Tipping point looming for retail sector

Analysts expect the quarterly rent reviews at the end of September and December to tip more well-known names over the edge as they struggle to pay their bills.

Dan Butters, retail expert at Leeds-based business advisory firm Deloitte, said: “There is no doubt the retail sector is under continued pressure. It feels like we are moving towards a crisis point in retail, whether that’s in September or December.”

While food and value retailers continue to prosper, stores which rely on discretionary spending are feeling the brunt of the pain, creating a two-tier economy on the high street.

Asda’s latest income tracker found that UK families were £11 a week worse off in July 2011 than they were at the same time last year

Average UK households had £166 a week of discretionary income in July 2011, 6.4 per cent lower than a year earlier.

There remains a north-south divide with retailers reporting stronger sales in the South than in the North.

Mr Butters said: “The prevailing concern among retailers is the continued lack of demonstrable recovery on the high street. Like-for-like numbers continue to be negative.

“The key risk for us in Yorkshire is more vacant shops, particularly in secondary locations. Leeds and Sheffield are doing okay but other towns and cities, which used to have a vibrant high street economy, are falling behind.

“If more high street names disappear, there will be more empty stores and a reduced number of people shopping on the high street in the future.”

Recent high profile administrations include Habitat, Jane Norman, TJ Hughes and Focus DIY, while a raft of other chains have been forced to issue profit warnings.

The closure of a number of high street chains have left UK landlords facing some £400m in lost rent and increasingly desperate to find new tenants to buy out the leases, according to research published by the Investment Property Databank.

However, there is some optimism, with the rising number of businesses facing distress and imminent administration presenting opportunities for growing retailers. Tom Cullen, director of retail at property agent Colliers in Leeds, said: “Overall, the lettings market is improving and we are still seeing interest on the high street.

“However, the retailers who are expanding are those with a specific product who are not trying to compete with other people on a direct basis.

“Fast food brand Apostrophe, and young fashion brands like Pulp, Superdry and Boxfresh are the types of retailers who are now appearing on our requirement bulletins.

“They are filling the gaps on the high street left by the retailers who are disappearing. These young companies need those gaps to appear so they can cut the right deals and not price themselves out of the market.”

One rapidly growing retailer, which has taken advantage of the flood of empty high street shops, is rent-to-own retailer BrightHouse.

The company currently has 135 stores in total across the UK and is working hard to achieve its long-term goal of opening 650 shops nationwide.

It opened 30 new stores in the year to the end of March 2011 and a further 30 are planned for the next year.

Speaking to the Yorkshire Post in July, chief executive Leo McKee said: “Clearly nobody likes to see a retailer go into administration but where things happen our property people are out there all the time.”

The changing face of the UK high street also throws up questions about what the long-term fall out of the current turmoil will be – particularly in smaller towns and cities.

Mr Butters said: “In the long term, this is not about the recession, there are other structural changes apparent here. Internet spending is one area of growth and the high street has to react to that.”

Call for town centre investment

The Association of Convenience Stores yesterday called for planning laws to drive new investment into town centres as figures show that one in seven shops remain empty.

Figures from the Local Data Company show that 14.5 per cent of shop premises are empty. The figure has stabilised after three years of increases.

ACS chief executive James Lowman said: “Unless we see urgent action our high streets will be lost to a final wave of out-of-town retail construction that threatens to remove retail from the heart of our communities.”

The Government’s new National Planning Policy Framework is currently subject to public consultation.