Record closures as retail and leisure responds to changing consumers
We weren’t expecting it to be positive reading this year, and our headline figures confirm that: a record net decline (-9,877), number of closures (17,532), and a new low in the number of store openings (7,655). That’s equivalent to an average of 48 chain stores closing every day, and only 21 openings.
And the big concern is that we’re still to see the real impact of the pandemic - it’s likely to get worse before it gets better. With our primary research methodology assuming “temporarily closed” stores remain open, we expect to see the full effect over the next couple of surveys, as those temporary closures return or disappear.
But this year, record closures aren’t the main story. While our Store Openings and Closures survey only looks at multiple operators (stores with 5 or more outlets) it paints a detailed picture of all retail locations in Great Britain. So while we’re still waiting to see the full impact of COVID-19 on store closures, we are seeing its effect on consumer behaviours, many of which existed pre the pandemic and have just accelerated but are driving more rapid change in consumer-facing businesses. In fact, our 24th Annual CEO Survey shows that keeping up with customers is a challenge, with 61% of UK CEOs worried about changing consumer behaviours.
We’ve discussed many of these COVID-accelerated trends before: but we’re also seeing new winners emerging as retail parks thrive and small towns enjoying a mini-renaissance. These are becoming locations that consumers now want to shop in, and larger retailers want to be there. Independents are also back in vogue, driven by a desire to shop locally.
When compared with previous years’ data, there is greater regional disparity. And a reversal of the trends we’ve come to expect. Looking at absolute figures, London, South East and the North West have seen the most closures, unsurprising given those regions generally have more chain stores. Similarly, Wales, Scotland and the North East have had the fewest closures, but historically fewer retail centres and fewer chain stores.
Even on a percentage basis, London has been hit harder than other regions, with a record 5.8% increase in net closures. Conversely, Wales, Scotland, East of England, South West - less highly concentrated retail destinations - have been more protected from closures.
This is a reversal of fortune over the last few years. For a while now, chain retailers have focused on more populous and prosperous regions, such as London and the South East, reserving closures for other regions. However, 2020 has seen London and the South East accounting for a third of the decline of all shops, even despite the South East remaining partly protected by the displacement of London shoppers as commuters work from home.
Though we’re still waiting to see the full impact of COVID-19 on stores, we’re certainly seeing its effect on consumer behaviours. And the shift towards working from home is driving how retail locations have been most affected by closures: City centres are now faring worse than suburbs and commuter towns, and shopping centre shops are twice as likely to close as retail parks.
Large city centres - such as Birmingham, Bristol, Leeds and Newcastle - have been heavily impacted by the change of working behaviours. With fewer people visiting city centres, these areas have seen an almost 8% decline in multiple stores. While London does fare slightly better on this measure (-7%), its performance is inflated because of the inclusion of its prosperous suburbs.
Suburbs across the UK have done better, as have commuter towns in North, South, East and West of the Capital, such as Welwyn Garden City, Orpington, Harlow and Slough. There have also been fewer closures in the smallest towns and seaside towns around the country, such as Scarborough, Eastbourne, Great Yarmouth and Llandudno.
As with regional differences, this is a reversal of historical trends. For years, multiple operators have opened more sites in cities and closed units in smaller towns. As consumer behaviours and location preferences change, retailers are preserving locations with more potential in any post-pandemic environment. In an interview for our 24th Annual CEO Survey, M&S’ Steve Rowe discusses how its transformation now includes a long-term programme of reshaping its estate.
In our Retail Briefing 2021, we looked at how footfall plummeted as a result of lockdowns in the past year. While that may have been expected with the closure of non-essential stores, there was even a decline when high streets were fully reopened in summer 2020. For the first time, we’re seeing a widening gap between different types of locations: high-street and shopping centres are faltering, but certain retail parks are prospering.
The drop off in high-street footfall has affected those multiple retailers located on high streets, particularly those in populous areas. However, this decline in multiples has been somewhat offset by growth in interest of local and independent operators. Gathering momentum since we first identified the trend in May 2020, a prolonged lockdown has led consumers to rediscover local high streets. Many are now keen to support these local and independent retailers that have helped them through these times.
Elsewhere, shopping centres have fared worst of all. Not only are they often poorly located for this new type of consumer behaviour we’re seeing (i.e. increased local shopping, decreased city centre travel), but they’re also affected by the resident operators, such as comparison retail that can easily be done online (e.g. fashion) or chain hospitality operators that have overexpanded into difficulty.
However, it’s good news for retail parks. Footfall has held up, they are in demand and have seen the smallest number of net closures of any location. For some, it’s because they are anchored by essential retailers that have remained open, even during the tightest restrictions. But it’s also because they’re considered safer in the current environment: free parking means it’s possible to drive to the location (and avoid public transport), outdoor areas mean reduced indoor mixing and larger units allow for better social distancing measures.
This is not a uniform trend across all retail parks, though. Those anchored by essential retailers and categories that can’t move online - such as grocery or discount - have been more resilient than others. Those anchored by fashion or leisure, for example, have fared significantly worse.
So, it’s not just about being located in a retail park, it’s about being located in the right retail park. It’ll be interesting to see this trend evolve as lockdown and restrictions ease to see whether people return to those parks underpinned by fashion, or more importantly leisure. Our 24th Annual CEO Survey interview with Kenny Wilson of Dr Martens looks at the importance of omnichannel retail and the impact that might have on location and consumer habits in the future.
Despite the uncertainty and volatility of the last 12 months, some operators are still expanding. Even in such a challenging environment, there remains a place for the right physical stores in the right sector and the right location. And a new PwC Global report The future of consumer markets looks in detail at how the stores of the future must be omnichannel and experience-rich in order to fuse the physical and digital worlds.
As with last year, the success stories fall into the same broad categories. For retail, that’s convenience, discount or essential operators, general merchandise value retail (that can’t be replicated online) and local services that need to be located nearby, such as tradesmen or repair shops. For leisure, ‘convenient leisure’ has grown through takeaways, cake shops and even coffee shops. However, while coffee shops might traditionally be thought of as city centres units, any decline there has been offset by growth in drive-in coffee shops in retail parks and out of town locations.
Even the category winners must be considered cautiously. While net growth of the top 5 categories is between +21 and +88 units, no other categories showed net growth of more than +2 units. Of our 99 categories, only 8 grew, 11 were flat, and 80 declined.
The declining categories are made up of a mix of retailers, hospitality operators and services affected by either online or overexpansion. More notable was the speed of the decline in certain sectors, fashion in particular, which saw an average of -3 net stores per day, reflecting consumers move to buy fashion online as well as a lack of demand during the pandemic.
Unsurprisingly given the current environment was a high representation of hospitality and leisure amongst the top closures, in many cases triggered by CVAs. However, what we’re seeing is less of an effect of COVID-19-enforced closures, more the result of overexpansion by chains in the early-to-mid 2010s.
As we’ve come to expect, services are lower down the list again, with post offices, estate agents and banks still seeing closures driven by a move online rather than any pandemic effect. However, these categories have dropped out of top 5 closures for the first time since 2016, as net closures slow down - because the online move began in the early 2010s, we’re coming to the end of this trend.
Generally, we’re still to see the effect of COVID-19 on most categories. Much of the impact we’ve seen this year is a reflection of things that happened before the pandemic, such as the evolving way we shop, legislative change (i.e. for betting shops), consolidation due to previous overexpansion, or chainwide closures for restaurants and mobile phones that found themselves in trouble pre-COVID-19.
That’s not to say that the pandemic has had little impact on store openings and closures this year. It’s just that its full extent is likely to be revealed in more detail in the coming months. It will get worse during 2021. Many of the CVAs and administrations in the early part of 2021 still haven’t been captured, including department stores, fashion retailers and hospitality operators that will leave big holes in city centre locations. Retail and leisure operators must take action to ensure they are in the right places, so they’re not left surrounded by empty units and shopfronts.
The sectors may be bolstered by the Chancellor's Budget 2021, in particular the extensions of VAT relief and business rates holidays. Whether this will ultimately have an impact on closures remains to be seen, but it should give many the opportunity to benefit over a busy summer period and across Christmas.
Whatever happens, there will be big opportunities for growth into the gaps that are emerging. You only need to look back at what happened after the global financial crisis - and the growth of discounters and foodservice chains that replaced exiting retailers - to see that operators who can find the right location at the right time can thrive, even despite the current uncertainty. As things begin to normalise, city centres will return but not quite the same as before, with people likely working fewer days in the office as they embrace remote working. It remains to be seen whether what we used to consider successful prime locations have changed permanently.
The Local Data Company tracked 208,057 outlets operated by multiple operators across Great Britain, between 1 January and 31 December 2020.
Multiples are retailers that have more than 5 or more outlets nationally.
Net change is openings less closures. The percentage change is derived from the net change figure relative to the total number of live multiple businesses.
The analysis is derived from The Local Data Company visiting 3,496 high streets, shopping centres and retail parks across Great Britain. Each premises was visited and its occupancy status recorded as occupied, vacant or demolished. Vacant units are those units, which did not possess a trading business at that location on the day visited.
For the purposes of this research, premises that were temporarily closed when visited were considered to be still occupied and have not been included in the closures numbers. It is likely that a number of these premises may not open and will be included as closures in future research.