As a number of retailers shut shops, what might future high streets and town centres look like?

If you thought January couldn’t get any worse for Britain’s struggling high streets you would be wrong. To cap off a month that has been so tough for so many businesses and employees, it emerged this week that a series of major deals are in play that will result in some of retail’s most famous brands disappearing from town centres forever.

Swoops in the last few days have included online fashion giant Boohoo buying the Debenhams brand and website, and also revealing it is in talks with administrators of Sir Philip Green’s Arcadia to snap up Burton, Dorothy Perkins and Wallis. Meanwhile rival Asos is in exclusive discussions for the other remaining Arcadia divisions still up for grabs, including Topshop and Miss Selfridge.

The moves remind us of how big and significant online retailers have become , including during the pandemic when the nation embraced digital shopping like never before.  

While these latest purchases, assuming all are agreed, would safeguard some roles and keep these well-known names alive online, none of them include shops. The ramifications are huge. Some 12,000 jobs are at risk at Debenhams alone, while heavy job losses at Arcadia are expected: the business employed around 13,000 as at November when it collapsed.

Assuming the deals complete, then hundreds of shops could shut. The carve up of Debenhams and Arcadia between Boohoo and Asos could see nearly 15 million square feet of retail space, the equivalent of 194 Premier League football pitches, becoming vacant, according to property firm Altus Group.  

That would come on top of other recently announced shop closures, including all of fashion firm Jaeger’s 63 branches shutting and 85 Edinburgh Woollen Mill sites being axed.

Melanie Leech, chief executive of the British Property Federation says: “This leaves a huge gap in our town centres.”  As at last week, the UK had 142 million square feet of vacant retail space, equivalent to 12.6% of all retail units, property agent Savills estimates.

Britain’s high streets are in desperate need of some investment and love to help fill these gaps, but the way which they are developed will not  be easy. Architects, councils, businesses and residents will have to look intensely at what will benefit communities, and what could negatively hit income for local authorities.

Here we look at the positives and negatives of changing high streets,  from turning department stores into flats or bowling alleys, to getting in new retailers that want to commit to bricks and mortar but face several headwinds.

Headwinds on the high street

Online shopping has been popular for a number of years, and its popularity kept growing just as operators of physical stores faced seemingly ever-rising costs.

From high business rates to large wage bills, numerous high street retailers were already having difficulties even before the coronavirus outbreak. For a number of years landlords enjoyed upward only rent reviews, with tenants having to fork out more while facing biting competition and in some cases weakening footfall.

If we look at casual dining chains, a number that were backed by private equity had pressure to expand dramatically, and suddenly there was far too much supply in certain areas. Do people really need several burger joints on one street?

For fashion, toys, books and dining businesses on the high street, lockdowns then added pressure that was harder than anything many of them had ever faced before.  

David Fox, co-head of retail agency at Colliers International, says a shake-up on the high street was long coming. He says: “The changes will be seismic, but in the context of the pandemic we have to appreciate that we were already in the direction of travel, it is just going to happen in a shorter time frame. Think of it as rather than a series of tremors, Covid-19 has brought about The Big One.”

Retailers take on former Debenhams space

Debenhams was already in the process of closing down, after administrators last year failed to secure a rescue deal for the struggling firm. It had been hoped some of the stores could be saved, but that was wishful thinking,  says the boss of a London-listed landlord that has more than one Debenhams store in their estate. 

The chief executive says he saw the ultimate closures “coming for a long time”. But he is not panicking at the prospect of vacant sites, and says other firms are already circling the space, such as grocers and discount retailers as well as gym operators.

It is unlikely there will be many businesses that want to take on huge sites, but building owners could look to carve up floors to create smaller shops.

Shore Capital analyst Greg Lawless points to some sites being attractive to rivals that might want to take advantage of the gap left when Debenhams’ popular beauty counters are no more. He says there is a possibility Frasers Group’s House of Fraser might be interested in some stores, while Next, which has been investing in beauty halls, could also take a look.

Lawless adds : “As ever it will come down to the right rents being achieved.”

Meanwhile there are plenty of other firms that view having physical stores as vital. Fashion retailer Joules has seen strong online growth, but boss Nick Jones says stores are still important: “They are part of our customer proposition, both today and in the future. We want customers to have choice.”

One company that is planning to open more branches in London, is Pets at Home. It is looking to add 20 smaller shops, offering products, a groomer and vet on site. That would help it cater for a new wave of animal owners in the capital since the first lockdown.

Having independent retailers will also entice shoppers out post-Covid. However, while these companies may potentially thrive sales wise, they will still face high overheads and most would be subject to any future lockdowns.

Leisure operators coming to a town near you

Simple as it sounds, but one way to encourage people to towns, who could then eat in local restaurants and visit other shops, is to offer an experience they can’t enjoy online in the same way.

The former Debenhams in Wandsworth is set to become an entertainment hub, with a e-karting area, ping pong and pool tables, bowling lanes, and a cocktail bar.  

One entrepreneur that has experience of converting department store space to offer an ‘experience’, is Matt Grech-Smith, behind the crazy golf brand Swingers. Swingers in 2018 opened a branch within part of the former BHS flagship in the West End, with a fashion retailer among the businesses taking some of the remaining space.

 Grech-Smith says: “It’s easy to forget how different the commercial property landscape was five or six years ago. While there are an abundance of large sites available now, when we were looking for our first permanent site [in central London], we only saw two potential sites.”

Grech-Smith says that prior to the pandemic, “trading was great” at the old BHS site. He says opening in high footfall locations can help leisure groups attract new customers.  

But not all areas will be the right fit. He adds: “The mix of brands around you might not always be natural bed-fellows with an up and coming hospitality brand – they might be very high street orientated brands and they might all close by early evening, leaving the immediate area around your venue a bit lifeless.”

According to Duncan Lillie at property firm Shelley Sandzer, which helps businesses find new venues, there is plenty of momentum left in the competitive socialising sector, with a number of firms looking to open post-Covid.

Lillie says: “From rock climbing to indoor ski simulators and even axe throwing, there is an almost endless breed of next generation operators and entrepreneurs with ideas to cater for the pent-up demand for entertainment after lockdowns.”

 But he cautions: “The challenge for high streets, or more specifically landlords, is that some of these concepts will fail, and others will emerge that prove more popular.  So landlords need to be flexible, both with the space they provide and the rent terms they provide it on, to help tenants grow.”

Retail to resi

As retail struggles, a number of landlords are looking at how to make better use of space, and creating flats is an option.

Hammerson, a part owner in London’s Brent Cross mall, is working up plans that would see part of a former Debenhams store in Leicester transformed into new rental homes.

With new homes there is the possibility that adding more residents to an area will put more pressure on local waiting lists for schools, nurseries and dentists. The loss of shops could also mean less income for councils via business rates.

Brendan Kilpatrick, a senior partner at architecture firm PRP says: “The loss of rates to local councils can be offset to a large degree by the council tax generated from the development of new homes. These new homes should address a wide range of needs including young people wanting to rent in a residential complex, which might suit their lifestyle, multi-generational housing for families, to bespoke accommodation for older people.”

Are pensioners likely to want to live right in the heart of a high street? Yes, reckons John Tonkiss, chief executive of retirement housebuilder McCarthy Stone, who thinks having easy access to local amenities is a major plus for residents.

Tonkiss says: “I can definitely see massive scope to turn former commercial properties in town and city centres into thriving retirement communities.” Although he points out that converting these sites can sometimes be complex and requires specialist skills.  

With regards to these sites potentially putting more pressure on local GPs, McCarthy Stone points out most residents have moved in from close to where they were before. That means there isn’t usually an influx of new patients into a local surgery.

Loss of jobs and business rates impact for councils

Investors looking to revamp town centres must be mindful of the loss to a community there can be if a major retail tenant leaves the area.

The hit to employment can come on top of existing difficulties. Steve Curran, leader of Hounslow Council, says Debenhams closing its store in the borough is a huge loss. His sympathies are with the employees who have, or will lose, their jobs and livelihoods. He adds: “The job losses are a further blow to Hounslow’s economy which has already been hard hit by the downturn at Heathrow Airport.”

There is also the emotional pain to consider. People will visit department stores as a social trip with friends and families, and may have fond memories of these shops. On top of that, these stores do cater for shoppers that don’t want to buy everything online. Many would argue it is preferable to buy expensive outfits and big ticket items such as couches, in physical stores so you can better get a look and feel at what you are planning to buy.

For councils, any permanent loss of retail means potentially less income to plough back into the borough.

Business rates are charged on most non-domestic properties, like shops, pubs, warehouses and offices.

Property firm Altus Group explains that rates are not a payment for specific services but are a contribution towards all of the services provided by a council to deliver for example, social care for children and adults, ‘neighbourhood services’ such as libraries and waste collection, and some aspects of transport, housing and education.  

Not all rates go direct to councils, but boroughs will typically get a share of them, and bricks and mortar retailers have long complained at how high and unfair the tax can be.

 A business rates holiday runs to March 2021 to help firms ride out the virus crisis, saving Debenhams around £50 million it otherwise would have had to pay.

A review needed  

Westminster city council deputy leader and cabinet member for city management, Melvyn Caplan is among those looking at how areas can thrive even if shop numbers decline. He says retail will always be a part of the West End, but says doing nothing is not an option for Oxford Street where the Debenhams flagship will close, and where Topshop has a large branch.

Caplan says: “We must rethink retail and capitalise on the many strengths of the area in order for the district to thrive in the future.  We are also looking at how we can build on the extensive al fresco hospitality schemes that we created last summer and how they can evolve in the future.  We also recognise that we need to work with our partners in the area to revitalise the leisure and cultural options to balance the changing retail landscape.”

The council is planning to reveal its future vision for Oxford Street next month, but did not provide further details.

High street retailers also want to see business rates reformed. The tax is linked to the underlying value of a property, but they are currently based on values from April 2015. That won’t reflect how real estate values in the retail sector have been knocked due to the pandemic and biting competition from online firms.

Rates do not take into consideration how sales are doing, so a company still has to pay out even in a scenario where revenues have slumped.

Various changes to the system have been proposed by organisations, from introducing a model in the short term that rates are linked with how well a shop performs, to a radical overhaul.

In the first instance, Chancellor Rishi Sunak is being urged by business lobby groups to extend the rates holiday to help firms. 

But looking ahead, in a letter to Sunak this month, the CBI said it recommended actions that should be taken at the Budget in March to help build a bridge “to a sustained economic recovery by stimulating business investment – with comprehensive reform of the business rates system top of the list”.

Addressing the business rates burden may make for a good starting point in ensuring there is still much-loved retail left in town centres that may look very different soon.