Headaches and hopes for retail
#Week32 was a tricky one for the retail sector, with discounter Wilko collapsing into administration and putting 12,000 jobs at risk. With around 400 stores nationwide, it is the biggest retailer demise since Arcadia and Debenhams nearly three years ago, and will leave many landlords nursing a headache over how to fill some chunky units in what is an already difficult leasing market.
At face value, the causes of Wilko’s struggles are easy to understand. Inflationary pressures, supply chain issues, a reliance on bricks-and-mortar stores in a world of falling footfall – all these contributed to falling revenue, with a failure in recent days to find a new owner providing the coup de grace. To high street and shopping centre landlords everywhere, it will feel very familiar.
But the news also comes at a time of hope that the sector has put the worst behind it. In its half-year results this week, Capital & Regional revealed a 2.1% increase in its portfolio value and a 13% rise in like-for-like net rental income, as well as a capital raise to fund the £40 million acquisition of Edinburgh’s Gyle Shopping Centre. Meanwhile, BNP Paribas Real Estate reported growing investor appetite for central London retail, while trading updates from retailers as diverse as All Saints, Card Factory and Pets Corner provided further positive news. The optimism is echoed across too, where investors are weighing up opportunities in all markets, including Spain, Germany, France and Poland.
If Wilko’s collapse seems a touch out of kilter with the wider market, it’s worth asking why that might be. While there is no doubt it faced significant headwinds, some analysts have questioned the retailer’s strategy in recent times. Large stores in expensive high street locations, while focusing too much on slow-moving items such as furniture – inappropriate for town centre sites – left it exposed to increasing competition from leaner rivals. Value retail operates on the thinnest of margins, offering little in the way of a cushion if things turn downwards.
It is a timely lesson for landlords, as they continue to grapple with letting vacant space, of the need to truly understand the businesses that occupy their space. There was a time when a cursory check of a retailer’s covenant was enough to underpin a 15-year lease. No longer. Successful retailing is increasingly about a genuine partnership between landlord and tenant, working together to drive trade for a mutually beneficial outcome. That requires more transparency from both parties, resistance to which is understandable, but the benefits are clear if the relationship can be made to work.
Wilko will not be the last major retail chain to collapse. And the pressures high street stores continue to face should not be underplayed; it remains for many a difficult trading environment. But as optimism grows, landlords still need to exercise caution and discretion when choosing who to let space to. It may save them a nasty surprise further down the line.