The Paul Gosling Column
The Co-operative Group’s decision to abandon the out-of-town hypermarket sector is being made to look very clever indeed with the massive jump in energy prices. True, prices are beginning to fall back – but the world is getting used to the idea that energy will always be expensive.
Retail leaders are talking not just about a dip in profitability for the out-of-town stores, but of the sector’s potential decline and fall. “We’re seeing a return to the high street,” says Sir Stuart Rose, chief executive and chairman of Marks & Spencer, and the person issuing the strongest predictions of the end for shopping centres in the middle of nowhere. “I’m quite optimistic [that] we’ll not see any more Bluewater’s,” he adds. “We’re just about done on out-of-town.”
Rose puts in bluntly: why will someone spend £30 to drive to a faraway shopping centre, when their high street is just down the road? Rose made his comments at the recent British Retail Consortium annual conference, but in case anyone thought he had gone further than he intended, he put them right speaking on a conference call to analysts. “There’s no doubt about it that the demographics of food shopping are changing,” he repeated.
The reason why Rose is so absolute about consumer trends is that he is already seeing the figures in the M&S accounts. Consumer spending is down – but it is especially down in the out-of-town retail parks. The same situation applies at John Lewis, whose out-of-town stores lost as much as a quarter of sales. It did much less badly in its city centre stores.
A similar picture is evident across the retail industry. Experian’s latest retail trends survey found a 2.6 per cent fall in shopper numbers in June, but a 5.8 per cent reduction at out-of-town retail parks. And the figures are even sharper in terms of the numbers ‘window shopping’. SPSL monitors shops’ ‘footfall’ and has found that while the number of people going to shops has risen by 2.2 per cent in the last year, the numbers going to the major out-of-town shopping centres fell by 6.8 per cent. It soon becomes obvious why the major retail chains have moved some of their loss-leader promotions to cheaper petrol at their out-of-town stores.
These trends point to much more than just sales loss because of the credit crunch. Rather, there are strong signs that people are beginning to reject the out-of-town journeys. These do not look like short-term trends. In the United States, there has been a quick and large drop in sales of big vehicles, replacing them with smaller models – these are permanent changes in behaviour, stimulated by consistent and sometimes sharp spikes in energy prices. Closer to home, the AA reports that two-thirds of members are reducing car journeys. And it is clear that M&S regards the trends as here to stay – it is rowing back from its major investment programme in out-of-town developments.
Choices led by spending preferences are likely to be reinforced by policy decisions by ministers. Communities secretary Hazel Blears says that she will strengthen planning guidance presumptions against out-of-town developments, in an effort to protect high streets and independent retailers from the impact of the credit crunch.
All of this should benefit the co-operative societies, particularly the Co-operative Group which has no exposure to out-of-town developments in its mature property portfolio. Similarly, the Somerfield estate of properties should fit these priorities – though the Co-op Group was unable to confirm whether Somerfield operates any out-of-town sites.
So the decline of out-of-town developments is good news for the environment and good news for the co-operative societies. But there is one caveat. John Lewis reported that while sales fell and retail park sales fell heavily, its online turnover increased by 6.5 per cent and in one week rose 20 per cent against the same period last year. Other retailers are facing similar trends. While Tesco is not publishing separate figures for its Tesco Direct online ordering and home delivery service, the company says its first full-year returns on the service were “excellent”, despite its £90m start up costs.
So congratulations seem to be in order for the Co-op for abandoning the out-of-town route to sales. Personally, though, I am far from convinced about the online strategy. That is where a lot of future growth will lie.