For the Retail Insight this month, Stephen Scott, Partner at Howard Kennedy LLP has taken a step back from day-to-day activities to offer a snapshot of retail sectors from around the world, what they can look at improving moving forward and how retail needs to remain front and centre in future planning.
The UK
The challenges to the UK retail sector are well known. Pre-Covid, the relentless growth of online retail combined with the declining economic climate led to increasing numbers of insolvencies, particularly of traditional bricks-and-mortar physical retailers, which had already marked the start of the decline of the sector. Covid accelerated these trends and various global crises and political and economic instability served to make matters worse. These factors and a lack of available capital and pressure to reduce carbon and commit to greener buildings, along with a huge proportion of vacant retail space have left the UK retail sector in perhaps its most challenging era ever.
Retailers who are embracing this new era with strategies such as an omni-channel approach are seeing some success. Whilst they showcase their goods online, they still need physical stores to allow consumers to test the “look and feel” of their products.
The wider challenge which faces central government and local authorities is to reinvent traditional retail spaces such as shopping centres and large department stores, which have been very much in decline. The increase in void space, particularly for larger stores, has led to some imaginative approaches. Local authorities and developers have started to reimagine retail offerings by repurposing some of the space into residential, healthcare, lab space, transport hubs and public open space. Councils are able to draw on public funds from the likes of the Public Works Loan Board and the Towns Fund and partner with private sector developers. A good example of this is in Hartlepool, where the council purchased the local shopping centre and an adjacent vacant department store to open up more public open space and bring in leisure uses. Similarly in Nottingham, the council is transforming a shopping centre into residential and a city park.
Mainland Europe
As with the UK, mainland Europe’s retail sector has faced similar issues. Taking Germany as an example, there has been a consistent decline in business climate confidence and also deterioration in business development of German retail due to lack of skilled workers, demand for products and footfall in stores. In Germany during the first six months of 2024, there was a 37 per cent rise in large insolvencies, of which construction and retail accounted for over half. Eight out of every nine German retail insolvencies are in the fashion retail sector.
US
Whilst the US has been investing in infrastructure and services to grow the economy it does not appear that direct government/local authority action is making much of a difference. For instance, bankruptcies amongst retailers are up in the US. High inflation, interest rates and shifting consumer preferences to e-commerce are causing companies who struggled during Covid to file for bankruptcy or cut back. Department stores are seeing a dip in market share in particular. Macy’s is closing 150 department stores. The closures of department stores like Macy’s, once an anchor for footfall, are in turn leading to a hollowing out of shopping centres. It seems to be the case that department stores in the US are stuck between value stores and luxury stores and are struggling to find a successful identity.
There is some success in a shift of department stores to offer more of a VIP experience (Nordstrom stores) or discounted offerings (“Macy’s Backstage”), but there is a long way to go in the sector as a whole.
Far-East
Singapore is the main shopping hub of Asia and the government there has a dedicated and successful strategy for retail. This includes tax free shopping for tourists and a very low VAT rate of eight per cent for nationals. Singapore through its government agency SPRING seeks to redefine retail through a four-pillar strategy of digitalisation, building brand stories, raising productivity through technology and developing a future-ready workforce. Its approach to retail is advanced, but it is able to carry this out from a position of better economic strength than western economies.
Australia
Interestingly, Australia has attempted to support retail through tax cuts earlier this year, although this has not proved to buoy the retail market just yet. Interest rates in Australia are leading to consumers saving rather than spending. Retail insolvencies have been rising as cost of living pressures slash consumer spending. The pattern in Australia is very similar to the western economies.
Middle East
Similar to Singapore, Dubai benefits from being a retail hub for the Middle East, but also as a destination for travel retail. There is tax-free shopping for tourists and a very low VAT rate of five per cent for nationals.
A government subsidised shopping festival benefits footfall. There were record footfall figures this June after a three day super sale. Growth in the retail sector is expected to grow exponentially.
What next?
Whilst it is difficult to compare the successful retail economies of countries like Singapore and Dubai where there is much more wealth and government investment to the struggling western countries, lessons can be learned from the strategies deployed there. If retail is to thrive, there must be a joined up approach involving government (central and local), investors, funders, retailers and consumers. There are at present too many competing interests, which holds back growth. Retail should be at the heart of towns and cities, but as part of a wider holistic masterplan and not viewed in isolation.
