The UK Retail Sector - An Introduction for New Entrants | FSP

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