"Come In We're Awesome" - shop sign


In the past month, across Britain, retailer after retailer has taken up the business pages with their woes: predominantly poor sales and closures, frequently referred to as “challenging times for the high street”.

The Internet is so Easy
Apparently, the Internet is killing the high street. Only this week, I bought online two books from Amazon, three dresses (for my wife – honest!), placed a Waitrose online order (against my wishes, actually love food shopping) and booked a holiday to watch Barcelona vs Spurs (now cancelled ☹ – another story).

All of the above could have been done by simply making time and popping along to high street shops – Daunt Books/Waterstones, Waitrose and by sharing a shopping trip with my lovely wife. Afterall, our shops are the places we go to for an experience: to touch and feel the merchandise, meet friends, get out the house and taste the coffee.

Is it just the rise of the Internet?
Reading between the lines, I’d like to highlight a particular aspect of the high street’s troubles – and it’s to do with our business, the one we love – property.

There are only so many coffee shops one can go to in a day. High Streets need a good retail mix – it’s fun. Retail is a window to show creativity and importantly, employs millions.

Most of the retailers in trouble have something crucial in common – they all at some stage owned a vast majority of their portfolio’s Freehold and now mainly occupy on long, inflexible leases where rents are killing them. It isn’t rates (although this doesn’t help) and it isn’t lack of parking (although this also doesn’t help).

Some Salutary Examples from the High Street
One of the major banking groups, (banking is changing by the second), over the past 7 years sold and leased back over 800 freehold properties. That is nuts – they will have X hundred rent reviews coming up over the next 5 years. Instead of owning and managing their freehold portfolio effectively – they are in the hands of the market, rent review surveyors, independent arbitrators, lawyers and changing trends.

If you are a customer of this bank, you are effectively funding their leasehold liabilities where instead, the stores they don’t wish to occupy could have been let out either to multi nationals, or small independent retailers creating an income and a great tenant mix.

House of Fraser, all leasehold, Debenhams same. Woolworths sold out of their freeholds and went bust soon after.

The mighty John Lewis, such a success story, just announced a massive 99% profits slide for the first half of the year – yet had sales of £5.5billion and own a majority of their sites – they will adapt or, be sold to an online retailer who needs footfall.

Marks & Spencer own a large percentage of their store portfolio. Sports Direct either own their portfolio or, negotiate the cheapest, best flexible terms on each site.

The best one is Selfridges. Selfridges Freehold – a prime site bordered by Oxford Street, Duke Street, Wigmore Street and Orchid Street – the entire site + other buildings is owned by the parent company. In addition, they own Fortnum and Mason and a small brand by the name of Primark.

Zara, the largest retailer in the world (advertising spend per annum – £0 – there is a business study), is also buying up Freeholds around each store putting profits into bricks.

The Way Forward?
For retailers to succeed in a changing environment, they need to either look to put their profits into buying their premises, that way there is some element of control – or, their landlords need to wake up and realise that the old model of high rents and inflexible long leases is over. Landlords need to work with their tenants on either income sharing, turnover rents or including part of the freehold with the tenant’s lease. The success of Boxpark, Outlet Centres and Westfield shows how important bricks ‘n’ mortar retail is to our lives.

Finally, I don’t think Blackstone and Trillium would have put £1.5billion into buying the 5,500 Network Rail Arches if retail was dead. Now that is a great buy.