Cracking the future of retailing conundrum
In this piece, retail design expert, Adrian Griffiths, argues that the manner in which retail-led mixed-use developments in the UK are financed is fundamentally flawed.
Having written a number of articles on the future of retail, this will probably be the most controversial. As an architect and urban designer who has always been trying to push the boundaries, and coming from a family which includes chartered surveyors amongst my siblings, I have heard too many times, “Oh you can’t do that, because the institutions and funders won’t accept it!”
Well I think the time has come where we all need to look at how schemes are funded and appraised, because, in simple terms, the future is not about the security of long-term income, but how much money can be made each and every year. Long-term income is secured by agreeing long-term leases and collecting the rent. Maximising short-term income is achieved through strong management and having control, which ultimately means short leases.
Old model versus new
Historically, the basic formula for a UK retail-led scheme is to sign up a department store at a huge cost, which then underpins the lettings of the value-generating shop units. The department store is managed by an operator, noting that these house many of the brands that should be on the high street, and the rest of the scheme tends to fend for itself. If a retailer is struggling then tough luck, because you are tied in to pay the rent over a longer term.
Now let’s compare this with a different model - for instance, Bicester Village, one of the most financially successful developments, yet which is no larger than a major department store. This is a managed scheme, with the concessions on a high street rather than being inside a building. This scheme is no different to a department store, but, most importantly, through effective management, marketing and control, the owners have been able to consistently raise the quality of the offer by churning the retail brands every year. The last thing the owners want is long leases, as up to 30% of the tenants can change in one year. Under-performing retailers are out if they do not raise their game, and this philosophy ensures that the overall quality of the scheme is not undermined.
So now is the time for all of us to realise that the financial model of the past is broken for ever, as it has to respond to a new form of retailing that we have never seen before – a form that is difficult to value accurately on day one, but one that can be justified over time by its track record.
Moving beyond just shopping
The future of retail is all about providing an experience. This experience does not just happen, but is designed for, planned and managed on a daily basis. If you want to look at the “best in class” in terms of delivering this experience, then let’s take Disney, world leaders in creating a family day or week out. I am not thinking of the themed park experience, but the management skill-set and drive which we need to bring to our town centres.
So what is the experience of the future? Clearly, retail sits at the heart of this, but will be more than just shops. We shall see showcase pavilions, brand-experience destinations, the production of your own products etc., all of which might well be purchased online. We will see transient pop-up of retail and food and leisure bringing activity to the public realm. There will be innovation centres which could be funded by the main local industry leaders, promoting what they do. There will be restaurants, flexible live work and offices, hotels, PRS housing of differing standards, libraries, culture, art galleries, cinemas, extreme sporting activity, the list goes on. What is not required is a department store, because the new management company will fulfil and curate this role.
The fundamental point is that we need to create an exciting environment where people want to spend money. How the promotors of these developments reap their rewards will be the challenge we need to resolve. Clearly, there will be the requirement to commit significant funds to create the development without a secured income, with the local authorities playing a key part in this process. We must have faith in the product we can produce. Faith that the experience we deliver will incentivise the public to spend money to maximise the year-on-year turnover. Partnering and sharing in success is the aim and cracking how online spend is shared with the physical sits at the heart of this conundrum.
Others already mentioned in this article, such as the designer outlets, Disney and even the likes of WeWork have demonstrated there are other financial models which can reap huge rewards. Let’s bring this entrepreneurial spirit to the high street. The future is bright and exhilarating, and a fantastic opportunity for those willing to grab the mantel and champion the management of these developments - the new Harry Selfridges of the high street. I look forward to working with the stars of the future.
The last thing the owners want is long leases, as up to 30% of the tenants can change in one year. Under-performing retailers are out if they do not raise their game, and this philosophy ensures that the overall quality of the scheme is not undermined.
So now is the time for all of us to realise that the financial model of the past is broken forever, as it has to respond to a new form of retailing that we have never seen before – a form that is difficult to value accurately on day one, but one that can be justified over time by its track record.
Moving beyond just shopping
The future of retail is all about providing an experience. This experience does not just happen, but is designed for, planned and managed on a daily basis. If you want to look at the “best in class” in terms of delivering this experience, then let’s take Disney, world leaders in creating a family day or week out. I am not thinking of the themed park experience, but the management skill-set and drive which we need to bring to our town centres.
So what is the experience of the future? Clearly, retail sits at the heart of this, but will be more than just shops. We shall see showcase pavilions, brand-experience destinations, the production of your own products etc., all of which might well be purchased online. We will see transient pop-up of retail and food and leisure bringing activity to the public realm. There will be innovation centres which could be funded by the main local industry leaders, promoting what they do. There will be restaurants, flexible live work and offices, hotels, PRS housing of differing standards, libraries, culture, art galleries, cinemas, extreme sporting activity, the list goes on. What is not required is a department store, because the new management company will fulfil and curate this role.
The fundamental point is that we need to create an exciting environment where people want to spend money. How the promotors of these developments reap their rewards will be the challenge we need to resolve. Clearly, there will be the requirement to commit significant funds to create the development without a secured income, with the local authorities playing a key part in this process. We must have faith in the product we can produce. Faith that the experience we deliver will incentivise the public to spend money to maximise the year-on-year turnover. Partnering and sharing in success is the aim and cracking how online spend is shared with the physical sits at the heart of this conundrum.
Others already mentioned in this article, such as the designer outlets, Disney and even the likes of WeWork have demonstrated there are other financial models which can reap huge rewards. Let’s bring this entrepreneurial spirit to the high street. The future is bright and exhilarating, and a fantastic opportunity for those willing to grab the mantel and champion the management of these developments - the new Harry Selfridges of the high street. I look forward to working with the stars of the future.
The fundamental point is that we need to create an exciting environment where people want to spend money.
How the promotors of these developments reap their rewards will be the challenge we need to resolve. Clearly, there will be the requirement to commit significant funds to create the development without a secured income, with the local authorities playing a key part in this process. We must have faith in the product we can produce. Faith that the experience we deliver will incentivise the public to spend money to maximise the year-on-year turnover. Partnering and sharing in success is the aim and cracking how online spend is shared with the physical sits at the heart of this conundrum.
Others already mentioned in this article, such as the designer outlets, Disney and even the likes of WeWork have demonstrated there are other financial models which can reap huge rewards. Let’s bring this entrepreneurial spirit to the high street. The future is bright and exhilarating, and a fantastic opportunity for those willing to grab the mantel and champion the management of these developments - the new Harry Selfridges of the high street. I look forward to working with the stars of the future.