Two-tier towns emerging
Scotland could be ‘new retail model’ as online peaks
St James, Edinburgh: the new centre will alter the retail dynamic in the city
Retail experts believe Scotland could become a test bed for new ideas as online shopping’s ‘golden age’ comes to an end.
Distribution firms face the prospect of new taxes and other barriers to growth, coinciding with the high street’s search for a new purpose that could lead to a two-tier retail sector.
John Duffy, a director on the retail team at Colliers in Scotland, said: “Attitudes are changing and it is easy to see a time in the not too distant future when delivery firms face extra taxes or restrictions.
“The Scottish Government has already taken a lead on issues such as the smoking ban and drink drive limits, so the challenge and opportunity is there for Holyrood to take the initiative. This could make Scotland a test bed for a new retail model, and it will be interesting to see what knock-on effect this has on the traditional high streets and shopping centres.”
Colliers’ Midsummer Retail Report found that unsustainable business models, growing competition and environmental concerns are likely to spell an end to free delivery and returns from online retailers.
“Major online retailers are making moves to improve their margins by changing their service to customers,” the report notes. “ASOS is looking at blacklisting ‘serial returners’ and deactivating their accounts. Next no longer allows the free return of items ordered online while Zalando – Europe’s largest online fashion retailer – has revealed plans to charge delivery fees on small orders in an effort to counter a fall in order size, which is affecting the business’s profitability.”
Ross Wilkie, a director and retail expert at Colliers in Scotland, said it was unclear what effect a scaling back of deliveries might have on the warehousing sector, as this was already being affected by uncertainty over Brexit. But any constraint in online retailers’ ability to poach customers would be good news to at least some bricks and mortar operations.
“Although footfall is down and consumers are not spending with much enthusiasm at the moment, there are retailers that are looking to expand albeit on a selective basis,” he said.
“These companies tend to use advanced Location Planning to find the right spot – both from a point of view of the surrounding demographics but also for the purposes of negotiating leases. In the past this analysis was not as sophisticated, but now nothing is left to gut instinct. With these tactics, some retailers seem to be successfully taking on the online sellers.”
However, not every town will be large enough to entice these firms, which are looking to serve as big an area as possible with each well-placed, high-quality store. Mr Wilkie said that outside of Edinburgh and Glasgow most high streets were struggling. In some areas Scottish councils are finally relenting and granting ‘change of use’ consent for shops to be turned into much-needed homes and other town centre uses.
Even on Edinburgh’s Princes Street, the conversion of a House of Fraser store into a whisky-themed visitor attraction highlights the move towards a greater mix of leisure uses for high street property.
However, Mr Duffy said that Edinburgh and Glasgow remain the two bright spots in Scottish retail and leases are still climbing. He said: “Glasgow is the more settled of the two. Rents are still growing strongly around Buchanan Street, and the addition of a new cinema multiplex at St Enoch Centre, which completes later this year, further strengthens the area.
“While the Edinburgh market is relatively stable at the moment, the new St James Quarter shopping centre will have an effect across the city. Any retailers looking to come to the capital will inevitably have their heads turned by the deals on offer at this state-of-the-art new retail, food and leisure destination.
“However, while we do think that the St James will have a dampening effect on other areas in the short term, in the medium term it will be positive, moving Edinburgh significantly up the ranking of British shopping cities.”
Bon Marche backs Day offer
Shares in Bonmarché have fallen 23% after the company recommended a takeover offer from Spectre’s Philip Day, the owner of Edinburgh Woollen Mill.
He offered 11.445p per share. Bonmarché shares are currently trading at 12p per share. Back in April, the company said the offer materially undervalued the business and its future prospects, but has now said shareholders should accept the offer as it believes Day would be a successful long-term owner.
It added: “The increase in uncertainty that has developed reflecting the trading and financial position of the business during the first quarter of the financial year makes the certainty represented by the offer potentially more attractive in the short term.”
Bonmarché also warned that it had experienced a “poor” start to the year.
Russ Mould, investment director at AJ Bell, said: “Talk about an embarrassing situation. Trading is so bad at clothing retailer Bonmarche that its directors have gone with their tails between their legs and changed their mind on a previously-rejected takeover offer.
“They are still grumbling that the offer is too low as it doesn’t reflect the potential longer term value of the business. Yet the directors say they have no choice but to cave in and recommend the bid from Philip Day’s Spectre vehicle due to financial pressures on the business.
“The quantum of its problems are such that auditor PwC has implied there are uncertainties with regards to Bonmarche’s future without an improvement in trading.
“Spectre believes it can help save Bonmarche by cutting its cost base and potentially improving its supply chain, marketing, supplier terms and more. Its plan isn’t merely about short-term support to squeeze the final drops out of Bonmarche and the company ultimately dying another day; it’s about securing the long-term future of the business.
“Shareholders will be hugely disappointed by the retailer having to be bailed out at a cheap price, but it is perhaps better to get something back than nothing at all which is the alternative if Bonmarche can’t be saved.”