What Next for the High Street? Part Two: a Revival

What next for the high street? Part two: A revival

January 2021 One of our principal amusements is to watch the gradual progress – the rise or fall – of particular shops … They are never inhabited for more than two months consecutively, and, we verily believe, have witnessed every retail trade in the Directory.

Charles Dickens – Sketches by Boz

About this report

LocationEdge Local Data Company This report features analysis by LocationEdge, a Deloitte product The data analysed in this report was provided by the Local Data that answers the core geospatial questions faced by businesses, Company (LDC). LDC is a market leading retail location data and using advanced location and market intelligence through insight provider, combining powerful proprietary technology geospatial simulation. LocationEdge provides businesses with with a unique, field research methodology inspecting over advanced strategic insight for key decision‑making around how 680,000 retail units each year on either a 6‑ or 12‑month cycle. they shape their market offering. Information collected includes occupancy status, tenant brand, retail category and opening hours for every premises, whether LocationEdge combines real world, accurate spend and mobile it is part of a chain or independently run. LDC delivers data, trace data with hundreds of sources on supply and demand, market analysis and profiling to leading retailers, financial with client store, channel and performance metrics to inform institutions, analysts, search engines, online directories and the business estate, product, market and location strategy. the media.

Find out more: https://www2.deloitte.com/uk/en/pages/ Find out more: https://www.localdatacompany.com/ consumer-industrial-products/solutions/locationedge.html

Please note that Deloitte was unable to publish this report in the Autumn as originally planned due to the lockdown in November 2020. As a result the data used in the report only goes as far as Q3 2020. Contents

Foreword 2 Part two – Executive summary 3 The future of the high street 5 • Equal and opposite reactions – localism and the growth of the suburbs 5 » Chain vs independent 5 » Home vs work 6 » Self vs stuff 7 » Entertainment vs authentic 9 » Fashion conscious vs conscientious consumption 10 • The high street as a ‘fast fail’ laboratory 11 • Addressing the oversupply of space 13 How the future high street will be delivered 17 • Rethinking the landlord and tenant relationship 17 • Planning for purposeful town centres 18 • Shaping and funding the regeneration 18 Conclusion 20 About Deloitte LocationEdge 22 Contacts 23 Endnotes 24 What next for the high street? | Part two: A revival

Foreword

In 1792, Henry Walton Smith and his The future will of course involve substantial wife Anna opened their first store selling innovation and experimentation, and the newspapers in Little Grosvenor Street, high street is the ideal place to introduce London. In 1848 the business, now run new concepts and formats. As a result, we by Henry and Anna’s son, William Henry are likely to see a considerable number Smith, took advantage of the railway boom of failures as the high street becomes and opened a bookstore at Euston station, the ‘fast‑fail’ testing laboratory of choice. quickly followed by kiosks in stations across What will emerge is a high street that is the nation’s expanding railway network. both new and yet features old concepts. Meanwhile, in 1869, John James and Mary While it may include an organic butcher, Ann Sainsbury open Sainsbury’s first dairy a GP surgery or a small local storage depot, shop at 173 Drury Lane, London. The age these are all ‘trades’ that Dickens would of chain retailing in the UK had begun. have recognised.

In part one of this two‑part series we For all the upheaval the high street faces, examine recent events on the high street we believe it has an exciting future. following a period of major technological advancement and extraordinary political Ian Geddes and social turmoil. In part two we consider Managing Partner what the future of the high street could North South Europe Consumer look like. In our view the high street may be and Retail heading back to the future, to a time before the rise of the chains when high streets were dominated by small, independent, specialist retailers responding to the very specific wants and needs of those who lived and worked in the immediate vicinity. It was also a time when shops shared their town centre with a wider range of uses from warehouses to homes.

2 What next for the high street? | Part two: A revival

Part two – Executive summary

Back in 2014, following a cycle of distress and failures after the global financial crisis, Deloitte published research and analysis predicting it would be the high street rather than shopping centres or retail parks that would prove most resilient over the coming years.

When that report was published it may However, few would have foreseen the The perceived weaknesses of the high have been possible to predict online sales shock of Brexit, and no one could have street model – its fragmented ownership, would continue to undermine bricks and anticipated a global pandemic that would lack of centralised coordination, lower mortar retailing. all but close down physical retailing rents and high vacancy rates – actually intermittently throughout 2020. Given the become strengths. They lower the barriers upheavals and structural shifts that have for new concepts and operators, enable impacted the market since our original experimentation and fast failure, and report, now would seem a good time to ultimately create a flourishing and diverse revisit our optimistic prediction of 2014. environment. In part one of this series, we discussed how the decline of the high street has The COVID‑19 crisis has accelerated been accelerated by the COVID‑19 a number of trends that were already pandemic. under way prior to the pandemic and are now increasingly embedded in shopping In this second and final habits. Such trends include: part, we discuss how the diversity of uses that • an increased focus on localism make the UK’s high streets so difficult • a greater level of commitment to small to define may also independent businesses that can easily prove to be the key identify the provenance of their goods to their long‑term recovery. • the development of recommerce and independent fashion operators in reaction to fast fashion and the environmental impact of mass retail supply chains

• more focused shopping missions with higher spends but fewer trips

• more value placed on the ‘self’ and socialising rather than out and out consumerism.

3 What next for the high street? | Part two: A revival

The high street is ideally positioned to Meanwhile, the rise of the ethical capitalise on all of these trends. While we shopper will see more socially motivated The high street is believe the high street will experience shopping behaviours on local high streets. a ‘renaissance’, it must also reflect local Retail parks will also continue to play an ideally positioned demographics. Not every high street needs important role as out of town hubs for an artisan bakery or organic coffee shop. essential services, showrooms for major to capitalise on all Indeed, many areas have much more purchases and convenient click and pressing social needs. collect venues. of these trends.

Younger demographics are still likely to Achieving this vision will require a reset While we believe be attracted to the wide variety of retail of the landlord‑tenant relationship, and leisure mix offered by major shopping more flexible planning laws and more the high street centres. However, shopping centres will involvement from local authorities in need to work even harder to keep the reshaping their town centres. will experience experience attractive and relevant. a ‘renaissance’, it must also reflect local demographics.

4 What next for the high street? | Part two: A revival

The future of the high street

Equal and opposite reactions – localism Figure 1. Announced store closures 2020 and the growth of the suburbs One way to consider the potential future Dixons Carphone of the high street is in terms of a reaction Tui against the retailing landscape of the last Argos 50 years. Spending patterns are likely to M&S shift in response to changing working and Gap consumer habits and demands. Halfords Burger King Chain vs independent Boots Retailers have been actively shrinking Pizza Hut their bricks and mortar footprints for WH Smith many years. This has not just been driven by successive waves of failures, Coop Bank insolvencies and CVAs (company voluntary Ben Sherman arrangements) as described in part John Lewis one of this report, it is also the result of Pret A Manger a proactive ‘retreat to profit’ by chain 0 100 200 300 400 500 600 store businesses that have proactively Numer of stores managed their portfolios and withdrawn Source: Deloitte LLP from marginal or unprofitable locations when a lease expires or other break opportunities have enabled them to do so. Figure 2. Percentage change in independent and chain shops from 2016 This process was well advanced prior to 1.5% COVID‑19 but has been accelerated by the pandemic as highlighted by the number of 1.0% announced closures in 2020 (see Figure 1).

0.5% When chain stores rationalise their portfolios it can have a major effect on the 0.0% overall vacancy rate. What is striking is the rate at which chain stores are retreating -0.5% from the high street and how that space is being filled by independent retailers -1.0% (see Figure 2). While Greater London and the North West have seen the highest rate -1.5%

of new openings by independent retailers Percentage change from 2016 since 2016 these have also seen the -2.0% highest levels of chain store closures. -2.5%

-3.0% 2017 2018 2019 2020

Chains Independent

Source: Deloitte LocationEdge/Experian

5 What next for the high street? | Part two: A revival

Home vs work We may also see the emergence of The same research by Deloitte Digital The more that people work from home, the the internet café 2.0 (Coffice in our found that 59% of consumers used more more money that would have been spent in 2014 report) – a place for workers who local stores and services to help support city centres is likely to be redirected to the want to avoid commuting but also want them during lockdown. suburbs. Services that typically surround to escape their spare bedroom and office workers in city centres will ‘follow the need access to support services such as However, one in five stopped using money’ and generate demand for space high speed broadband. The Local Data a business due to its response to COVID‑19 on the local high streets, likely leading to Company has tracked 1,961 internet café such as refusing to prioritise front‑line growth in the following sectors: openings over the last five years, although workers or failing to ensure the safety only 33.7% have remained open. As new of their employees. This finding not only • grab and go food outlets working patterns take hold, we would points to a shift to localism, it could also expect the internet café to evolve rapidly indicate that consumers are making • cafes and bars and have a much higher survival rate. purchasing decisions based on ethical considerations. • stationers, office supplies and printing The shift towards localism was already services apparent prior to the onset of the In a further sign of the growth of localism, pandemic. An enforced period of our research also found that 57% of • local IT support services. working from home during lockdowns respondents said they would be more likely could perhaps mark the start of to shop at businesses that offer locally a permanent shift in shopping habits. produced products while only 7% said they Research undertaken by Deloitte Digital at would be more likely to use a business that the height of the original lockdown showed has a large global presence (see Figure 3). the extent to which local businesses were given a boost and also how some consumer behaviours and values are likely to continue post‑COVID‑19 (see Figure 3).

Figure 3. Following the original lockdown, respondents have been more likely to spend money at businesses that ...

… take extra steps to ensure the safety and well-being of their employees 62%

… oﬀer locally produced products 57%

… are independent/local to my area 57%

… make easy to shop/interact with them online 47%

… support local charities (e.g. food banks) 46%

… I have previously used for a long time 36%

… are UK businesses with a large national presence 25%

… use fewer employees in physical stores/branches to limit contact with customers 23%

… are online-only (i.e. have no physical presence) 20%

… have a large global presence 7%

0% 10% 20% 30% 40% 50% 60% 70%

Source: Deloitte Digital

6 What next for the high street? | Part two: A revival

Localism is not just about independent Self vs stuff Instead, the top ten growing sectors not retailers. The shift towards more local Our analysis has shown that consumer only all revolve around personal grooming, shopping raises challenges for major shopping habits have changed – from socialising or food, but also none of those multiple retailers that increasingly spending on ‘stuff’ to spending on ‘self’. subcategories can be experienced online recognise the need to tailor their offering Of the ten retail subcategories that have (see Figure 4). to the specific demands of local customers. shown the greatest net growth in numbers To do this, retailers need to interrogate since 2013, none actually sells something the data they collect from customers in that the customer can take home. any given location and make their offering relevant to that location. We anticipate that Figure 4. Top ten growing and declining subcategories – Net change in store major retailers will need to spend more numbers since 2013 time and money collecting and analysing data to adapt national brands and products Barbers for local markets. Beauty Salons

Vaping Stores and Tobacconists

Using market intelligence to Cafe & Tearoom maximise floorspace, and improve Nail Salons store format and range Restaurant & Bar

Our client is a large fashion retailer Coﬀee Shops with an extensive network of stores Pizza Takeaway across the UK and Republic of Ireland. Historically the products Hair & Beauty Salons which were stocked in stores Health Clubs depended on store size and Chemists/Toiletries format which lead to missed sales Bookmakers opportunities, as in‑store ranges Travel Agents were not always aligned to the needs Fashion Shops of customers visiting that store. Estate Agents Deloitte’s LocationEdge ‘accelerator’ Post Oﬃce Services was used to analyse product performance in each store to Newsagents understand customer preferences. Clothes – Women Using advanced analytics, a store Public Houses & Inns

segmentation was created to Banks & Other Financial Institutions optimise each store’s range, -4,000 -3,000 -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 proposition and experience, and maximise margin and sales. Net increase/decrease in store numbers

This was achieved through reducing Source: Local Data Company stock inventory and discounting through the understanding of the right offer in the right store location, identifying new revenue driving opportunities and space allocation across the store portfolio. Our solution addressed one of retail’s biggest challenges in maximising the return on its store portfolio.

7 What next for the high street? | Part two: A revival

The top ten subcategories that are in Next are banks and financial service As well documented elsewhere, the decline are more obvious. Fashion is the providers which have been withdrawing numbers of post offices and pubs have also most affected sector with a total net loss from the high street for many years as been declining with London losing more of more than 4,000 stores. more banking services are delivered online. than 1,600 pubs since 2013 (see Figure 5). However, although ATM lobbies have remained remarkably resilient with nearly 72% still in service five years after opening, the move to a cashless society could see ATMs also disappearing.

Figure 5. Pub closures by region (2013-2020)

2,000 20%

1,500 15%

1,000 10% Number of Closures Proportion of Closures %

500 5%

0 0% North Wales East Of East West South Yorkshire Scotland South North Greater East England Midlands Midlands West and the East West London Humber Number of Closures Proportion of Closures

Source: Local Data Company

The top ten subcategories that are in decline are more obvious. Fashion is the most affected sector with a total net loss of more than 4,000 stores.

8 What next for the high street? | Part two: A revival

Entertainment vs authentic The attraction of the ‘bright lights’ might The polarisation between convenience form part of the entertainment value of Experience needs and experiential retail continues. a trip to a destination shopping centre Typically, experiential retail is defined in but the future high street may prove to to be amortised, terms of shopping as a leisure activity, be more considered and cost conscious. making the consumer’s interaction with Local customers may be attracted by and this has the product and the retail space more more old‑fashioned experiences, a warm engaging, entertaining and exciting. welcome and a friendly environment, a tendency to drive personalised service and the trust that Experiential retail can be inherently comes with having knowledgeable staff retailers towards expensive and often relies heavily on an who are enthusiastic about the products extravagant fit outs to attract customers. and services they sell. It is also easy longer leases Creating space with a ‘wow’ factor is one to imagine consumers rejecting the thing, measuring the return on investment extravagance of many store designs than they would from that ‘wow’ is quite another. The worst especially when it is reflected in the cost of of all possible outcomes is an experience the product or service. otherwise choose that has a high impact initially but rapidly evaporates into the familiar and requires As consumers become more to spread the expensive refreshing. environmentally aware they may also start to question the environmental credentials cost over a longer Retailers will need to be able to identify of the places where they shop. In the future a demonstrable return on investment for consumers may seek proof of the energy period. the costs involved, especially if landlords efficiency of the shops they visit, the use become reluctant to contribute to or fully of sustainable or recycled materials in subsidise new concepts. Experience needs the fit out. Such demands are likely to be to be amortised, and this has a tendency to challenging for major retail brands that drive retailers towards longer leases than will fundamentally have to redesign their they would otherwise choose to spread the fit outs across potentially hundreds of cost over a longer period. locations. However, it is likely to prove rather easier for small, independent stores on the high street that may in turn benefit from a transfer of loyalties.

9 What next for the high street? | Part two: A revival

Fashion conscious vs conscientious For many years charity shops have led the This has started to show through in the consumption way as a form of recommerce on the high data as the number of charity shops The tension between the attractiveness of street. However, the growing availability of has declined slightly since 2016 with the cheap, imported, mass produced goods cheap new clothes and household goods exception of London where the number of and the growing awareness, particularly has put the charity shop business model charity shops has risen slightly in the same among younger people, of the potential under pressure over recent years. period (see Figure 6). social and environmental consequences of concepts such as ‘fast fashion’ has Figure 6. Charity shop numbers (2016-2020) exposed a conflict at the heart of retail. The post‑lockdown trading figures suggest 7,150 780 that the appetite for high volume, low 775 cost retailing remains undiminished. 7,100 However, according to the research by Deloitte Digital, this appears to be at odds 770 7,050 with the 55% of 16 to 24‑year olds who indicated that they would be more likely to 765 shop at businesses that are independent 7,000 or local to their area once lockdown was 760 lifted. 6,950 755

In practice, the high street could see Number of Charity Shops – London 6,900 major brands continuing to consolidate 750 Number of Charity Shops – Outside London in large footprint stores in destination locations while also witnessing a growth 6,850 745 2016 2017 2018 2019 2020 of more socially driven offerings such as recommerce concepts focusing Charity shop Greater London Charity shop other on second‑hand luxury and vintage Source: Deloitte LocationEdge/Experian brands. According to Coresight Research, recommerce retailers in the US are growing There would certainly seem to be an 20 times faster than the conventional retail opportunity for charity shops to reinvent Retail is more than a store – market and five times faster than discount themselves and benefit from this growing positively impacting the lives of retailers. Coresight forecasts that in the trend of social awareness and ethical disabled people across society US the total clothing recommerce market consumption through specialising in and in the local community will grow at a CAGR of 13% and will reach specific niches (books, vinyl records, Scope wanted to explore ways in $33 billion in 2021. This trend is likely to find furniture or vintage clothing). To achieve which it could positively disrupt the multiple different expressions on our own this they will need to take a more strategic charity sector and make the greatest 1 high street in the future. approach to the collection and filtering of impact to the lives of disabled donations and their choice of locations people in the local community. to align this new offering with their target Deloitte provided a customised demographic. LocationEdge model and estate strategy report to support Scope’s internal decision‑making and successful charity growth. This dynamic solution utilised unique data and technology to support financial improvement of the Scope retail estate while focusing on maximising the local community impact.

10 What next for the high street? | Part two: A revival

A similar paradox can be detected The high street as a ‘fast fail’ The results demonstrate both ‘fast fail’ in consumers’ attitude to groceries. laboratory in action as well as the sheer diversity of While concerns are expressed around It is the high street’s perceived weaknesses uses that can be found on the high street how the goods we eat are produced, that make it such an ideal test bed for new – a world away from the conformity on animal welfare standards, sustainable concepts and formats. Inevitably, if new offer that has been the mainstay of many supply chains and a growing interest in ventures are poorly aligned to the local shopping centres over the last 40 years organic, vegan and vegetarian food, the demographics or have simply miscalculated (see Figure 7). recent lockdown has also served to drive the level of demand for the products consumers back to both local convenience they are selling, they will fail, potentially There is good news for kilt retailers and stores and the major superstores as they very quickly. At the same time some new cheesemongers both of which have return to larger and less frequent grocery concepts will succeed and expand. This is survival rates substantially above the shopping trips. an organic process, a form of natural national average of 62.5%. The survival rate selection that will ultimately result in is much lower for hairpiece, wig vendors As with fast fashion, the high street aligning the uses on any given high street or candle suppliers who were less likely is likely to provide a useful niche for with the specific and sustainable demand to remain open after trading for five years a countermovement, particularly with of its local population. Our research (see Figure 7). a younger demographic who will be more looked at the five‑year survival rates for challenging about the provenance of the new openings by subcategory, that is products they are consuming. A prime the proportion of new openings in each example of this is the Simply Fresh Foodhall category that have remained trading for that has been created within a former five years or more post‑opening. Argos unit in the previously struggling Stretford Mall shopping centre near Figure 7. Survival rates by subcategory over one, three and ﬁve years Manchester. This is a premium food format specifically tailored to the local population 100% 600 that combines a convenience store format 500 with street food‑inspired cuisine, a range 80% of organic and vegan produce, artisan coffee and craft beer on tap.2 While this 400 60% countermovement may currently be focused on more affluent areas, there 300

has been a steady rise in vegan and 40% size Sample % Survival rate vegetarian restaurants, farmers markets 200

and a growing interest in organic foods. 20% In 2018 there were 650 farmers markets in 100 the UK, a figure that looks set to rise in the 3 0% 0 coming years. Kilt shops Cheese Restaurant Hairpieces New Age Candle shops – Vegetarian & Wigs shops suppliers

1 Year 3 Year 5 Year Sample size

Source: Deloitte LocationEdge/Experian

11 What next for the high street? | Part two: A revival

Our analysis also reveals the sheer volume Additional data shows that across a sample Additional data shows of openings, and failures on the high street. size of more than 25,000 openings, only While it is interesting to look at those 50.2% of new cafes and tearooms were that across a sample categories that have seen the highest still trading after five years. Barbers fare size of more than number of net additions to their overall rather better but the attrition rate remains population, those figures do not, however, high with only 65.9% still operating after 25,000 openings, only tell the whole picture as they do not five years. According to this data the 50.2% of new cafes and capture the sheer number of businesses in overall winner on the high street is the each of those categories that subsequently pizza takeaway shop, with nearly 80% tearooms were still trading fail (see Figure 4). continuing to trade five years after opening after five years. (see Figure 8).

Figure 8. Five-year survival rates for the top ten high street subcategories

120% 30,000

100% 25,000

80% 20,000

60% 15,000 Sample size Sample

% Survival rate 40% 10,000

20% 5,000

0% 0 Pizza Coﬀee Nail Barbers Health Hair & Beauty Cafe & Restaurant Vaping Takeaway Shops Salons Clubs Beauty Salons Tearoom & Bar Stores and Salons Tobacconists 1 Year 3 Year 5 Year Sample size

Source: Deloitte LocationEdge/Experian

12 What next for the high street? | Part two: A revival

Addressing the oversupply of space Figure 9. Number of shops demolished or permanently removed from the market One thing that the current retail and leisure (2012 to H1 2020) vacancy rates indicates clearly is that the 3,500 supply of retail and leisure space vastly outstrips the current (or any realistic future) 3,000 demand for space. It is in the interests of 2,500 both the tenant and the landlord that the supply and demand equilibrium is restored. 2,000 This would require the vacuum created 1,500 by successive retail failures to be filled by other uses. It would appear that the 1,000

process is already underway. 500

The data indicates that the pace at 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 which retail space is being removed from market is accelerating rapidly as shops Number of shops Deloitte’s forecast for second half of 2020 are demolished or repurposed to make Source: Local Data Company way for new uses. Since 2012 more than 9,000 shops have been permanently Since 2012 more than Department stores have seen removed from the overall supply and a spectacular fall from grace in recent over the last three years the rate has 9,000 shops have been years driven by online retailing and other accelerated exponentially (see Figure 9). permanently removed challenges facing all bricks and mortar retailers. However department stores also from the overall supply have the burden of physical estates which and over the last three have large and extremely costly footprints over multiple floors, limiting the ability of years the rate has operators to respond to market conditions accelerated exponentially. with any agility. However, the closures and failures are also demonstrating how the space left can be effectively repurposed and town centres can be regenerated by replacing retail space with other uses.

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Since the start of 2012, 726 department Of the closures, 350 (48.2%) remain closed, Of the stores that have reopened, 21% stores have closed down, with more than 295 are trading as something else and the are being used for fashion and 19.3% 40% of them located in high streets and remainder have either been demolished or for discount and surplus stores with town centres. redeveloped. B&M Bargains being the single largest beneficiary of the space released (see Figures 10 & 11).

Figure 10. Department store reoccupiers (2012 – 2020)

0 B&M Bargains Primark Pep&Co H&M M&S Costa Next British Heart Bargains Buys Foodhall Foundation

Source: Local Data Company

Figure 11. New occupiers for department store space by category (2012 – 2020)

7% 5% 4% 7% 4% Charity & Second Hand Hairdressing

Cafes & Fast Food 16% Fashion & General Clothing

Discount & Surplus

37% Department Stores and Mail Order Groceries & Supermarkets

20% Furniture & Carpets

Source:5+ Local Data Company 4+4+372016+7+7

14 What next for the high street? | Part two: A revival

There is, however, some department store Of the 726 department stores that have The closures have impacted some towns space still vacant and this is indicative closed their doors since 2012, some disproportionately. For example, Hounslow of some of the difficulty surrounding 77 have been vacant for more than three has seen 12 department stores close their repurposing, namely finding an alternative years while 38 of the 166 BHS stores doors and Perth (7) and Bracknell (6) have use that generates sufficient rental income that closed in 2016 remain unoccupied both had more closures than Edinburgh (5) and capital value to make the risk of (see Figure 12). (see Figure 13). redevelopment worthwhile.

Figure 12. Persistent vacancy by department store chain

0 House of Fraser T J Hughes Beales BHS Debenhams Marks & Spencer

Less than 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Greater than 4 years

Source: Local Data Company

Figure 13. Number of department store closures by location (2012 – 2020)

0 York Perth Leeds Derby Bristol Walsall London Glasgow Croydon Sheﬃeld Bracknell Liverpool Lowestoft Hounslow Southport Edinburgh Manchester Nottingham Birmingham Northampton Peterborough Stockton-On-Tees Source: Local Data Company

15 What next for the high street? | Part two: A revival

Persistent vacancy rates highlight how Figure 14. Department stores vacancy rate over time wider social demographic patterns, land values and rental affordability impact on Between Between Region <1 year 1 & 2 years 2 & 3 years >3 years the viability of repurposing. East Midlands 11 2 2 3

Only one of the 63 department stores that East of England 20 6 2 7 has closed in Greater London since 2012 Greater London 14 2 3 1 has remained vacant for more than three North East 9 3 1 2 years. The North West, however, has seen 96 closures 15 of which have remained North West 9 3 4 15 empty for that long. This highlights the Scotland 4 7 6 10 difficult economics of repurposing in some South East 22 7 3 9 locations (see Figure 14). South West 12 6 2 6

Wales 1 8 2 6 The North West, West Midlands 12 5 1 10 however, has Yorkshire & Humber 8 5 8 GB Total 122 54 26 77 seen 96 closures Source: Local Data Company 15 of which have Repurposing is capital intensive and time This funding gap, or ‘market failure’ as it is remained empty consuming. There is a belief that space can sometimes called, needs to be addressed. be repurposed for residential use however, Having more people living and working in for that long. it will frequently prove impossible to make and around high streets and town centres the economics of such a conversion viable. will be critical to generating more demand Building costs vary relatively little around for the rebalanced supply of retail space the country but land values and the capital that will be left. It will also require the right values of completed projects can vary infrastructure to support it. This is all the greatly. Options can therefore be limited more topical as working patterns change and wider uses with lower conversion costs and the proportion of people working from may often have to be considered from retail home, at least some of the time, looks set and leisure, offices and co‑working to local to increase. educational, health and social services. For example, while the former Debenhams in Romford is being redeveloped for residential use, the former BHS in Telford has been relet as an inflatable theme park (even though Telford may also desperately need new houses).

16 What next for the high street? | Part two: A revival

How the future high street will be delivered

Rethinking the landlord and tenant However, the fixed rent model has started Other components of the relationship relationship to breakdown. Rental values have become are also being transformed alongside or The relationship between landlord and increasingly divorced from the profitability because of this change away from the fixed tenant sits at the heart of the retail model. of the space they relate to. Matters were rental model. Rents are increasingly being A recent code of conduct published by the exacerbated by the growth of retailers’ paid monthly rather than in large quarterly government reminded both sides that they own online channels which cannibalised amounts and leases are getting shorter are “economic partners, not opponents”, their sales through their bricks and mortar and more flexible. As a result, landlords although it has not always felt like that. stores, reducing profitability and making and tenants are developing a greater rents even less affordable. As a result, understanding of one another’s business Much of what we see on the retail the total cost of occupation for retailers, models and the new lease structures are landscape today has been built on the particularly in prime locations has driving more transparency and dialogue back of a fixed rent model, where retailers consumed a growing proportion of total between the parties. A fundamentally have committed to (often quite long) leases turnover to a point where rents are no different relationship where the interests of with upward only rent reviews fixed at longer affordable. This has contributed the parties are much more closely aligned a prevailing rental tone a rate equivalent substantially to the wave of distress that is emerging. to whatever other tenants in the same has hit tenants and, increasingly, landlords location are already paying. This suited as they struggle with a rent structure that is The changes occurring in the landlord developers, landlords and investors who in many ways no longer fit for purpose. and tenant relationship do, however, were attracted by the certainty of a fixed have consequences. In a market with annual income. Retailers accepted this The current crisis has accelerated a shift so little occupier demand it is easy for approach as one that gave them a fixed from this fixed rental model to rents tenants negotiating with landlords, cost base between rent reviews and calculated with regard to the actual either consensually or via some form of lengthy terms over which they could turnover of a given shop, a process given insolvency process, to overlook some amortise their fit outs, with security of added momentum by a wave of CVAs in of the potential consequences of the tenure granted by the Landlord and Tenant the retail and leisure sectors which have terms being agreed or imposed. The gap Act guaranteeing that they could remain in imposed these changes on the landlord between contractual rents and turnover prime locations when the lease expired. community. rents is often substantial and is putting the business models of many landlords under extreme stress. Tenants are signing Rental values have become increasingly up to shorter leases and are frequently also signing away their protections under divorced from the profitability of the the Landlord and Tenant Act in return for concessions. The scales are currently space they relate to. heavily weighted in favour of tenants and it is hoped that current negotiations will help to stabilise the industry and enable it to recover. If and when it does the balance of power may start to move back towards landlords.

17 What next for the high street? | Part two: A revival

Planning for purposeful town centres Similar arrangements have been Shaping and funding the regeneration A benign planning environment could introduced to allow flexibility in changing In simple balance sheet terms, the help the high street of the future reach the use of a retail unit for such puposes as redevelopment of the high street is its potential. The current crisis has education, art galleries, libraries, offices, unviable. Technology has driven the accelerated changes to planning laws public halls or public worship recognising increase of online retail, and with it reduced including important changes to the Use the importance of social meeting places footfall in town centres, a trend that has Class Order which came into effect on and human interaction on the high street. been accelerated further by the pandemic. 1 September 2020 and which are intended However, uses such as for pubs, bars and In order to attract people back, a variety to help high streets adapt and diversify. takeaways remain controlled by the need of leisure and cultural experiences are The recent changes are substantial and for planning permission. required along with residential provisions, could potentially lead to further important rather than the historic retail offering. changes to the planning regime aimed at It is not only the uses within our high This new offering needs to be determined supporting the recovery of town centres streets that may benefit from these locally to reflect the unique identity of each and high streets. planning changes but the types of space town centre and capitalise on the strengths too. New permitted development rights of each community. The changes seek to increase flexibility, came into force in August and September driving the repurposing of redundant retail 2020 that allow additional height to The private sector can no longer be relied space at a faster pace by reducing the need buildings and also allow the demolition of on to drive growth and deliver the changes for planning permission across our high offices to be replaced by a single building required to transform town centres and streets. Traditional high street retail uses for a purpose built block of flats or houses redevelop them into community hubs. such as shops, food and drink, and financial that could bring more homes and footfall Local authorities will need to take the and professional services now fall within onto the high street. lead, purchasing key sites to deliver the the same Use Class (Use Class E) alongside change in line with their strategic vision other uses such as indoor sport, health This is just the start of a change to the for the town centre. The UK government services, crèches and offices. Any switch planning framework that will be critical recognises this. On 26th December between these uses can now take place to breathing new life into the UK’s high Communities Secretary Robert Jenrick without the need for planning permission. streets and town centres. It is designed to announced that up to £830 million from Should a unit become vacant, landlords can help each high street reach its potential, the Future High Streets Fund would be switch the use to one within the same use adapting, diversifying and responding invested in 72 areas across England. class that is experiencing more demand. quickly to the changing face and pace of The funding is intended to help these areas The intention is to allow space to be used localism. transform their high streets into vibrant more flexibly in response to local needs, hubs for future generations and to protect cut red tape and broaden the range of uses and create thousands of jobs. on the high street.

It is not only the uses within our high streets that may benefit from these planning changes but the types of space too.

18 What next for the high street? | Part two: A revival

Local authorities will also need to take Similarly in Radcliffe, the recent Strategic on more of the risk of the regeneration, Strategic regeneration framework Regeneration Framework aims to increase by either injecting lump sum capital or to transform the Wigan town footfall in the town centre through the underwriting the terms of the head lease centre provision of new central public hubs and over the longer term. Developers appear to Deloitte is working with Wigan increased residential provisions. Driven by have less appetite for providing equity into Metropolitan Borough Council the local authority, funding will be sought such projects, and are moving to a model and has developed a Strategic from regional and national public sector where they provide development expertise Regeneration Framework (SRF) to bodies including Homes England, and the to the local authorities. Consequently, provide a single integrated plan Greater Manchester Authority. public sector support is required to secure for the redevelopment of Wigan the future of town centres for the next town centre. The SRF, approved generation, develop the necessary mix of by the cabinet in January 2019, Developers property required to attract people back to identifies a clear set of interventions them and revitalise the local economy. to guide growth and deliver appear to have further transformational change Regeneration of the high street is beginning through regeneration in the town less appetite for in regional areas such as Wigan, in Greater centre. Deloitte has also produced Manchester, where the local authority is a development proposition to providing equity currently in the final stages of selecting assess the viability of a number of a strategic development partner to development options on the site and into such projects, transform The Galleries into a mixed led a soft market testing exercise purpose site. The Galleries was purchased to assess private sector appetite and are moving by the local authority two years ago after it for the opportunity and potential languished under private ownership, with uses in current market conditions. to a model where high vacancy rates in the town centre, and A business case was then prepared a recognition that it could not remain in its to advise WMBC on the delivery they provide current form. The purchase meant that the option going forward and we are council can influence and control almost supporting WMBC through the full development a quarter of the town centre footprint, procurement process. Following its putting it in a unique position to reshape successful shortlisting for the expertise to the the future of its high street. Future High Streets Fund in the summer, Wigan has now received local authorities. a provisional funding offer of £16.6m subject to further assurance requirements.

19 What next for the high street? | Part two: A revival

Conclusion

The story of the high street is one of troubles past, troubles present and, inevitably, troubles yet to come.

We predict that the upheaval facing retail The recovery will be slow; real estate still has some distance to run and things is cumbersome and complicated to are likely to get worse on high streets, repurpose, and progress will be patchy shopping centres and retail parks before with some places moving more quickly and they start to get better. Vacancy rates successfully than others as time and capital will rise in the short to medium term and allows. For all that, it seems to us that the it will take some time before a recovery high street has an increasingly important can start to be built on anything like solid role to play in a world where the balance foundations. between work and home may have shifted permanently. We believe the conditions When that recovery does come, and we are right for the high street to benefit remain firmly optimistic that it will, it is likely from a ‘renaissance’. It is an exciting to involve a much smaller retail footprint future but one that, with its increased than we have become used to. We expect focus on small, independent traders the inexorable increase in retail floor space operating in the middle of a much more of the last 40 years to be thrown into diverse town centre, seems to have one reverse as surplus shops are demolished eye firmly on the past. or repurposed to level up the balance between retail and other uses that are wanted, or needed by the local population. We believe the

As chains retreat to more populous and conditions are profitable retail destinations, the stage is set for independent retailers to be at the right for the high forefront of the recovery of the high street. They will take their place amongst an street to benefit increasingly diverse group of uses including offices, warehouses and social services. from a ‘renaissance’.

20 What next for the high street? | Part two: A revival

21 What next for the high street? | Part two: A revival

About Deloitte LocationEdge

LocationEdge answers the core We combine real world, accurate spend geospatial questions faced by businesses, and mobile trace data with hundreds of using advanced location and market sources on supply and demand, combined intelligence through geospatial simulation. with our clients’ store, channel and This provides our clients with advanced performance metrics to inform their estate, strategic insight for key decision making product, market and location strategy. around how they shape their market offering.

At Scope we campaign We wanted new ideas and relentlessly to create a fairer a fresh perspective, so it was society for disabled people. extremely important that our Our retail estate does and new consultancy partner could needs to play a fundamental make a real impact, both role both in the financial through new technology and support of the charity but more unique data as well as being importantly how we impact adaptable to our changing local communities. Deloitte’s needs. Deloitte’s LocationEdge LocationEdge team has proved team have delivered this and a game changer for Scope. more providing us with both Their work has been brilliant a partnership, and an going the extra mile at every analytical framework, to grow opportunity to meet our needs, and achieve even greater always with an eye on how we success. can make the biggest impact to those we support in society. Lizi Hills, Commercial Finance Director, Burger King We are hugely excited about how LocationEdge is positively disrupting the charity sector for Scope both now and in the future.

Mark Hodgkinson, CEO, Scope

Explore more about LocationEdge here: https://www2.deloitte.com/uk/en/pages/consumer- industrial-products/solutions/locationedge.html

22 What next for the high street? | Part two: A revival

Contacts

Hugo Clark Director, Financial Advisory – Real Estate +44 (0) 20 7007 8111 [email protected]

Ian Geddes Managing Partner North South Europe Consumer and Retail +44 (0) 20 7303 6519 [email protected]

Nielsen Harrap LocationEdge and Geospatial Lead +44 (0) 20 7303 8268 [email protected]

Ben Perkins Head of Consumer Business Research +44 (0)20 7007 2207 [email protected]

23 What next for the high street? | Part two: A revival

Endnotes

1. https://apparelresources.com/business-news/retail/re-commerce-industry-breaking-norms-preloved-fashion/

2. https://www.conveniencestore.co.uk/store-development/stretford-foodhall-manchester/596328.article

3. https://www.fwi.co.uk/business/diversification/so-you-want-to-sell-produce-at-a-farmers-market#:~:text=How%20many%20 farmers'%20markets%20are,more%20producers%20are%20always%20welcome

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