The UK Retail Sector An Introduction for New Entrants October 15, 2015
FSP RETAIL BUSINESS CONSULTANTS
Retail Business Experts in the UK and Europe Shopping Centres Retail Parks Outlet Malls Leisure Parks High Streets Transport Hubs Mixed Use Offices
FSP is closely aligned with Pragma within the St Ives Group
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Pragma – International Expertise
Trading Performance
Customer Attitudes
Space Supportable
Customer Segmentation
Footfall Forecasts Commercial Performance
International Strategy
Brand Positioning
Catchment Analysis Financial Analysis & Modelling
Customer Insight
Brand & Concept Development
Market Analysis
Market Projections
Concept Development Tenant Mix
Market Segmentation
Space Configuration & Planning
Competitor Mapping
Space Allocation & Utilisation Space Configuration Concept Generation & Mix
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FSP Credentials Presentation 2015
FSP RETAIL BUSINESS CONSULTANTS
UK Retail Structure
FSP RETAIL BUSINESS CONSULTANTS
Retail Distribution - UK Shopping Centres: 1,200+ individual centres. Approximately 30% of centres are concentrated in investors that have more than 10 centres, but around half of all centres owned by investors with five centres or fewer Retail Parks: 1,100+ parks Outlet Centres: 59 trading in the UK out of c500 globally Leisure Parks: c100 High Street: In town retail accounted for c64% of Non-Grocery retail in 2000, expected to drop to c40% in 2020 Online: 15%+ of retail trade goes through E-commerce in the UK compared to c8.0% in France and 8.4% as the European average Other channels of distribution: retail warehousing, airports, travel concessions etc.
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Top Shopping Locations The adjacent map shows the Top 50 shopping destinations in the UK by shopper population according to the NSLSP (National Survey of Local Shopping Patterns). There are over 2,800 shopping locations in the UK One third of the UK population (20m people) regularly shop at one of the top 50 locations The top 5 locations are London, Glasgow, Manchester, Birmingham and Leeds
Source: NSLSP
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Pipeline Schemes New Schemes due to open in the next 3 years: 2015 Grand Central in Birmingham (41k m2) opened September 2015 Flemingate in Beverley (15k m2) The Crescent in Hinckley (23k m2) Friars Walk in Newport (36k m2) Westfield Bradford (53k m2) 2016 Victoria Gate in Leeds (43k m2) Bond Street in Chelmsford (28k m2) 2017 Bracknell town centre (74k m2) Westgate Centre in Oxford (74k m2)
Source: Strutt and Parker
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Top 30 Shopping Centres (by size) Rank 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 8
Centre Name MetroCentre Trafford Centre Westfield Stratford City Bluewater Westfield London Westfield Merry Hill Meadowhall Manchester Arndale Lakeside St. David's Liverpool One Bullring Eldon Square thecentre:mk Whitgift Highcross Westfield Derby East Kilbride Shopping Centre Victoria Gate Kingfisher Festival Place Braehead Cabot Circus The Mall at Cribbs Causeway Telford Shopping Centre Trinity Leeds The Centre Victoria Centre Silverburn Centre Brent Cross
Introduction to UK Retailing – October 2015
Town Gateshead Trafford London Greenhithe London Dudley Sheffield Manchester Thurrock Cardiff Liverpool Birmingham Newcastle Milton Keynes Croydon Leicester Derby East Kilbride Leeds Redditch Basingstoke Glasgow Bristol Bristol Telford Leeds Livingston Nottingham Glasgow London
Source: FSP FSP RETAIL BUSINESS CONSULTANTS
Effect of Internet Trading
FSP RETAIL BUSINESS CONSULTANTS
Growth in E-commerce UK ahead in Europe (though still behind Asia) 1% growth in internet (comparison) retail sales equates 650k ft² of comparison goods floor space
E-commerce Share of Retail Trade 15.2% 13.5%
United Kingdom
12.7% 11.6%
United States
11.6% 10.0%
Germany
8.4% 7.2%
Europe Average France
8.0% 6.9%
Sweden
7.8% 7.6% 7.4% 7.1%
Netherlands Spain
3.5% 3.0%
Poland
3.3% 2.8% 2.5% 2.1%
Italy 0%
5%
2015
10%
15%
20%
2014 Source: Statista
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Growth of M-commerce M-commerce growth dramatic - virtually zero in UK in 2009 now estimated at £25bn in 2021 Mobile Share of Retail E-commerce United Kingdom Germany Sweden United States Europe France Netherlands Spain Italy 0
5
10 Total Mobile
15 Smartphone
20
25
30
Tablet Source: Statista
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Example UK Anchors/Popular Brands
FSP RETAIL BUSINESS CONSULTANTS
Grocery/Non-Grocery Non-Food Brands
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Introduction to UK Retailing – October 2015
Grocery Brands
FSP RETAIL BUSINESS CONSULTANTS
Example Shopping Park Occupiers
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Department Store vs. Stand Alone UK Entry
FSP RETAIL BUSINESS CONSULTANTS
Department Stores
FSP RETAIL BUSINESS CONSULTANTS
Department Store vs. Stand Alone Store There are over 500 department stores in the UK Department stores: Provide lower risk entry potential Can limit profitability in a high sales situation Reduce ability for brand promotion and control Stand alone stores offer: Advantages
Greater visibility and prominence
More control over brand development
More profit if retailing is successful
Better choice of locations
Disadvantages
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Longer lease commitment
Profit risk if sales are poor due to fixed cost base
Higher initial outlay on fixtures and fittings
Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Department Store Clothing/Footwear Segmentation John Lewis
Debenhams
Young
Young Classic
Classic Assured Assured
Family
Family
House of Fraser Classic
Selfridges
Classic
Young
Young Family
Assured
Family
See slide 25 for explanation of FISH segmentation 18
Introduction to UK Retailing – October 2015
Assured Source: FSP FSP RETAIL BUSINESS CONSULTANTS
Financial Information
FSP RETAIL BUSINESS CONSULTANTS
Typical Rental Options Straight base rent – rental periods have dropped substantially and are now averaging around 7 years Base + Turnover element: Base rent often set at 80% of open market rent with a turnover % top up Turnover = sales less VAT net of refunds but beware of internet sales calculation! Ratcheted turnover: As above but base rent is adjusted each year to an agreed figure based on previous year’s sales Variable turnover deals eg: 8% to £1m 10% £1m to £1.5m 12% £1.5m to £2m ‘Caps and collars’ – usually applied to turnover leases only and represent the maximum/minimum that will be paid Break clauses – frequent condition, can be both sides, tenant only etc Rent reviews – used to be upwards only but changing
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Trends
FSP RETAIL BUSINESS CONSULTANTS
Fragmenting Tribal Groups Characteristics
Baby Boomers (1945-1960) Cold war Post war boom “swinging sixties” Apollo moon landings Youth culture Woodstock Family oriented Rise of the teenager
Generation X (1961-1980) End of cold war Fall of Berlin wall Thatcherism Live aid Early mobile technology Introduction of first PC
Generation Y (1981-1995) 9/11 terrorist attacks Playstation Social Media Invasion of Iraq Google Earth Reality TV
Generation Z (Born after 1995) Economic downturn Global warming Mobile devices Energy crises Produce own-media Arab Spring Wiki-leaks Cloud computing
Percentage in UK 3% workforce
33%
35%
29%
Attitude toward technology
Largely disengaged
Early IT adopters
Digital Immigrants
Digital Natives
Currently employed in either part-time jobs or new apprenticeships “Technoholics” – almost entirely dependent on IT
Signature product
Automobile
Television
Personal Computer
Tablet/Smart Phone
Communication Media
Formal Letter
Telephone
Email & Text message
Text or social-media
Communication preference
Face-to-face
Face-to-face ideally but telephone or email if required
Text messaging or email
Online & mobile (text messages)
Formative Experiences
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Maturists (pre-1945) Second World War Rationing Fixed-gender roles Rock n Roll Defined gender roles – particularly for women
Introduction to UK Retailing – October 2015
Google glass, 3-D printing, driverless cars Hand-held communication devices Facebook + other social media
FSP RETAIL BUSINESS CONSULTANTS
Sample Success Stories Which type of retailers can be most successful in in the UK’s fast-changing retail landscape? Stores with strong multichannel offers - Stores such as Next and John Lewis enjoy growing customer loyalty as they offer seamless customer experiences both in stores and online Value players - Budgets may not be squeezed as they once were, but disposable income is still tight. As such, value players will continue to become an increasingly popular option Ethical retailers - As the impact of the fashion industry on the communities and environments involved in production receive more media attention, consumers are beginning to select retailers on the basis of their ethical credentials
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Brand Positioning – Case Study
FSP RETAIL BUSINESS CONSULTANTS
FISH: Clothing and Footwear Market Segmentation A Sportswear specialist asked FSP to recommend a flagship store location in London. FSP used FISH to assist the process. Brand positioning important to optimise trading performance FSP use FISH – a bespoke method of defining customer and retailer segmentation, taking into account Age and Image perception Age perception – expressed as the consumer’s own ‘thinking age’: i.e. how young or old do I feel? Image perception – what image does the consumer wish to convey about themselves through the merchandise and the brand label: i.e. stylish or safe and sensible?
Source: FSP
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
FISH: Example Retailers Fashionable – demonstrates fashionability
Individual – demonstrates taste beyond transitory fashion
Safe – ‘value for money’ merchandise with good enough performance
Homely – items are bought purely for replacement. Price is important for goods whose main attribute is utility
Young – peer pressure to conform is strong and fashion is a powerful identifying statement Assured– able to make up own mind and sophisticated in choice
Family – dominated by the financial considerations of running the home and caring for the family Classic – typically Post-Family. Many similarities with Assured but less self confidence about the ‘rightness’ of purchase decisions Old – ‘given up’. Not seeking to make a statement about themselves through their purchases
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
FISH Breakdown 30%
25%
% of C&F Spend
20%
15%
10%
5%
0% Young
Assured
Family France
Classic
Old
UK Source: FSP
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Mistakes to Avoid!
FSP RETAIL BUSINESS CONSULTANTS
Potential Pitfalls Research Understanding the customers, catchments and competition. Use research to understand not only cultural differences but also production sizing and design variances from other markets UK Shoppers are savvy, they have a high level of brand awareness, fashionability and are quick to disengage from retailers that do not adhere to the levels that they are accustomed to. Be clear who your competition is in the UK market place, learn from them Understand the UK and regional promotional calendar, ensure UK specific events and key trading periods are highlighted and included in the yearly strategy - they will differ dramatically from other countries and territories Take time to research, understand the market and take impartial advice from country experts
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Potential Pitfalls Siting and Store Space Cement the store format for the UK market (some retailers end up trialling several different formats before deciding, a costly process) Take time to understand the best location for the relevant stage of the brand’s evolution Mistakes often made with choice of entry units being too expensive. Included in this are the perils of business rates which need to be taken into account Over-stretching initial locations plans – clustering can work better in many cases, do not over focus on London Size of property is a challenge. As an example Americans are used to trading from much larger units and not on multiple floors Benchmark location options against existing portfolio on comparable criteria including catchment size, demographic and turnover estimate Use local experience to ensure required rent is viable in combination with lease period – negotiate breaks where possible
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
Conclusions
FSP RETAIL BUSINESS CONSULTANTS
Conclusion To optimise success retailers must leave no stone unturned to understand the UK: Find your trusted partner: Real estate decisions Product, pricing, promotion and placement It is crucial to ensure that prices reflect amounts that regional consumers deem acceptable and appropriate Understand the competition: Carry out research on regional and local target audiences Identify and emphasize those trading aspects which differentiate your brand Speed to market: Start building administrative (tax, legal, accounting, distribution) infrastructures as early as possible Above all, history shows it is vital that retailers do their research. Getting these basics right should help to ensure that expansion into UK markets provides a significant boost to business growth. FSP is expert in assisting overseas brands evaluate the UK trading opportunity.
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Introduction to UK Retailing – October 2015
FSP RETAIL BUSINESS CONSULTANTS
John Fell Director
Simon Rosenberg Senior Consultant
FSP RETAIL BUSINESS CONSULTANTS
T+44(0)1494 474740 M+44(0)7970 880375 F+44(0)1494 474262
T +44(0)1494 474740 M+44(0)7495 638285 F +44(0)1494 474262
John@fspretail.com
Simon@fspretail.com
19 Manor Courtyard Hughenden Avenue High Wycombe UK, HP13 5RE T +44(0)1494 474740 F +44(0)1494 474262 fspretail@fspretail.com www.fspretail.com www.snap-shop.co.uk
FSP RETAIL BUSINESS CONSULTANTS 19 Manor Courtyard Hughenden Avenue High Wycombe UK, HP13 5RE T +44(0)1494 474740 F +44(0)1494 474262 fspretail@fspretail.com www.fspretail.com www.snap-shop.co.uk