According to the Centre for Retail Research, thirty retailers have shut up shop in 2016: BHS, Austin Reed and Staples to name a few with many others fading into antiquity without much furor. BHS, however, has had a very public post mortem with its former owner Sir Phillip Green and associate Dominic Chappell given a parliamentary dressing down.
With such a mass of workers laid off due to such self-serving mismanagement, one cannot help but focus on negative aspects. A falling giant represents issues not only for out of work employees but for the centers and high streets in which they reside. Intu, an owner of UK centres, expects there to be some impact on rental incomes in 2017 within its centres (The Times, 26/10/2016).
BHS has been a zombie for some time. Its shops notable for their tired interior, lackluster displays and underdeveloped fashion lines. The only area where BHS continued to retain an excellent reputation was in its lighting department with customers having a dim view of everything else. Unfortunately, lack of custom and intentional bungling can sink a stalwart of the high street in a matter of a few of years.
It was BHS’ suffering brand which makes it a particular weight on a shopping centre. As centres incomes are derived from rents and a portion of the turnovers of their tenants, large units earning little creates drag on income. A struggling retailer can influence the brand of that centre, negative associations form quickly and fade slowly. The continued lifeless lurch of BHS would harm its hosts in another aspect too, its capacity to attract consumers as an anchor tenant. This failure to pull consumers to the centre is compounded by its impact on the incentives for ancillary tenants to agglomerate there as well, putting downward pressure on rents as demand for space diminishes.
The function of an anchor is to attract consumers and smaller retailers, to support the centre as a core retailer, BHS failed to meet these objectives. Having BHS in a large unit in a centre represented a huge opportunity cost to the centre in terms of turnover, footfall, rents and centre marketing. Furthermore, one must consider that the perpetuation of a firm disemboweled by a lack of investment may be of gain to others.
We must look forward and assess the considerable opportunities which lie ahead for shopping centers. It will allow a centre which had less control over its tenant mix a hand at trying to mold the centre into one which more effectively caters to a demographic which might have changed considerably since BHS took residence. A blank canvass confers the ability to attract different retailers and consumers and produce higher turnovers.
A new opportunity for centres:
What attracted consumers to a shopping centre ten years ago is markedly different to what draws consumers now. Consumers not only migrate towards centres to engage in conventional shopping but also to indulge in leisure and entertainment. Now, more than ever, people want to be able to access multiple different services and goods in a single location.
Three centres which retained BHS as anchors are The Grafton, a shopping centre in Cambridge; St. Enoch, a shopping centre in Glasgow and Regent Arcade and a centre in Cheltenham. Some years ago, St. Enoch finished a considerable project of capital expenditure. Its new Buchannan Street facing entrance allowed it to attract retailers such as Follie Folli, Hamleys and Hotel Chocolat signaling its ambition to modify its retail mix to appeal to a different consumer.
The failure of BHS allowed these centres to adjust their retailer mix to a changing demographic and consumer tastes. Interestingly, all three of these centres have earmarked significant portions of these units for food and beverage retailers. St. Enoch plans to open a nine-screen cinema as well as a food and beverage offering in the old BHS space; Regents arcade will dedicate their 55,000 sqft unit to F&B and retail with The Grafton in Cambridge doing likewise. A more significant and varied food offering attracts and directs more footfall through the Centre resulting in increased dwell time and discretionary expenditure.
Increased footfall in formerly quiet areas will increase demand for units, driving up rents and therefore incomes for these retail destinations. In this sense, the fall of BHS has been a boon to shopping centres as, despite its short-term impacts, it has provided an opportunity to revamp their offering and cater to a tangibly different consumer in a significantly different economic environment. The overriding consideration in the retail sector is that the loss of an anchor tenant is a particularly dire scenario, but the end of BHS provides a fresh start and an opportunity to reposition in a market which changes quickly.
By Alasdair Pocock, Retail Research Analyst at Bayfield Training