- Major retailers turn bullish on city centres
- Online sales struggling even as price sensitivity increases
The high street might not be dead after all. Retailers are expanding their physical estates after posting strong bricks-and-mortar sales growth, as online custom struggles after the pandemic boom. Even the sharp discounts on offer at Boohoo (BOO) and Asos (ASC) haven't been enough to keep sales up, and major retailers are adding square footage in city centres, just to underline the 180-degree shift from Covid-19-era retail trends.
Primark owner Associated British Foods (ABF) will open another 17 stores worldwide in its current financial year, which will contribute to a net 1mn sq ft of new retail space. The company, which customers have to visit in person, this week disclosed record Christmas clothing sales and an overall 20 per cent revenue uplift in a trading update covering the 16 weeks to 7 January. It noted that “footfall is now strong in major city centres as well as on high streets and retail parks”.
Earlier this month, Marks and Spencer (MKS) revealed that it would invest £480mn in its store estate, and highlighted the “key city locations” it had picked for new shops, taking on former Debenhams locations. The department store fell into administration in 2021, although new owner Boohoo sells clothes online under the name.
At the same time as spending on new major sites, M&S plans to trim its number of UK full-sized stores to 180 while increasing its food store footprint to 420 by 2026, a total net increase of 37 stores from October last year. The retailer’s clothing and home store sales jumped by 13 per cent in its third quarter to 31 December. There was a sub-1 per cent contribution from ecommerce.
Sweet returns
Over at Hotel Chocolat (HOTC), there are “increased plans for UK store estate growth over the next three years”. The premium chocolatier enjoyed a 10 per cent uplift in UK and Ireland like-for-like store sales in the nine weeks to Christmas Day, while online sales fell.
Store expansion plans will be a boost to the high street after an increase in closures last year. According to the Centre for Retail Research, more than 17,000 retail stores closed in 2022, up from 11,500 in 2021 when government Covid-19 support was still in place.
The pattern of chunky in-store sales alongside a poor online performance was also seen in Next’s (NXT) fourth-quarter update. Meanwhile, bootmaker Dr Martens (DOCS) has been forced to rethink its digital strategy after “excellent” in-store sales overshadowed its online performance, which plateaued in the run-up to Christmas. The group is reviewing the benefits of selling into wholesale ecommerce accounts and has cut down on volumes for now.
Elsewhere in the bricks-and-mortar space, discounter B&M European Value Retail (BME) bumped up its earnings guidance and Greggs (GRG) – which is aiming to open another net 150 new stores this year – kept guidance steady after resilient updates.
Downbeat online trading, meanwhile, was reflected in the official data. The Office for National Statistics (ONS) said that online sales took 25.4 per cent of total retail sales in the UK in December, down from 25.9 per cent in November.
Boohoo chief executive John Lyttle pointed to the “normalisation of the channel shift online over the last 12 months” after the fashion retailer’s sales fell by 11 per cent in the four months to 31 December. Revenues fell by 4 per cent at fast-fashion peer Asos over the same period.
Numis analysts said that “the online channel remains overstocked... the overall offer is sequentially worsening, with less appealing product and reintroduced friction points”. Royal Mail strikes also knocked sales, as well as Omicron sending Christmas shoppers online last year, which made for a tough comparison.
But recent trading, and store expansion plans, shouldn’t be seen as a sign that the high street outlook is failsafe.
Christmas highs, Easter lows?
While retailers have pointed to promising festive footfall, data analytics company Springboard said that UK high-street footfall was only at 84 per cent of 2019 levels in the week to 15 January. The ONS put retail park traffic at 98 per cent of the same period three years ago. And retail sales volumes have fallen for 9 months in a row – including a worse-than-expected 1 per cent fall in December against the previous month – with sales growth figures driven by price uplifts.
It is also useful to define what actually counts as the ‘high street’. Last year, M&S was dragged down by the performance of “legacy” shops on UK high streets. Now, it is focusing on bigger premises in city shopping centres, such as Birmingham’s Bullring and Manchester’s Trafford Centre. Management has also signalled renewed interest in out-of-town locations, having moved from an “ageing town centre site” in Chesterfield to a new 46,000 sq ft store in a nearby retail park.
The return of in-person shopping doesn’t necessarily equate to the return of old shopping habits, therefore – and retailers will need to be clever when expanding their estates. Those 17 shops Primark is opening? None of them is in the UK, with 10 in the US and the rest in Europe.
