Store openings and closures H1 2023

Do improved results suggest stabilising fortunes?

Net closures are now at their lowest rate since 2017 and openings are on an increasing trend. On the face of it, this is overwhelmingly positive news, but the full picture is more realistic.

In the first six months of this year, a total of 6,512 shops belonging to multiples and chains (those with five or more outlets) exited UK high streets, shopping centres and retail parks. Equivalent to 36 closures per day, it’s a slight increase compared with H1 last year but significantly lower than the two years prior.

This is offset by an increase in openings for the third year in a row. Up from 21 to 24 per day, they’re the main reason we’ve seen net closures drop again. However, they remain below pre-pandemic levels, with chains still cautious around store openings - particularly those in retail and services.

The trend is a continuation of the one that started last year: the end of long-term accelerating closures since well before the start of the pandemic. Originally driven due to a shift online, it was accelerated by other external factors, from a rapid shake-out of operators in 2020 and 2021, to administrations of ‘barely surviving’ chains, and the impact of COVID-19 on footfall.

Now, with net results improving, openings increasing and closures remaining relatively stable, there should be plenty of reasons to be positive. But that positivity must be balanced against some concerns on the horizon for certain locations and categories, particularly against a backdrop of continued economic headwinds.

The good news: Regional variations all but gone, and shift to online stabilised

The variation by region has narrowed even further than last year, suggesting things have generally levelled up across Britain.

The only slight outlier to the trend is Wales. But while it looks like it’s got slightly worse, it’s more a combination of the phasing around its reopening post pandemic, as well as different levels of financial support at the time. It is broadly in line with every other region.

This stabilisation has corrected a longer-term trend of bigger variance and disparity across regions, originally caused by a shift towards cities pre-pandemic, which then reversed away from cities during the pandemic as a result of new consumer behaviours.

In other good news, the proportion of retail sales online has stabilised and is, in fact, slightly declining in some categories. Before the pandemic, online was less than 20% of retail sales, rapidly jumping to 35% (and occasionally higher) during the pandemic. That penetration has now been stable for some time. In fact, online penetration is slightly declining in grocery, and some observers do not forecast this to grow in the medium term. With the greater cost to serve grocery customers online, this could paradoxically help profitability for some supermarkets.

However, the other side of this positive news around online stabilisation is that the decline in retail stores can no longer be attributed to the shift in online. Instead, that online shift is now being felt in the services sector. While the trend isn’t as bad as it was last year, areas like banking, betting, and estate agents have continued to close at a consistently high rate.

Positive results for retail parks, mixed for other locations

Interestingly, most of the positives we’ve seen this half year are concentrated around retail parks. The big story here is the improvement in net closure rates. While other locations have stabilised, they are still seeing a net decline. Retail parks on the other hand have actually seen net growth in multiples - for the first time since H1 2018. This is also the first net increase we’ve seen in any asset class in six years.

That comes even with a decline in footfall across all locations in H1 2023. To some extent, retail parks success comes as a result of having the most consistently improved footfall compared to pre-pandemic levels, even in spite of weaker big ticket demand that often draws shoppers to those locations. High street and shopping centre footfall has suffered from a depressed early 2022 due to the Omicron variant preventing people going out or going to work. That saw relatively more people head to retail parks as an alternative. And although high streets had a bit of a rebound in early 2023, retail parks are the only location showing sustained improvement versus pre-pandemic. Other locations remain 15-25% below pre-pandemic footfall levels.

Category success reflected in locations

This half-year, most of the fastest growing categories are being driven by openings in out-of-town. Immediately after the pandemic, the quickest recovery was in takeaway and delivery outlets, which typically are on high streets. There’s now been a big recovery in food-to-go, supermarkets (driven by the discounters) and coffee shops, all benefiting out of town locations such as drive-throughs, motorway service areas, inside supermarkets and petrol forecourts, as well as on retail parks. These openings have accelerated to meet growing consumer demand as commuting and travel recover post-pandemic. Few of these openings have benefited traditional high streets. For food to go, for example, there has been a slight net decline in town centre units - while we’re seeing some openings, it is not yet quite enough to offset the ones closing.

Conversely, the fastest declining categories almost all affect high streets. It’s unsurprising to see banks, estate agents and betting shops in the list, as the trend of services closing continues. Elsewhere, fashion closures are predominantly on the high street, partly due to two chain administrations, but also with some successful chains shifting from the high street into out-of-town. Chemists, while high, are predominantly because of a one-off closure of concessions within supermarkets rather than a long-term trend to watch. We’ve also seen one-off hotel closures, as well as closures of chain pubs, as long term consumer trends favour takeaways, coffee shops and other hospitality outlets.

But even the success of retail parks can’t quite mask the absolute net decline in chain outlets. Despite the overall improvement in H1 2023, 72 of our 100 outlet categories are still in decline, with only 19 growing in absolute terms. While the proportion of categories growing and declining has been broadly flat over the last five years, it remains a slow and consistent decline.

However, to put that pace of decline into context it is significantly more sedate than the rates we saw just two years ago, where six fashion retailers closed every day as a result of high profile administrations of several large high street chains. They're now more clustered around much smaller numbers, with less variance between the worst and the best performing categories. We no longer have the great, sweeping changes from previous reports. This in itself can be considered a positive.

Plenty of positives, but a need for caution

On the whole, there’s plenty of positive news for retailers and leisure operators in these results. There’s year on year improvement, retail parks have shown strong performance, a level of stabilisation across the board and there’s an asset class in net growth for the first time since 2017.

There is sustained growth, particularly in leisure and amongst discount supermarkets where operators have taken advantage of the opportunities to accelerate rollouts to meet growing consumer demand. Even the majority of closures in H1 were mostly one-offs this time round.

These results also bode well for Christmas trading. Or they are certainly a platform to build from. Consumer sentiment has improved, people are looking to prioritise big events this year and we’re seeing a slowdown in the online shift. None of the regions look to be being left behind, and broadly stores appear they might now be in the right locations to benefit from footfall when it picks up across the Golden Quarter.

But there are a couple of caveats. High streets and shopping centres as an asset class are still in decline, with the growth sectors (leisure and discount supermarkets) all seemingly out of town, whether standalone or in retail parks. There’s concern over the continued closure of services as they move online, with no let-up in the decline of banks, betting shops and estate agents, giving people fewer reasons to visit high streets. And with footfall stubbornly refusing to recover, this long-term decline is now 10-20% below pre-pandemic.

There’s also a worry around the structural decline of high streets risking further large scale one-off closures. Where this sort of closure might once be taken up by independents, they are struggling themselves, being hit especially hard by the costs of doing business - the main ones being labour costs, energy costs, and loan repayments.

For now, our store openings and closure findings tell us that chain outlets continue to evolve, but only to meet consumer demand. The question is who and where the winners will ultimately be. There’s also a question for policymakers given the long-term net closure trend: what do they do with the leftover space, and how do they capitalise on this opportunity to transform town centres into places to live, work and play, rather than just shop?