The retail note - 19 October 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- As we approach ‘the business end’ of the year, retail sales growth remains strong. The ONS figures show that retail sales values (exc fuel) grew by 4.6% year-on-year in September. Even stripping out inflation, retail sales volumes (exc fuel) were up 1.6%. Naysayers may point to a deceleration in growth from the almost freakish growth recorded in August, but these are decent figures nonetheless.
- Ongoing market out-performance from Wickes. Q3 like-for-likes grew by 2.4% despite an “increasingly difficult market environment”. Although growth was driven primarily by inflation (volumes were broadly flat), it was leveraged against a very strong comp in the corresponding quarter last year. On a two-year basis like-for-likes were up 8.9%.
- Very mixed figures from Inditex. Top line growth was extremely robust – UK group revenues grew by 14.1% to £709.7m, in a clothing market that grew by just 0.8% in 2016. But group operating profits slumped by 32.8% on the back of heavy investment. Flagship brand Zara performed well (sales grew 12.6%) but the rest of the stable remains inconsistent. Pull & Bear and Bershka returned to the black, but Massimo Dutti and Stradivarius both slipped into the red during the year.
Stephen Springham, Head of Retail Research:
The High Street: redundant, relevant or resurgent? That is the tantalising question we pose as the title of our latest Retail Newsletter .
So, which is it? Those that buy into the urban myth of “the death of the high street” would probably opt for ‘redundant’. Of the three options, ‘redundant’ is the one that the UK high street categorically isn’t – how can the mainstay of a retail industry worth £300bn+ a year (and one that is still growing despite every pressure imaginable) possibly be ‘redundant’?
Nor do we blindly cheerlead for the high street, so we would stop short of calling it ‘resurgent’. The UK retail sector is in the throes of well-documented structural change and this continues to play out – and indeed will do so for many years.
The occupational market has changed for ever and continues to rebase rather than rebound. The days of long retailer requirements lists across 100+ towns, rampant occupier demand and easy rental growth have gone forever. The occupational market is no longer cyclical, rebasing is the new norm, which is still an uncomfortable truth for many landlords.
Neither ‘redundant’ nor universally ‘resurgent’, the UK high street is most definitely still ‘relevant’. Despite its multitude of challenges (both external and self-inflicted), the UK high street is more resilient than it is often given credit for and part of its durability stems from its ability to evolve. Increasingly, the high street is not necessarily all about retail – the ongoing rise of leisure continues apace, but we are also seeing demand from consumer goods companies, service providers and even pure-pure online retailers. In the latter instance, there is a certain irony that high street occupier demand is now coming from the very forces that were supposed to undermine it.
Of course, not all high streets are equal. Some are strong, some are very challenged, but each has its own story to tell. To bring some sort of transparency / hierarchy to the appraisal process, our Newsletter contains our Top 200 Town Ranking which scores centres relative to each other across 20 variables. Spoiler alert – those not wishing to know the scores should look away now…
Historic/picturesque/tourist centres such as Cambridge, Bath and Canterbury score very highly as do “affluent market towns” such as Guildford, Chichester and Winchester.
Our Ranking underlines that all of these actually have much more fundamental strengths than just a pretty face or a well-heeled catchment. Some of the major cities such as Bristol, Reading and Birmingham also stand up well, as do a number of less-heralded “under the radar” centres, such as Peterborough, Swindon, Bury St Edmunds and Truro.
The high street property investment market has been strong over the last year, thanks largely to small lot sizes and high liquidity. Indeed, prime high street yields are at 20 year lows (4.00%).
Our Ranking goes some way towards highlighting the towns that offer the most potential, but the right stock selection is equally important. A bad store in Cambridge, Guildford or Reading doesn’t become a good store just because of the positive attributes of the town in which it trades. As we conclude in the Newsletter, the art is separating the wheat from the chaff.
Read the latest Knight Frank Retail Newsletter - Issue 7