A better recovery than expected or the calm before the storm?
Store closures slow as government measures and pent-up post-lockdown demand provide some protection for retailers and leisure operators. We explain what our survey findings mean for the retail and hospitality sectors, how the number of openings and closures differs across the UK, and consider what this might mean for the sectors in the long term as changes to consumers’ location preferences affect cities and shopping centres.
Last year, our half-year and full-year surveys showed an acceleration in store closures and a slowdown in openings. With COVID-19 enforced, last-minute Christmas tier restrictions and a third lockdown in the new year, alongside our previous warning that the full picture hadn’t yet been revealed, we were expecting somewhat bleak results from this survey.
But store closures have actually slowed.
In a reprieve for retailers and leisure operators, our latest store openings and closures survey shows 750 fewer net closures than in 2020, even despite significant high-profile casualties earlier in the year. The survey, which looks at multiple operators (stores with 5 or more outlets), shows that even with more than 5,251 net closures across Great Britain, businesses are remaining steadfast amid continued challenges.
Note: H1 2020 is for Jan-Aug due to lockdown affecting the data collection period
Initiatives such as the extended furlough scheme, business rates relief and government-underwritten loans have all played a significant role in helping operators stay in business, as has the impact of the rent moratorium.
For many, these measures have given them the breathing room they needed to repurpose and reassess, and continue trading even where sites have been particularly hard hit. With consumer sentiment returning to pre-pandemic levels and pent-up demand converting into better-than-expected retail sales in the first full months of trading post-unlocking, there’s reason to be hopeful.
But, even with extended support (such as the rent moratorium, now extended to March 2022) things could get worse in the second half of this year. We will now see the reinstatement of full business rates for all but the smallest operators from Q3, the wind-down of furlough support, and VAT for hospitality returning. Elsewhere, with no settlement on built-up rent arrears and little government guidance, some landlords and tenants may still be a long way from agreement. For many, this is an issue they should look to resolve now - whether they look to renegotiate leases or shift to turnover rent, for example. There will also be continued uncertainty for hospitality businesses around risks of lockdown, vaccine passports and other potential operating restrictions.
Away from the slowdown in net closures, we’re seeing some patterns emerging. Consumers are changing location preferences, moving from cities and towards retail parks and standalone locations. This, in turn, is impacting categories, which are starting to reflect longer-term consumer trends.
“After an acceleration in store closures last year coupled with last-minute Christmas tier restrictions and lockdowns extending into 2021, we might have expected a higher number of store closures this year. Government support has proved to be a lifeline.
However, the next six months will be make or break for many, particularly with the reinstatement of business rates, the winding-down of furlough and the need for agreement on rent arrears, as well as uncertainty for hospitality businesses around further lockdowns, vaccine passports and other operating restrictions.”
Lisa Hooker, Leader of Industry for Consumer Markets, PwC UK
Note: Excludes standalone/out-of-town sites
The trend we identified last year continues: people and operators are swapping city centres for suburban or out of town locations. This continued flight from cities is being driven by a footfall that has yet to recover as more office workers embrace home working in the short term or move towards a hybrid working model. It’s a trend that is reflected across all regions, with city centres now faring worse than commuter towns and villages (-4.3% vs -3.0% and -2.3%).
A combination of the prolonged flight from cities and the overcapacity and overexpansion of chains in recent years has seen London transition from the best performing region in 2016 (-0.9%) to the worst in the last two years (-2.9%).
In contrast, smaller villages and commuter towns have fared better. The South East and East Anglia, for example, have been the most resilient in the past two years, remaining relatively protected as commuters stay close to home. And while seaside towns appear to have done relatively badly this year, it’s more a righting of several years of smaller than average declines compared with other locations.
Similarly for Scotland and Wales, a worse performance this year could be attributed to the longer lockdowns in 2020 which may have postponed closures until this year.
The type of location continues to matter above all else across all regions. Retail parks have seen a smaller number of net closures (634), compared to high streets (3,643) and shopping centres (1,464).
Retail parks have fared better because they are anchored by grocery, DIY and home furnishings retailers, categories that have outperformed others since the start of the pandemic. Most have seen an almost complete recovery in footfall soon after the lifting of restrictions, and never got below -40% in the most recent lockdown, even with non-essential retail closed. As safety remains a key consideration, consumers are more inclined to drive to retail parks to avoid using public transport and larger units allow for better social distancing measures.
Shopping centres and high streets are often less conveniently located for consumers who want to shop locally and travel less to city centres. They are also more likely to host fashion retailers and chain restaurants, which have been among the hardest-hit categories for net closures over the past year. Even with full reopening and easing of restrictions, high street and shopping centre footfall is still 40% lower than pre-pandemic. This drop off in footfall has affected those multiple retailers located on high streets, particularly those in large city centres.
Note: YoY and Yo2Y dotted
In the long term, how likely are town centres - and shopping centres in particular - to recover, given, for example, the structural shift of fashion demand to online? People are likely to return to city centres as they become more comfortable with new ways of working or hybrid models, but have we seen the full extent of the correction, or is there more to come?
It’s a trend that could present problems for central and local governments. Car dependent and congestion causing, standalone out-of-town retailers and retail parks are not eco-friendly. They also go against most regional and national government initiatives to re-invigorate high streets and are even likely to leave those local governments exposed that have bought into shopping centres.
The marginal growth seen in a small number of categories hasn’t been anywhere near enough to offset the declines in other categories.
This year, leisure dominates growth, with takeaway chains buoyed by a rise in delivery as well as walk-in demand. Smaller chains and franchise operators, such as cake shops and amusement arcades, have also been able to take advantage of lower rents and vacant units to expand their footprints. Elsewhere, restaurant closures are a correction of overcapacity or overexpansion in the mid-2010s.
The big net declines in other categories also 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. The closure of fashion and department stores have been driven by big administrations in Q1, with chains acquired by online operators with no ambition to operate stores. Car and motorbike dealerships have also seen a shift online, exacerbating the lower demand we were seeing for vehicles during lockdowns. And following a slowdown for the past two years, banks have accelerated closure programmes as consumer needs continue to be serviced by digital solutions. Even the charity sector has been affected by the move online.
Ultimately, the decline in stores appears to be slowing. While that remains positive news, we may still be yet to see the full extent of the pandemic.
In the short term, we’ll see the impact of COVID-19 continue to accelerate previous trends and compound the locational shift. But, overall, store closures are likely to be driven by a consumer shift to online retail and services, and overcapacity for certain categories of leisure. And because of these trends, it’s difficult to see any categories fully recovering long term.
As we’ve noted before, as shoppers increasingly buy online, retailers must assess the role that each bricks-and-mortar store plays in their sales model. This goes far beyond just a physical location for sales to take place; stores help to build brand, showcase products and act as hubs for customer service and click-and-collect.
But the biggest concern might actually be the shifting consumer preference to out-of-town shopping, particularly from an environmental perspective. While the flight from cities may appear an issue, consumers are likely to return to some degree, driven by new hybrid working models, improved safety and more significant leisure options.
Not all shopping centres will survive in their current form. Investors must consider how to repurpose spaces to attract footfall. That may mean creating a retail and hospitality destination, showcasing independent and local operators rather than the chains that are retreating. It may mean converting for alternative use, whether housing, offices or civic services. The current overcapacity of retail space needs to be addressed and effective changes will require the cooperation of government, landlords and operators, who will need to think about how to handle repurposing, reinvention and creative use of empty spaces. There won’t be one formula for success - each high street will need to consider its viability in the medium- and long-term against its vitality today.
As businesses reimagine workplaces to empower workforces, reduce fixed costs and create bespoke, hybrid working strategies, local authorities cannot consider static solutions. They must work out what local communities want from their high streets and town centres, and engage them in working out how to use spaces. They now have a unique opportunity to align investment around recovery objectives and deliver vibrant locations that people want to be part of.