Rosie Davies, senior associate in the retail team at Goodman Derrick LLP, provides competitive strategies for high street stores.

 

Online retailing is not a temporary phenomenon. It brings huge challenges for high street retail and retailers need to act quickly to embrace new technologies and remain competitive.

If (as the headlines tell us) traditional retail is a sinking ship, there are two life rafts that have been flung into the water. The first is diversification. Retailers can offer their consumers something “different” as part of their shopping experience; something memorable and unusual, which serves the busy, tech-savvy, multi-tasking customer of today. The second is cost-cutting. Rising costs mean that profit margins are shrinking at an alarming rate. Retailers need to be bold in their demands – it really is a case of sink or swim.

Diversification is evident in the huge growth of “experiential retail”

What can you offer your customers in store that they cannot obtain online? These activities should complement the retail experience, or facilitate it, depending on your target demographic. Examples have included children’s hairdressing services in childrenswear shops, gaming events, cookery demonstrations, sports events – the list goes on. There is also the option to transform retail spaces into meeting places, making them a destination in their own right. And, crucially, a focal point for the community.

When I think of my local high street, what have been the success stories in recent years? In general, it is indeed the businesses who have offered something different. For example, the art shop that also offers children’s pottery classes; the bar that offers yoga classes on quieter evenings; or the bookshop that houses a coffee shop and internet cafe.

Research shows use of retail space is indeed changing rapidly

More and more retailers are offering a click and collect service, with retail units acting as showrooms to showcase the plethora of products available online. Savvy retailers are using technology to their advantage by collecting customer data in order to educate consumer habits. Loyalty card schemes are also big business, enabling the lawful collection of data in return for rewards or reductions.

The second life raft (to continue the nautical metaphor) is cost-cutting. In these challenging market conditions, how are retailers reducing their overheads in order to remain competitive?

A number of tactics are in play. These range from simply talking to landlords (with a view to negotiating rent cuts: “you’ve done it for our competitor, so do it for us”, etc) to the more aggressive approach of serving termination notices in order to force landlords to the table. Serving notices can be a very effective, but also a very risky strategy.

In the current market, landlords may well agree to a reduced (sometimes nil) rent in order to avoid the burden of an empty unit and the rates liability that comes with it

In return, however, they will probably require a high level of flexibility in order to re-let the unit at short notice should a better deal come up. Whilst this approach can pay off, retailers need to recognise that they will be in a weak negotiating position if the market recovers.  They will often be left with short term leases that are excluded from the Landlord and Tenant Act 1954, so giving them no statutory rights to renew.

We are also seeing more of a collaborative approach between landlords and tenants; landlords are under pressure to share risks with their tenants. We are therefore seeing an increase in the number of turnover rent leases. Some retailers are even taking this a step further by asking for so-called “total occupational deals”. This involves paying a fixed percentage of gross turnover with deductions for business rates, service charge and other such costs.

Poorly performing stores may need to be surrendered subject to the negotiation of satisfactory terms. Similarly, subletting part of a unit or granting a concession can maximise income and provide a profitable use for excess space. Review leases with a fine-tooth comb and keep dialogue open with landlords in order to ascertain the possibilities that are available.

Business rates liability is huge for many retailers

There is intense debate about the perceived imbalance between the rates burden on bricks and mortar retailers as opposed to online retailers and there are calls for this to be reformed. For now, an increasing number of business owners are obtaining professional advice on how to secure rates reductions. The complexities of the reliefs available and the appeals process can appear daunting. However, it is worth remembering that reductions can often be sizeable.

In summary, the retailers who are surviving – and even, in some cases, prospering – are those who are devising strategies that embrace the changing face of our traditional shopping experience and are not afraid to think “outside the box”.

 

 

Rosie Davies is a senior associate in the retail team at Goodman Derrick LLP, the London law firm.