Regain retail, or store closures? From a UK perspective...

Published on
November 9, 2022
November 3, 2022

We at the PTC believe that retail is a heavily underserved market in #Proptech. We are seeing an increasingly higher interest from our network in technology and have looked at a few good deals out of Eastern Europe recently.

UK's Liz Truss resigned after 45 (!) days, after the ongoing political and financial mess, with Rishi Sunak now being the new prime minister. But what are the markets seeing and pricing in today and how does supply vs. demand economics and currency depreciation play into the "every day" man? What's the impact of adjusted purchasing power for retail stores?

Last August retail was seeing its "best" results since 2017 in terms of store closures. On a daily basis, fewer stores were shutting down in the first half of 2022, a total of 6,147 shops (part of multiples or chains with five or more outlets) closed - the fewest since 2017! This translates into 34 closures per day, which is a significant drop from 61/per day in the first semester of 2020.

Store openings on the other side, are not back to 2017 levels. Chains remain cautious with new openings. H1 of 2022 showed 21/per day, which is significantly lower than the 32/per day in H1 2017. But even with the lower number of openings, the overall net closures are still the lowest the market has seen in 5 years.

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Where did they go?

Since mid 2010’s there was an obvious trend, driven by the dramatic shift to online shopping which resulted in an increasing number of closures. As a result of the pandemic this was accelerated. Particularly department stores and mid-market fashion stores significantly were over represented into the numbers. The consolidation + restructuring seems done. At least for now…?

In 2021 city centers in CBDs realized the consequences of working from home which resulted in additional closures. Villages and commuter towns on the other hand started recovering. Shopping malls, with easy parking access and the ability to remain open during lockdowns suffered the least.

One of the few exceptions though have been mixed-use projects. Retail parks and retail warehouses accounted for over 30% of the total retail investment activity this year, while the average of the previous 5 years accounted for 20% only. This would indicate that investors foresee less risk in mall/retail parks because they tend to be less exposed to changes in discretionary spending due to (economic) downturns or public health restrictions.2

This shift hasn’t reversed yet, but at least it has stabilized. The difference in closures between small towns (-1,2%) and big cities (-1,5%) is much smaller. Malls are still the most resilient location for stores.

The fastest growing sector is leisure. Food takeaways have grown consistently over the past four years, being able to continue their operation navigating throughout the pandemic + consequential lockdowns. The demand for home delivery was bigger than ever. Delivery markets worldwide showed an exponential growth. The US market already grew 2x in 2018 + 2019 and Australia 4x.

The pandemic has exponentially grown these markets: By half 2021 it was 4 to 7 times bigger than it as in 2018! It comes with no surprise, but China is the largest market for food delivery, with a market size of $27.3 billion in 2021. The entire food delivery app industry is expected to reach $320 billion market size by 2029.

A sector that surprisingly has taken advantage of the empty space is the amusement sector. Amusement arcades suddenly popped up in many places. On top of that, the DIY sector is doing really well post-pandemic. Lots of people found distraction in DIY projects during home isolations, which gave the DIY sector a huge boost. Globally, the DIY and home improvement sector has a market revenue of 618 billion Euro, with US and Europe being the most developed markets.

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As an example....creating pit fires saw a 1,588% rise in google searches in the first half of 2020.

This sounds positive, or not…?

Even though net store closures realized the best metrics in 5 years, the net numbers are still declining. There is still more closure than openings and retail footfall is still 10-15% lower than pre-pandemic levels.

Retail sales continues to go down since August 2022. Volumes fell by 1.6% in comparison to July. All main sectors (food stores, non-food stores, non-store retailing and fuel) fell MoM. The last time this happened was July 2021, before all (covid) restrictions on hospitality were lifted.

And then there is the energy crisis and recession…

With sky high prices for necessities like food, petrol, and utility bills, how much are people willing to, and able to spend on shopping? Inflation in the UK jumped to a 40 year high.

Mortgage rates have peaked to levels of the financial crisis in 2008. The number of firms that are unable to pay their debts has come to a 13-year high. Treasury debt costs are 60% higher than earlier this year! In the first 6 months of the fiscal year the Treasury debt-interest bill jumped with 64% (from one year ago) to 57.1 billion BP. With this pace, the total deficit for fiscal year 2022-2023, could be as high as 170 billion BP which is almost double from the estimated 99 billion BP. The UK is in tough economic weather.

Yes, that's an understatement. Shall we go shopping to release the pain?

We distill the noise and get things done. With global insights + coverage we can help drive ROI from your strategy.

Should you wish to get more insights or get access to opportunities in our global network please do reach out:

hello@theproptechconnection.com

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1) https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/august2022

2) https://www.savills.com/research_articles/255800/325504-0

3) https://www.bloomberg.com/news/articles/22-10-30/uk-starts-to-feel-the-pinch-from-biggest-rate-rises-in-33-years

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