, to sit at home and order almost all of one’s requirements online, frequently for a cheaper price than would be possible on the high street itself. In this environment, we have to acknowledge that the high street has to add new attributes to its appeal in order to justify the time that a visit can take up.
These new attributes will need to reflect both the need to make a high street visit a more enjoyable and social activity but also to maximise the ease with which it can be accessed. The former will change the profile of the high street towards a much greater mix of services and building uses and the latter will require a major re-think of traffic and parking policies that can currently deter the quick visit.
To enable this transition to occur will require much greater foresight and simple common-sense from central and local government. The economics of retail have changed forever, and the economics of town-centre management need to catch-up. Without customers there will be no shops, and with no shops there will be no revenue from rent, rates, parking or otherwise.
A pre-occupation with pedestrianisation, and futile attempts to stop the use of cars (over 400,000 new cars were sold in the UK in the last month alone) seem to be at the heart of so many high street plans. It makes no sense that it’s more convenient to order online and have goods delivered than it is to nip into the local high street for a quick shop. Humans are social animals, they love the buzz of the market place, people watching and the serendipity of browsing…….they just don’t have the time or the patience to be managed around the one-way system and into the multi-storey to find it.
Note to Editors:
First mentions of the Retail Think Tank should be as follows: the KPMG/Ipsos Retail Think Tank. The abbreviations Retail Think Tank and RTT are acceptable thereafter.
The RTT was founded by KPMG and Ipsos Retail Performance (formerly Synovate) in February 2006. It now meets quarterly to provide authoritative ‘thought leadership’ on matters affecting the retail industry. All outputs are consensual and arrived at by simple majority vote and moderated discussion. Quotes are individually credited. The Retail Think Tank has been created because it is widely accepted that there are so many mixed messages from different data sources that it is difficult to establish with any certainty the true health and status of the sector. The aim of the RTT is to provide the authoritative, credible and most trusted window on what is really happening in retail and to develop thought leadership on the key areas influencing the future of retailing in the UK. Its executive members have been rigorously selected from non-aligned disciplines to highlight issues, propose solutions, learn from the past, signpost the road ahead and put retail into its rightful context within the British social/economic matrix.
The RTT panellists rely on their depth of personal experience, sector knowledge and review an exhaustive bank of industry and government datasets.
Nick Bubb, Independent Retail Analyst
Dr. Tim Denison, Ipsos Retail Performance
Martin Hayward, Founder of Hayward Strategy and Futures
Richard Lowe, Barclays Retail & Wholesale Sectors
David McCorquodale, KPMG
Neil Saunders, Conlumino
Mark Teale, CB Richard Ellis
The intellectual property within the RTT is jointly owned by KPMG (www.kpmg.co.uk) and Ipsos Retail Performance.
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