Property is the “elephant in the room” of the retail industry and will make or break retailers this year, a senior figure has warned.
Christine Cross, chief retail adviser at accountancy firm PwC, told an audience of leading Yorkshire retailers that the rise of online shopping undermines the business case for large store portfolios.
“If you have too much space, if you have got long leases and if your stores are not as profitable, then you have to address that now,” she said.
Ms Cross, former business development director at Tesco, said recent high street failures all had large store portfolios.
Retailers’ problems will worsen next year when new laws force companies to account for leases on balance sheets, which Ms Cross said will “knock a hole” in profits.
She added: “How many stores do you really need, excluding food, to get penetration of the UK? To get 75 per cent coverage of the UK with customers only travelling 20 minutes in a car to get to you, you need 80 stores.”
Ms Cross said retailers should stop focusing on “that drug of like-for-like sales that analysts try to get you on” and concentrate instead on the more meaningful measures of profitability or earnings per share.
She said Britain leads the world in retail, overtaking Japan which set the pace in the 1980s.
“We have the highest penetration of online sales of any country in the world at eight per cent. If you believe the onliners, they will say it’s going to reach 30 per cent by 2020.
“It’s not just the youngsters and silver surfers, it’s everybody shopping online.”
Mobile internet is increasing online research and transactions, she said, which puts pressure on retailers who are facing declining store productivity and lower return on space. Ms Cross told the audience: “What you need to do is excite shoppers.
“The store has to be more exciting than going online and watching a fashion video of someone wearing a product, scanning a picture of you wearing it and sending it to your friends via Facebook. Stores have got to be theatrical.”
Ms Cross, a non-executive director at Next plc, expects to see more homes and entertainment venues in Britain’s high streets.
She said more UK retailers are expressing an interest in overseas expansion. “We live in a crowded island that is probably over-retailed,” added Ms Cross, originally from Middlesbrough.
Leading Yorkshire retailers including Pavers Shoes, Republic, Asda, Morrisons, The Original Factory Shop, GHD and The Card Factory attended the PwC breakfast briefing in Leeds yesterday.
Stuart McKee, UK head of corporate finance, analysed Christmas trading performance.
“October and November were looking pretty horrible,” he said. “The view was how bad was Christmas going to be. When you look at the results, it was somewhat surprising and more positive than many people had expected.”
But he said retailers’ figures were “flattered” by factors including weak comparators, inflation, the timing of Christmas and different reporting periods.
“Like-for-like sales seem to be a fascination of retailers,” said Mr McKee. “We have a concern that like-for-like profits are going to be badly impacted because of promotional activity.
“All that promotional activity did not drive more spend, but did hit margin.”
Christmas winners included premium luxury companies such as Burberry, Mulberry and Waitrose, extreme value companies like Primark, Oxfam and Poundland, on-trend fashion groups including Supergoup, Office and Aurora and the John Lewis, House of Fraser and Selfridges department stores, he said. The losers were online dominated sectors, big ticket items and undifferentiated offerings.