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retail week

june 16, 2006

will the internet kill the high street?

byline: by jennifer creevy

length: 1308 words

highlight: online shopping is poised to hit the retail property market - the only question is, how dramatically? jennifer
creevy reports

when online shopping first emerged and amazon and ebay captured the nation's interest, some in the property in-
dustry feared for its bricks and mortar. doom-mongers warned that retailers would be condemned to halting their physic-
al expansion plans by the power of the internet.
that was more than five years ago and, contrary to those fears, the high street has thrived since then. but with the
second wave of growth in online shopping, many more shoppers are being persuaded to shop on the net. with rent and
rates a big concern among established high street retailers, they are seizing back the initiative from the pure-play operat-
ors and embracing the opportunities the internet presents.
against such a background, it is inevitable that the retail property market is going to feel some pain as shoppers
grow used to buying online.
british retail consortium (brc) property executive paul browne says: "in the past five years, we have seen a boom in
property expansions as retail sales showed strong growth. this is unlikely to continue, though, because retail has wit-
nessed a downturn and property costs are being scrutinised.
"property costs are still rising while there is a downturn in retail sales. if this continues, retailers may reconsider
their portfolio (and) make a stronger investment in their online businesses to cut costs on property."
dsg international property asset manager mark feltham points to the unrealistic rise in property costs. "while we be-
lieve there is a place for both bricks and mortar and online retailing, there is no doubting that property costs are getting
out of hand," he says.
feltham says that while inflation has been at about 2.5 per cent, the dsg rates bill for last year soared by 14 per cent
- from £72 million to £90 million - and this year there is a similar increase. on top of that, he says, rent on the high street
is increasing at just above the rate of inflation, but out of town has seen hikes of 6 per cent to 7 per cent. "retailers'
turnovers on the whole are not increasing anywhere near these rates and therefore margins are declining. property is
now our biggest cost centre, not staff. and we have a staff of about 30,000."
in contrast to the downturn on the high street, online retailing is booming. according to the interactive media in re-
search group (imrg), online shopping now accounts for 10 per cent of retail sales. it claims that in april, shoppers spent
some £2.6 billion online. retail analyst verdict research also points to the threat of online retailing. a report it published
in february found that while overall retail spending grew by just 1.5 per cent in 2005, spending online surged ahead by
28.9 per cent, more than 15 times the pace of all retail. the report points out that of the extra £3.9 billion spent by con-
sumers on retail last year, compared with 2004, almost half (£1.8 billion) went to online retailers.
the undeniable strength of online retailing can be seen on the high street. while dsg international doesn't plan to
shed any stores, it has taken its dixons brand online. and ottakar's chairman philip dunne pointed to the pressure from
supermarkets and online retailers as part of the reason to accept hmv's bid for the company.
landlords are mostly confident there will always be a need for good quality, prime retail space. hammerson director
of leasing sheila king says the impact on shopping centres is limited because internet retailing is still only a small part
of total retail spend and in large, dominant centres, there is a high proportion of fashion and footwear, which are diffi-
cult to sell online.
land securities managing director of retail richard akers also sees prime space continuing to be in demand. "there is
no doubt that online retailing is starting to have a serious impact on traditional retailing but, despite the slowdown in
sales, there is still strong demand for good locations.
"some retailers have even found that their online sales have been strongest in areas where they have a high concen-
tration of stores. it seems that these high-profile stores serve as brand building exercises and shoppers want to buy on-
line from a retailer that they know and trust," he adds.
landlords do, however, fear for secondary space. akers says the impact will be more visible in weaker towns or
shopping centres with secondary space or in larger towns with poorly configured units. "new shopping centres or retail
developments now all offer the modern floorplates that retailers want, so the growth in online retailing will be felt in
older stock and here we might see rental decrease and more voids," he says.
the british property federation (bpf), which represents landlords, backs landlords' claims that prime space is still in
demand. "the internet is affecting space requirements, but we're seeing that prime sites in high streets and shopping
centres are in short supply and there is no shortage of demand for that sort of space," says director ian fletcher.
some retailers, however, believe the internet could affect more than secondary space. one property director at an en-
tertainment retailer suggests that if property costs continue to rise, retailers could halt expansion plans, leaving the vast
amount of new developments scrambling to fill their space. "most retailers now have an online offer and if they are
finding that their brand presence on the high street is already strong enough to grow their online business, they will put
a cap on the amount of new stores they open," he says. "just because new developments offer the kind of space that re-
tailers want, doesn't mean that they will pay top notch for it and if the growth in retail spend is not on the high street
then they will look online and develop more of a multichannel approach."
aspirational focus
fletcher still argues that there will always be consumers who use shopping as a leisure activity and landlords should
focus on those people. "for some people shopping is a chore, but for many others it is a pastime, and therefore the im-
portance of a variety of shops and the ambience is as important as ever," he says.
landlords need to offer shoppers a retail experience in order to keep their interest. king says while the electricals
sector has been one of the hardest hit by online retailing, those retailers that offer a good service in their stores will al-
ways have an edge over the internet. she says that john lewis trades well in electricals at the brent cross shopping centre
because it offers advice to customers and similarly, the apple stores are successful because they offer "retail theatre" - an
aspirational shopping experience.
akers agrees. "we need to design and build shopping centres that are attractive leisure destinations and retailers
need to offer a level of service or experience that can't be achieved online," he says.
akers points to land securities' gunwharf quays development in portsmouth. "gunwharf quays is a day out," he ex-
plains. "it has shops, cafes, restaurants and a good environment for families. those people that shop online do so for
convenience so the leisure shopper is what we need to focus on. gunwharf quays has achieved high levels of sales
growth in a tough climate for that very reason."
online retailing is affecting property requirements and while landlords create retail experiences in their new devel-
opments, there is plenty of existing stock that could suffer. despite the fact that some believe shopping on the internet is
only for certain sectors such as electricals, music and dvds, it will not be long before fashion sites gain a firmer
foothold. just because shoppers today prefer to buy clothes and footwear from the high street does not mean that the
next generation of shoppers will be the same. retail is fast moving and landlords need to keep one step ahead.
- what do you think? e-mail us at editorial@retail-week.com.

load-date: june 16, 2006

language: english

publication-type: magazine

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