Not all doom and gloom in the retail sector

I go clothes shopping a couple of times a year. At most. I never find it an enjoyable experience, but last weekend was particularly bad.

The shops seemed understocked and didn't have the sizes or colours I wanted. Many of the staff seemed a bit demoralised and even the premises themselves seemed under-polished. Out of the four shops I visited, three directed me to their website where a fuller selection was available. They did so with a look of resignation – as if they had lost and online had won. Again. I went home wondering if it was another example of the death of the high street.

It is a dominant theme in the press at the moment. House of Fraser is the highest-profile victim, but we have also lost Maplin, Toys R Us and Poundworld – to name a few. Clearly inflexible leases are a major factor – especially for the big department stores – but poor trading has more than played its part. And there may be further victims with the likes of Debenhams, Carpetright, Homebase and New Look all shedding stores.

At Ortus, we follow the retail sector closely because we lend against commercial property and the viability of tenants is a key risk. Indeed, even lending at a discount to the vacant possession value of a property doesn’t insulate a lender from the risks because – in a market where retail just isn’t viable – some properties will prove unrentable and their value will decrease as the hope of finding a tenant fades.

Thankfully, however, it isn’t all doom and gloom. Not everyone needs Starbucks or Costa to make a retail site viable.

Shops with concepts seem to be doing well. I notice that Build-A-Bear in my hometown of Cambridge is always packed and the strong growth of quirky Scandinavian homewares shop Sostrene Grene in Northern Ireland is testament to the increasing appeal of an innovative product range and customer experience – the company doesn’t operate an e-commerce site and uses minimal packaging to entice customers to touch and feel products instore. Stores like Apple – which sells advice along with products – also do well.

There also seems to be a strong desire among key groups of consumers to keep a high street option. The 2018 Retail Sector Report entitled "The Convergence Continuum" found that 74% of millennials prefer physical stores to online shopping.

It is up to retailers to react quickly and cleverly to what feels like a complex change in consumer preferences and habits.

We’ve seen how Uber has affected London taxis. This needn’t have happened. If London taxi drivers had been less attached to cash (and tips) and accepted a little sooner that ‘the Knowledge’ wasn't wholly different to a satnav, it might have been harder for Uber to muscle in. After all, I don't think I'm alone in emotionally preferring to be driven around the capital in a London taxi by a traditional London cabbie. However, I don't love it enough to queue for a cash machine before hailing or apologise to an irritated driver when I ask to use my card.

Retailers must try to head off the risks by being creative. An example is Timberland with their virtual reality dressing rooms that turn a shopping trip into an experience. There is also the potential for retailers to combine a small high street presence for product selection with an online function for product delivery.

Whoever is brave probably stands the best chance of succeeding.

Meanwhile, at Ortus, we will remain positive about lending on commercial property and continue to focus very heavily on the specifics of each site and each deal.

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