Store Openings and Closures - 2021

The rate of closures slows again - have we passed the peak?

With a net figure of 10,059 stores exiting UK high streets, shopping centres and retail parks over the last year, you could be forgiven for thinking that physical stores are in terminal decline for chains and multiples. But that’s not quite the case.

In a similar trend to the H1 2021 findings, our full-year results show a slowing of store closures. The headline figure of 17,219 closures this year is the lowest number we have seen for two years: with 313 fewer closures than last year, and 119 fewer than 2019. This may be a sign of the turning of the tide.

Since the mid-2010s, we’ve seen a growing rate of closures, as more retail and service categories shifted online. Offset to some extent in the early days by a rapid rollout of leisure operators - particularly coffee shops, food-to-go and casual dining restaurants - openings began to slow down towards the late 2010s, while closures continued to increase.

While closures peaked in 2020 with COVID-19, this was only really in line with the long-term trends we had been seeing.

The biggest change driving net closures has long been the decline in store openings. In the last two years, for example, chain retailers would have had to be particularly brave to roll out something new. While on the face of it, 7,000 new openings may seem high, many of these are natural churn or the re-siting of existing stores.

These results should be viewed in a broadly positive light. As discussed in more detail in our BRS specialist briefing, the last two years have seen a shakeout in large retailers that were on the brink. That suggests we may have even hit the peak of closures for multiples.

We expect to see closure numbers slow further in 2022. Many big names exited physical stores in 2020, with other large fashion and department store chains closing in early 2021 before government support for chains was phased out in July 2021. Those that remain are already lean. On top of this, many bigger chains have been able to negotiate with landlords for some time, so the end of the rent moratorium in March 2022 is less likely to affect them compared with independents. There will inevitably be other headwinds, but we are hopeful the coming year will be less catastrophic than some have predicted.

Location, location, location

Perhaps the biggest finding this year is the performance of retail parks and standalone sites, with retail parks in particular having now outperformed consistently for the past 7 years. They have remained relatively insulated from closures and performed significantly better than high streets and shopping centres. 

This is a trend that COVID-19 has exacerbated, clearly highlighted by footfall.

While footfall unsurprisingly saw a rapid decline across all locations during lockdowns, recovery has been much faster in out-of-town retail parks. In subsequent lockdowns, retail parks with essential retailers - such as supermarkets and DIY stores - had the added benefit of being able to remain open. Those that did were also typically based out of town. 

During recovery, we then saw shopping centres particularly hard hit by the closures of fashion retailers, department stores and casual dining restaurant chains, reversing the trend of outperformance in the mid-2010s. In turn, they became less attractive destinations in their own right. 

With car travel recovering much quicker than public transport following lockdowns, out of town retail parks benefitted from providing easier car access and parking. That said, the latest stats for December 2021 and January 2022 do show some reversal of this trend, with high streets holding up while retail parks and car driving fell back. Could this be a temporary trend driven by Omicron or the weather, or will it be a more long-term reversal?

Flight from the cities still happening

Historically, there has been little difference in the performance of different town types, which may have fluctuated a little by year but followed a consistent trend. In 2019, for example, other than seaside towns being less affected (-2.8%), all other location types were around -4% down. However, since the pandemic, we’ve seen a clear acceleration of net closures in city centres and London postcodes. 

It’s a continued flight from cities, driven by a change in footfall as office workers embrace home working and hybrid working models.

That flight from the cities combined with historic levels of overcapacity and overexpansion sees London become the worst-performing region by far.

The impact on cities is also the key driver for the West Midlands underperforming relative to the East Midlands. That underperformance is almost exclusively accounted for by Birmingham city centre, with towns in the East Midlands more sheltered from COVID-19 closures. With Birmingham due to host the Commonwealth Games later in the year, it will be interesting to see the extent of its impact: can it reverse the trend and encourage people - and multiples - back to the city?

Online the catalyst, not COVID-19

While COVID-19 is often touted as a reason behind closures across categories, almost all of the decline has actually been driven by the acceleration of online. The big net declines not only show overcapacity but reveal major shifts in how consumers buy and transact. The shift to online has been the biggest factor in closures across retail and services, accelerated by consumer behaviours in response to COVID-19. 

It’s a trend we saw in H1, confirmed in the full year’s results.

Fashion and department store closures were driven by big administrations, with chains acquired by online-only operators. Car and motorbike dealerships saw a further shift online. Even the charity sector saw stores close as demand - and opportunity - moved increasingly online. And with customers embracing online options and tech-enabled challengers, banks continue to accelerate closure programmes, having been the top or second-highest closing category in five of the past six years. That consistent trend is only matched by betting shops, which continue to be heavily impacted not just by legislation but a significant move online, making physical stores less viable. 

Growth is nowhere near enough to offset the declines, but there are some interesting findings regardless.

As in our H1 survey, leisure dominates, with takeaway chains buoyed by a rise in delivery as well as walk-in demand. In other positive leisure news, smaller chains, franchise operators and entrepreneurs continue to take advantage of lower rents and vacant units to expand portfolios. 

Having dominated the bottom 10 results for the last few years, restaurants and pubs are no longer among the fastest declining sectors. This suggests that the capacity reduction has finally bottomed out as a correction of overcapacity and overexpansion in the mid-2010s.

Elsewhere, job centres have seen growth on the back of a post-COVID-19 recruitment push, but are offset by 182 net closures of employment agencies for temporary workers.

New behaviours, new opportunities, same challenges

We noted it in our last update, but it bears repeating: the decline in stores is slowing. However, for many retailers, there will remain concerns over slowing openings in town and city centres, as well as the extent of the pull out of town locations. 

We expect that locational shift to continue: to retail parks at the expense of cities and certain regions. It’s not because of any pandemic effect, but a continued and consistent consumer shift to online retail and services, and overcapacity for certain categories of leisure. COVID-19 has simply accelerated that trend and those behaviours. While this locational shift may be stark, it does present opportunities to radically reshape towns and city centres.

High streets can’t fight retail parks. They don’t have the benefits that consumers are looking for: easy access (without the need to use public transport), free and plentiful parking, or the convenience of larger shops with everything under one roof. Those responsible for high street regeneration need to understand why retail parks are so attractive to consumers and innovate to create equally appealing (or even differentiated) while still serving local needs better. We did see a growing affection for local high streets during the pandemic as they became increasingly important for consumers: can they somehow capitalise and build on this previous consumer goodwill? 

That responsibility will fall on a wide range of interested parties. As chains continue to retreat, independents and entrepreneurs will need to look for ways to better serve customer needs in city centres. Investors must consider how to repurpose spaces to attract footfall. The government, landlords and operators will need to work together to reinvent or creatively use empty spaces: whether that’s for retail and leisure or housing, offices and civic services. 

Elsewhere, our increasing affection for retail parks, coupled with the current aversion to public transport, means there is a concern around ESG, particularly sustainability and net zero. If this trend continues, it’s something that will need to be addressed as a priority.

With footfall recovering from pandemic lows, there remains plenty of opportunity for the high street. As chains exit they leave space for independents to take units that they previously could not compete for. In turn, that offers a chance for local enterprises, government, and landlords to work together to reinvent the purpose - and personality - of their local high streets and town centres.