Are Small Retailers Becoming an Endangered Species?

Cecil_the_lion_in__3388298bThe illegal killing of Cecil the lion has generated many column inches about the protection of endangered species. In an admittedly tangential intellectual leap, I’ve been wondering if we should be adding another dying breed to the danger list – that of the independent retailer.

It seems that just like many animal populations in the wild, retailers who colonise once abandoned areas and make them fruitful again, tend to attract the unwanted attention of bigger game looking for an easy kill.

Currently the country’s richest landowner, the Duke of Westminster is planning to bulldoze a chunk of the Pimlico Road, regardless of the fact that he’ll be rolling the heavy machinery over a raft of long established and successful independent stores.

Unfortunately for them, it’s not enough that the property is earning more than it’s keep and probably appreciating faster than Tracy Emin’s unwashed bed socks. The assets must be sweated, even though they’re already soaked in years of perspiration, squeezed from the brows of those who’s businesses trade from them.

Passport to Pimlico

The Pimlico Road has become a magnet for interior designers and anyone looking for something a little out of the ordinary. The antithesis of what chain stores provide, by their very nature. Yet buoyed, no doubt, by the increased footfall these niche stores have inspired, Grosvenor’s plans are reportedly to develop gargantuan retail units that they believe will be more attractive to larger international brands.


Developers now fish in a gene pool that is becoming progressively more shallow, producing a retail mono-culture where they no longer understand or apparently care about the requirements for smaller operators, except as pop-ups of convenience or a bit of garnish to their main offer, usually in the form of RMUs.


And this isn’t an isolated case. We’ve seen similar changes in character to destinations such as Burlington Arcade, Spitalfeilds and Covent Garden. In central London, galleries in Cork Street and Dover Street have been lost, and even bespoke menswear stores and tailor’s workshops that gave streets like Savile Row their iconic status around the world have been ground under the developer’s heel. While London may be the vanguard for these culls at the moment, it’s a strategy that’s starting to gain ground, literally, around the whole of the UK.

When I entered the high street over 20 years ago, I remember even the most hard nosed property managers being supportive of smaller operators. Not only did they appreciate your staying power, but they saw your business as providing that extra spark and diversity that kept their developments attractive to both consumers and prospective tenants.

Retail SSI

There now seems only to be a headlong pitch towards bigger, brasher and more expensive spaces with scant regard for anything a smaller retailer, let alone a start-up, could occupy. New malls for example now rarely offer spaces small or affordable enough for indies to even contemplate.

Developers now fish in a gene pool that is becoming progressively more shallow, producing a retail mono-culture where they no longer understand or apparently care about the requirements for smaller operators, except as pop-ups of convenience or a bit of garnish to their main offer, usually in the form of RMUs.

protected-species-sign-on-gate-postSo where does that leave the small retailer of the future? If every time a secondary or tertiary location is popularised that’s taken as a cue to erase their existence, where will innovation and verve come from on the high street? Certainly not from the ‘me too’ generation of international brands, over-hyped and over here, rolling out virtually the same products and service models as every other chain store.

Perhaps in the same way that sites of special scientific interest are protected by government statute, we should have sites of special retail interest, where smaller businesses can be shielded from the worst excesses of re-development.And this isn’t just starry eyed idealism. Without space for new entrants into the retail landscape, where will our chain stores and national retailers of the future come from? We can’t expect every successful online business to have a yen for a more physical presence.

In the same way that vulnerable animals need to be protected from the sophisticated firepower of modern hunters, business innovation needs space to breed and expand, outside of what is rapidly becoming a very one sided fight.

Most conservationists will tell you that habitat erosion is one of the largest causes of extinction events. Maybe the world of retail property management also needs to learn that lesson before it’s too late.

This article was also published as one of my regular columns for Retail Week Magazine

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Unrealistic Rents Are Risking The Future Of Our High Streets

high-rentThe British Retail Consortium warned recently that a failure to deal with our broken business rates system could have a devastating impact on our economy.

In a stark prediction to the Chancellor, they estimated that up to 80,000 shops could fall empty over the next 2 years, putting 800,000 jobs at risk.

This is based on the assumption that 60% of stores facing lease renewals over the next 2 years may simply walk away from what has become an unsustainable commercial property model in the face of climbing rents and falling sales.

I’ve previously highlighted the perfect storm that is brewing up towards the end of 2015, with 40-50% of commercial leases falling due to for renewal.

The BRC’s predictions may be pessimistic, but there’s every reason to believe that a huge dent could be put in the retail economy very soon. This is especially worrying, considering consumer spending and the associated debt shift to private borrowing is what appears to underpin much of George Osborne’s plans for our economy over the next few years. Likewise many local authorities now rely more heavily on business rates as cuts in central government funding bite even deeper.

I’ve often been critical of the BRC. I see them as an organisation geared heavily towards protecting the big boys in the retail hierarchy, with only the odd glance back down the ladder towards small independents and medium sized chains. But on this occasion I’m in complete agreement with them, although for slightly different reasons.

Rates Burden

Business rates are of course a huge burden on high street operators and an issue that urgently needs to be addressed by the Chancellor – indeed it’s something I rarely tire of saying myself. But this has been the case for at least the last 10 years now.

However all this is largely irrelevant to the overall problem. The main reason why many store leases may lapse at the end of this year has less to do with rates and more to do with the ridiculously out of kilter valuations of the properties themselves.

It’s often conveniently forgotten that business rates are based on historic rent agreements. Many of them made by companies financed by the very same people who also bankroll mall developers and institutional landlords, both of whom have a vested interest in keeping rental expectations unrealistically high.

The driving force behind our inflated rating valuations are the equally avaricious demands by landlords who would rather see a store empty than see it’s theoretical value fall.

Bluff And Deception

Anyone who has had experience of lease renewals over the last 5 or 6 years will tell you that there’s very little sign of pragmatism from landlords or property advisers. Any hopes of the market being reset after the financial crash have long been abandoned.

This is partly down to the way that commercial property has become the vehicle of choice for the disconnected behemoths that are multi-national investment funds, but mainly because most such organisations are hip-deep in the same quagmire of over-leveraged debt that led to the spectacular economic swan dive we all witnessed a few short years ago.

robinson-bluff_1971637b

There has long been a fragile framework of bluff and deception underlying the retail property market. More than any other commercial property transaction, store leases and rents are teetering on the edge of an abyss created by property advisers and fund managers who simply refuse to give any quarter to such mundanities as fiscal viability or long term tenant relationships.

The general principle seems to be that as long as they can keep the music playing, no one ever has to count the empty seats. The problem now of course is that a raft of impending lease expiries means there may soon be a lot more chairs and a lot less people willing to play the game.


The driving force behind our inflated rating valuations are the equally avaricious demands by landlords who would rather see a store empty than see it’s theoretical value fall.


There was nothing tangible in the recent budget about business rates reform, and that’s something that we must continue to demand from a government that has been consistently phlegmatic about, despite promises of action.  But that’s now only half the story. Without effective commercial rent and lease control, or some voluntary injection of common sense into the equation, these other costs will simply expand to fill the vacuum created by any reduction in the rates bill.

If we’re going to avoid thousands more empty stores and hundreds of thousand of lost jobs, we need a comprehensive review of the entire bricks and mortar proposition. In the meantime property taxation will only be a part of any retailers decision to stay or walk away.

Pressing The Reset Button On The Commercial Property Market

reset-przyciskI have this annoying habit of confusing two recently formed organisations.

Firstly there’s the Future High Street Summit, set up by high street campaigner Clare Rayner to bring together experts and activists concerned about the state of the great British town centre. It currently takes the form of a conference, open to anyone, but especially grassroots imagineers looking to contribute to process of re-building communities around a social and commercial hub.

Then we have The Future High Street Forum, set up by the government, supposedly to build on the work of the 2012 Mary Portas review. They have a smattering of academics and some fringe involvement from trade bodies, but largely it’s composed of vested interests, property investors, large corporate retailers and politicians appointed by a government department with no readily apparent clue about what is actually needed to deal with the problems in our town centres.

As you may be able to tell, even though they have similar names, there is a big difference between the aims and achievements of both bodies. I was fortunate enough to be invited to the first Future High Street Summit earlier this year and found it a very interesting experience. Rather fittingly held in the futuristic environs of the National Space centre in Leicester, it comprised of two days of speakers, discussion groups and networking opportunities.

A number of knowledgeable speakers shared experiences and insights over the two days I was there. Some I agreed with, some I didn’t. But overall there was a good cross-section of exemplars and I’d imagine everyone found something to inform their own activities and responsibilities. I certainly enjoyed the networking sections, chatting with people I already knew and making a few new acquaintances, some of which I’m still in touch with.

Where’s Brandon?

One notable absence though was the then Minister for High Streets, Brandon Lewis. He’d been billed as a speaker for some months, and having missed my opportunity to fire a question or two at him at his whistle stop visit to Retail Week Live conference a few weeks earlier, I was looking forward to getting a second chance in Leicester.

Brandon-Lewis_2886856bSadly though, at the last minute he discovered he had to somewhere else to be on that day. An important matter of state perhaps, or maybe it was just his turn to polish the Westminster cat. I remember checking his Twitter feed on the day to find out what could have been so important for him to break such a long standing engagement. I can’t remember it being anything earth shatteringly important. Certainly not as important as a conference bringing together people to discuss options for the very thing he was supposed to be responsible for at the time. Perhaps, like me, he got the two similarly named organisations mixed up and only realised his mistake at the last minute. That might have been an embarrassing admission for him, considering he was the chair of the government forum.

Whatever the reason the DCLG sent along a polished civil servant stand-in to read a prepared speech in impressive cut-glass tones. Rather more of a political treatise than an engaging presentation, it sounded like a lecture he’d already given a dozen times to the politically faithful. The questions piled up on my notepad, poised for moment when he would finally shut up. But, as his boss had done a few weeks before, he scuttled off with no time for in depth discussion of government policy. In the final analysis, perhaps the lack of engagement with attendees on both occasions speaks volumes about the government’s genuine attitude towards the issues.

We’re All Forum

Over the past year or so we’ve had a number of announcements from the Future High Streets Forum. Last year Government Minister Nick Boles suggested that hard to let stores could be re-tasked as residential properties, thus neatly erasing the problem of abandoned high streets and giving property developers free reign to make a lot of money out of the plight of inner cities.

No matter that the Forum was set up to help get these areas back into retail and other community uses. Let’s just solve the problem of over-rented, over-rated retail locations by turning them into luxury pied de terres. In one fell swoop this would provide hope to perfidious landlords who’ve backed themselves into a corner with fantasy loan to asset values and reduce the pool of available retail properties, thus inflating the market even more.

Their latest wheeze yet again involves the property hue of their spectrum of responsibility. A joint announcement from the Forum and the British Property Federation set out a plan for what Liz Peace of the BPF called a ‘collective ownership scheme’. The driving principle being that the disparate nature of property ownership on our high streets didn’t lend itself to the same sorts of controls available to the operators of shopping malls. Unusually for me, I agreed with Liz on this point. We do need curation on the high street. So many towns now are clogged up with the same usual suspect operators. from the ubiquitous mobile phone stores to the omnipresent coffee bars, many high streets are just plain boring.

Attack Of The Clones

The principle of the clone town is not new. It was identified some years ago and the phrase has long since slipped into the national lexicon, in many cases without much concern for what it actually means. Shopping centres have been quick to capitalise on this phenomenon and have applied fairly rigid tenant mix policies within their specific fiefdoms. I say ‘fairly’ rigid as it’s not unheard of for a big bucks offer to banish all concerns over duplicate use. You only have to look at Covent Garden and count the number of multinational perfume and body products brands selling virtually the same thing to see that.

p1060068-480x321But this more ordered approach to the shopping experience has paid dividends for mall operators and their tenants so it’s sensible that the idea should be applied to the high street. Of course the stumbling block is still the fractured nature of property ownership. Ultimately each landlord is more concerned with getting the best deal from a tenant, regardless of the type of use. What do they care if there’s already 6 other mobile phone store in town. If number 7 is prepared to a ludicrously speculative rent they’ll take their money.

The BPF’s solution to this is a system whereby landlords would pool resources and agree a common lettings policy. In one model being proposed they would each have shares in an overall property portfolio, shifting the focus away from individual lettings to a more holistic trading environment.

Curated High Streets

The idea of a curated high street is something I’ve long championed. But I’ve always proposed controls via more detailed planning laws. Instead of broad brush usage classes being factored into local plans, I’d have specific operator types defined by an elected team of high street managers, drawn from various parts of the property spheres. Town planners, local retail groups, landlords, property advisers and local consultants, maybe something like the town teams we already have, but with more accountability. There would be zoned areas within a well defined tenant mix policy which any new tenancy would have to comply with. This would prevent disconnected property interests simply chasing the money, regardless of duplicated use.

Of course this is something that could be handled by a self regulated body of property owners, but there would be a risk that vested interests could ultimately over-ride the what’s best for the local trading environment. Even if the income from these property groups was pooled by way of a shareholding collective, as suggested in one proposal from the BPF, There would always be potential for larger shareholders to dominate the group. And as I’ve described above, self regulation becomes rather malleable when there’s enough money on the table.

The other danger that I see from allowing such a collaboration between property managers is the possibility of terms fixing. Rents and other leasing policy issues could easily become entrenched, leaving tenants little room for negotiation in a target area. Instead of dealing with one landlord, they’d be dealing with a cabal. Lease negotiations are already skewed enough in favour of the landlords. We don’t want to be fomenting conditions for the construction of a cartel in all but name.

The Big Idea

Fellow town centre campaigner Dan Thompson and I have recently been kicking about a more radical solution to the problem of restrictive practices on the high street. We’ve posited the idea that empty properties could be purchased by a retail property trust and let to independent operators on a non-profit basis. That’s not to say the rents would be at giveaway levels – the idea would be to generate funds for other local projects as well as to expand the property portfolio – but rents would be kept sustainable with respect to other costs and the profitability of tenant’s businesses.

There would be some element of profit sharing involved along with principles of tenant mix, competition, and the curation of the overall trading environment. But small businesses and a variety of uses could be encouraged to keep an area varied and vibrant.

Rents would be pegged to factors other than the usual relentless pursuit of asset valuation. That way we could ensure some longevity for both the local trading environment and the businesses within it. Moreover pioneering entrepreneurs who move into the poorer trading zones, and then revitalise them through their own creativity, innovation and bloody hard work would get to reap the benefits when the locale becomes trendy and profitable. Rather than landlords immediately following the money and moving in yet more coffee bars, mobile phone shops and anyone else who dangles a big wad of cash in their general direction.

Ultimately the goal would be to press the reset button on the commercial property market, providing some alternative dimension to the rental tone and thus undermining the closed shop rent review stitch ups that usually lead to ratcheting rents and more literally closed shops.

Rising-RentI’m proposing a return to the days when landlords and property owners worked in conjunction with tenants to foster a long term relationship. Both were happy to receive realistic returns on their investments and were able to plan for the future, rather than constantly watching over their shoulder waiting for the next rent review or feverishly calculating the chances of your own survival when the shop next door is let at a blue sky rent that you know you’ll never be able to afford.

You can call me naive – indeed somebody did on Twitter shortly after I revealed this idea in my Retail Week column last week – but I really believe that if we’re to encourage future generations of high street pioneers, we need a cultural shift away from the idea that commercial property is the investment gift that keeps on giving.

In my view, the day landlords swapped the value of a solid reliable tenancy for beliefs in such fairytale concepts as upwards only rent reviews and ever increasing portfolio values was the day our high streets started to die.

So there you have it. A brief taster of my idea of a high street utopia. Somewhat different from that proposed by the future High Streets Forum and the BPF, but something that would be about long term, sustainable revitalization, not just a valuation on a balance sheet.

I believe that if the high street is to have a future, in whatever form, we need to be thinking these seemingly impossible thoughts. And if the government and their various advisers are serious about revitalisation they should be encouraging concepts that do more than prop up the property status quo. If anyone else wants to get step outside that box with me, please get in touch.

This blog was originally published as a guest article on the Future High Street Summit blog