The United Kingdom is set to experience some of the highest levels of store closures in Europe as consumers continue to shift away from the traditional high street.
The warning, made by listed real estate manager Cohen & Steers, has come at the same time as well-known department store House of Fraser has announced plans to close 31 of its locations across the U.K..
Rogier Quirijns, portfolio manager of the European Real Estate Securities fund at Cohen & Steers, says that the U.K. is in a unique position within Europe as its high street retailers are squeezed more than their Continental counterparts. Costs are increasing due to a weakening in sterling, an increase in the national living wage and higher business rates. Added to this is a slowing in GDP and the fact that consumers are experiencing negative to flat real income growth, while having to rely on saving rates that remain historically low.
In contrast, online sales continue to grow at double-digit rates, with the year-end 2017 penetration rate in the U.K. registering at 16.4 percent, one of the highest in Europe. At the same time, the overall “retail pie” is not growing at the present, according to Quirijns, but is simply being shared among more retailers.
“As a result, sales densities are decreasing, and an increasing number of stores are trading unprofitably or failing to make the transition to omnichannel,” he says.
“Recently, we have seen an acceleration in retailers in the U.K. entering CVA [company voluntary agreement], which enables retailers to pay back creditors over a fixed period of time and renegotiate existing lease terms. Other retailers have announced strategic plans in which store portfolios will be rationalized over the coming years.
“While some of the causes for store closures are cyclical, such as GDP and consumer demand, some causes are structural — offline to online/omni,” adds Quirijns. “We expect retailers that fail to transition to omnichannel to experience a difficult trading environment and expect store closures to continue from this subset of the industry.”
