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Analysis

Empty high streets reach beyond retail for survival

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John Lewis may be an icon of British retail but it is now turning landlord with plans for homes across 20 of its sites and this week got the greenlight to convert almost half of its flagship Oxford Street store into offices.

The repurposing of its property estate says much about the crisis gripping bricks and mortar retail, as stores grapple with the toxic combination of the pandemic and competition from online rivals. It also hints at the changing shape of the UK’s high streets.

According to the Local Data Company, the number of retail units in the UK fell 7 per cent between 2015 and July this year, as 32,500 more stores closed than opened. The number of shops lost each year has grown steadily. Even so, 2020 stands out: there has been a net loss of 7,834 units in the first half of the year, ahead of every other full year on record and not far short of the 9,169 lost in 2019.

Fortunate areas may have seen cafés supplant stores, but many less well-off high streets have simply atrophied. Both office providers and residential developers are looking to fill gaps left behind.

“There will be a lot less commuting: more people will work in their local communities; less in places like London,” said Mark Dixon, chief executive of flexible working company IWG. The group is betting that office demand in coming years will be on suburban high streets rather than city centres. 

Column chart of Net change number of stores  showing Retail retreats from Britain's high streets

Outsourcing group Serco, which is running the UK’s test-and-trace system, is considering relocating staff from large central offices to a network of smaller ones as the pandemic has made them wary of public transport, according to chief executive Rupert Soames. One option is on high streets because many staff would be more inclined to work locally, he said.

“There are places shutting down [on the high street], well with a bit of work you could make that into an office for 15 people,” he said, adding that there were no immediate plans to relocate.

John Tonkiss, head of retirement home builder McCarthy & Stone, sees the high street as fertile ground for development. “Most of what we do is brownfield redevelopment on town and city high streets . . . We bring people and commerce back to town,” he said.

The company is building a 50-home development in Middlewich, Cheshire, and has recently completed projects in Nantwich and Chorley.

As a result of coronavirus and changes to the planning system, which have made it easier to convert commercial properties to residential use, change on the high street has accelerated, he said.

Mark Robinson, chair of the High Streets Task Force, a group commissioned by the government to help revitalise town centres, said a shift in focus away from pure retail “has to be a good thing” for high streets.

TM Lewin is among the many high street chains that are cutting store numbers to lower costs © Getty Images

“If you build hundreds of clone towns built around shopping centres with a single use, then funnily enough when you have a massive change of consumer preferences, you have a problem,” he said. “We should end up with much more diverse places, closer to the needs of the communities which they serve.”

Housing, offices, social and healthcare buildings and civic space, are all options, he added. But getting there will not be easy: “I don’t think Covid has moved us closer to solutions that wouldn’t have happened anyway. But it has made clear we need a change to everything: from business taxes to the way we lease premises,” he said.

The government last year created a £3.6bn Towns Fund to finance regeneration in 100 towns, many in the north of England, and a review of business rates is under way.

But Paul Swinney, director of policy and research at the Centre for Cities, said that the extensive repurposing of retail real estate would only really work if there was sufficient high-quality local employment to support alternative uses such as residential or leisure.

“High-skilled, service-based jobs increasingly cluster in city centres. That makes real estate there expensive but businesses are prepared to pay that price because tens or even hundreds of thousands of people are drawn in every day,” he said. Outside big urban centres, life was likely to get more difficult, he added.

Bar chart of Year-on-year change in footfall over past 4 weeks (%) showing Shoppers are shunning local high streets

Struggling with costs, a number of national retailers and casual dining chains, including Edinburgh Woollen Mill, TM Lewin and PizzaExpress, have already announced swingeing cuts to their portfolios.

Some retailers, such as New Look, have looked to stave off store closures by renegotiating rents with landlords. But lower rents would be a bitter pill to swallow for those with a stake in the properties, from pension funds, insurers and banks to local authorities and commercial landlords. 

The dominance of retailers on the high street is in part because they were willing to pay higher rents. Fashion retailer Next last year cited the example of a city-centre store on which it paid £1.7m a year in rent. It estimated the same site redeveloped as office space — an exercise that could cost up to £20m — would likely fetch around £1.2m while residential would collect £1m a year. 

A crucial element in turning around high streets was a clear vision from local authorities, said Melanie Leech, chief executive of the British Property Federation, which represents property owners. But she acknowledged that budget cuts over the past decade made drafting bold regeneration plans harder. 

“You need the local authority to have an idea of what they want their area to be,” said Ms Leech. “There’s no point turning an empty shop into an empty office if no one wants to come into the town centre. You have to step back and say ‘what’s the vision for this place, and what do we need to get there?’”



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Analysis

Teachers grapple with how to help students scarred by pandemic

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As staff at Strive Collegiate Academy in Nashville prepare for the school’s reopening this month, principal LaKendra Butler is grappling with the best way to support pupils after a traumatic year in which their education was thrown into chaos by the pandemic.

“Our students are performing 10-15 per cent below the level a year ago,” Butler said. “Right now I’m prioritising their time during the school day and making sure we’re focused on bringing them back . . . [but] longer-term we need to look at how to do school differently. We can’t go back to the status quo.”

Strive is one of tens of thousands of schools around the world, from the US to the UK and the Netherlands, that will reopen their doors in the coming weeks, as students return to the classroom after months of often solitary online study.

A first priority will be regular Covid-19 tests and measures to cut the risk of the virus spreading in schools. The longer-term challenge will be assessing how far behind pupils have fallen in their academic and emotional development and finding ways to rectify the problem with often limited resources.

Getting students back into the classroom is just the start. Many educators believe schools will need to adopt radical new approaches to learning and spend eye-watering sums of money to close the “learning gap” and prevent a generation being scarred, their prospects set back permanently.

LaKendra Butler, left, says students at Strive Collegiate Academy in Nashville are performing 10-15% below the level of a year ago
LaKendra Butler, left, says students at Strive Collegiate Academy in Nashville are performing 10-15% below the level of a year ago © STRIVE Collegiate Academy

“Covid has been the largest disruption to education in history,” said Per Engzell, a researcher at the Oxford Leverhulme Centre for Demographic Science in the UK. “Ninety-five per cent of children were affected and in many countries schools have remained closed since [last] March. It’s totally unprecedented.”

Using detailed testing in the Netherlands, his team has identified an “alarming” average loss of learning equivalent in that country to one-fifth of the academic year — the entire period students were out of school in 2020. The finding “seems to bear out some of the worst misgivings on the magnitude of learning loss and social disparities”, he said.

The pattern is similar elsewhere. Jonathon Guy, research officer at the Australian Education Union, said the learning loss was even more marked for children from marginalised communities and disadvantaged groups. “Demographic factors, low levels of prior achievement and a lack of access to technology are the main concerns,” he said.

Surveys in Australia and other countries suggest widespread disparities in access to computers, affordable internet, safe places to learn and supportive home environments.

Home-schooling in remote Tarpoly Creek, New South Wales. Surveys suggest learning loss has been more marked for children from marginalised communities
Home-schooling in remote Tarpoly Creek, New South Wales. Surveys suggest learning loss has been more marked for children from marginalised communities © Lisa Maree Williams/Getty Images

Luke Sibieta, a researcher at the UK’s Institute for Fiscal Studies, has estimated that British pupils could lose a combined £350bn over their lives as a result of missed education during lockdown. According to a forecast by the World Bank, globally the loss could be as much as $10tn if effective policy responses were not introduced.

Those responses will not come cheap. In the UK, Sibieta suggested £30bn — equal to six months of spending on schools — as a useful benchmark for what the government should consider spending on “radical and properly resourced ways to help pupils catch up”.

Some teachers have sought to learn from approaches adopted after previous disruptions, such as when Hurricane Katrina overwhelmed New Orleans in 2005. Then, a so-called spiralling technique was used to reteach essential missing skills before proceeding with scheduled lessons.

David Steiner, head of the Johns Hopkins Institute for Education Policy in the US, who led a review of “catch up” techniques for Unesco, said the evidence was against strategies that promoted students automatically to the next grade regardless of the gaps in their learning or got them to retake the entire year with a younger class.

Instead, he called for “acceleration” programmes to test students and focus on missing skills essential to the next stage of study. “You need to narrow the list of topics to those that really matter and do ‘just-in-time’ instruction so they’re ready to take regular classes with grade-level peers,” he said.

Children sanitise their hands at a school near Bordeaux, France. Researchers say the pandemic has been the biggest disruption to education in history
Children sanitise their hands at a school near Bordeaux, France. Researchers say the pandemic has been the biggest disruption to education in history © Philippe Lopez/AFP via Getty Images

Butler has carved out two hours during her school’s daily schedule away from normal lessons, to focus on teaching in one-on-one and small group sessions, guided by periodic assessments of students’ progress and surveys of their parents.

She is also exploring more use of tutoring, an approach that has garnered attention around the world, including in a £1.7bn package in Britain. The UK has also appointed an “education recovery tsar” who has made clear that the catch-up would take years of work and “radical” curriculum changes.

James Turner, head of the Sutton Trust, a charity participating in the UK tutoring programme, said this was an essential response. “It’s not the complete solution but the evidence is very strong,” he said, estimating that the country would need 20,000 additional tutors to meet its objective of supporting 250,000 pupils in the current school year.

Matthew Kraft, associate professor of education and economics at Brown University in the US, cautioned that while there was strong evidence for the value of tutoring in small groups, “we know much less about scaling and maintaining its effectiveness”.

He proposed a “peer-to-peer” volunteer system where older students helped younger ones, to reinforce their own learning and give something back.

Jelmer Evers, a teacher in the Dutch city of Utrecht and vice-president of the country’s General Education Union, said the task was best tackled by qualified teachers, despite a backdrop of falling numbers entering the profession. They had greater knowledge of their students’ needs and of the curriculum than external tutors, he said.

For Amy Wood, principal at Mossbourne Riverside Academy in London, student wellbeing and social activities would be as important as academic work when her pupils return on Monday.

She remained optimistic. “Children are more resilient,” she said. “They’ll bounce back.”



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Analysis

Pandemic shift to premium brands leaves drinks makers in high spirits

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Drinks industry chiefs may be hoping for a new “roaring 20s” when coronavirus restrictions ease, but millions of households have already embarked on an era of upmarket stiff drinks in their living rooms as Covid-19 reshaped global drinking culture.

Global sales of tequila, vodka and liqueurs outperformed the broader alcohol market in 2020 as housebound consumers took to sipping high-end spirits and mixing their own cocktails.

While parts of the population faced acute financial hardship because of coronavirus, wealthier consumers who kept their jobs have been left with extra disposable income as holidays and going out became all but impossible.

That has resulted in “huge trading up” when it comes to alcohol, said Ed Mundy, analyst at Jefferies, as these cash-rich drinkers also took advantage of lower retail prices compared with those for the same drinks served in bars and restaurants.

“If you’re stuck at home and you don’t want to go out to the shops, it’s easier to buy a big bottle of spirits than 24 beers. There’s more cocktail making at home going on . . . people are trading up from brandy to cognac, from cheap drinks to expensive drinks,” said Mr Mundy.

Sales of prestige spirits, which cost more than $100 a bottle, are forecast to grow by more than two-fifths to 2024, about four times faster than standard brands and almost twice the growth of premium bottles, according to drinks analytics group IWSR.

Chart showing that prestige and premium brands forecast to outperform standard spirits

The world’s largest distiller Diageo said its tequila sales shot up 80 per cent last year, driven by the high-end brands Don Julio and Casamigos, which was co-founded by the actor George Clooney. The boom, centred in the US, has followed a resurgence of upmarket “pure agave” tequila as a sipping drink.

“The trend of moving to spirits away from beer and wine has accelerated in the pandemic,” said Ivan Menezes, chief executive of Diageo. The group’s North American chief said late last year that household penetration for spirits had increased in 2020 at three times the rate of beer, and double that of wine.

Pernod Ricard said its whisky brands Jameson and The Glenlivet had shown “solid growth” despite the closure of stores in airports and train stations, which have traditionally been a major sales outlet for spirits.

Globally, overall alcoholic drinks consumption fell just 8 per cent in 2020 by volume from the year before despite many pubs, bars and restaurants being closed, according to IWSR figures. But there were substantial differences between countries.

Chart showing drinks sales fell modestly in 2020 as people switchedto cocktails and upmarket spirits

Shifts in drinking patterns, at first glance, appear similar in the UK and US: sales through the “on-trade”, which includes pubs, bars, restaurants and clubs, dropped by half in 2020 in both countries, while retail sales rose 12 per cent.

Yet overall drinking was far higher in the US last year, since retail sales of drinks to consume at home account for much more of the market. Before Covid-19, a fifth of alcohol sales by volume took place in bars and restaurants in the US, while it was twice the level in the UK, Jefferies said.

In South Africa, where periodic alcohol bans have been imposed, and Turkey, where drinks sales are closely linked to tourism, consumption dropped by about a third. Many countries still turned to a spirit of choice: Brazilians favoured gin, Colombians liqueurs and vodka, said Diageo.

While all drinks makers suffered to some extent from pub closures, brewers were especially hit: the world’s second-largest brewer Heineken announced 8,000 job cuts this year as it struggles to deal with the drop in beer drinking.

In China, where the pandemic originated but where the virus was brought relatively quickly under control, drinking declined by 9 per cent but retail sales of drinks by volume were up 23 per cent, the highest among major markets. Kweichow Moutai, which makes a luxury version of the national white spirit baijiu, reported a 10 per cent sales rise for the year.

Chart showing that drinking dropped in countries with strong barand restaurant cultures

For those with a thirst for less fiery drinks — Kweichow Moutai comes in at 35 to 60 per cent alcohol — another trend has taken hold: the cocktail in a can. 

Ready-to-drink cocktails, a broad group that also includes the flavoured alcoholic sparkling water known as hard seltzer, were the only category to record growth last year. Sales increased by more than 40 per cent, a surge that began in the US but is also evident in other markets such as the UK and China.

As vaccinations are rolled out, analysts at Bernstein expect a return to “near normal” in terms of socialising by the middle of 2021. “As the vaccines are rolled out and lockdowns ease, there will be enormous pent-up demand to socialise, glass in hand,” said Trevor Stirling, analyst at Bernstein. 

And entrepreneurs are making a similar bet; in the UK, despite the pain of coronavirus, the Wine & Spirits Trade Association said a record number of new distillers were registered in 2020.



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Analysis

Pandemic fuels fast food’s appetite for UK expansion

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Fast-food chains are gobbling up high street sites left vacant by struggling retail and casual dining operators as they target aggressive expansion in the UK.

Adam Parkinson, European vice-president of the Filipino fried chicken group Jollibee Foods Corp, said the company wanted to be in “every major city in the UK” with plans to invest £30m, including opening 10 new outlets in 2021 and a further 15 to 20 next year.

The first will be a flagship site on Leicester Square in London, which is set to open as lockdown restrictions on restaurants lift in May.

German Doner Kebab claimed to be the UK’s “fastest growing restaurant chain” after it announced plans to open between 47 and 49 new outlets this year, doubling its estate and creating roughly 1,800 jobs.

The group, which launched in Berlin in 1989 but is based in Glasgow, had originally planned to open about 25 UK sites this year but Imran Sayeed, its chief executive, said the pandemic-driven boost in demand for takeaway food had spurred wider expansion. “New communities discovered us during the pandemic [and] that opened up avenues for us to look at some of the territories that we had not been looking at,” he said.

Same-store sales jumped 51 per cent last year compared with 2020 and were already up a further 38 per cent this year, Sayeed added.

Others that have announced plans to open multiple sites this year include “fast pizza” company Fireaway, which intends to double its UK estate to 110 sites, aviation-themed Wingstop, a US fried chicken brand, and the US fast-food chain Wendy’s, which has secured five sites for its return to the UK after it exited the market 20 years ago blaming high rents and operating costs.

Fast pizza group Fireaway intends to double its UK estate to 110 sites © Alamy

The growth is being fuelled predominantly by overseas chains which see the UK as an attractive market from which to launch a European expansion.

Jollibee also plans to open its first continental European site in Spain this year, while Wendy’s chief executive Todd Penegor said the company planned to “solidify a good beachhead in the UK to really prove out the model for the broader European business”.

Graeme Smith, managing director at consultancy AlixPartners, which advises Burger King UK, said the UK was a popular place for fast-food chains to establish themselves in Europe because of its “proximity to the US market is terms of cultural trends and even simple things like language”.

Thomas Rose, co-founder of property consultancy P-Three, said established brands such as McDonald’s and Burger King were also weighing expansion but were “more sensitive” about publicising their plans as negotiations were continuing with existing landlords over rent while stores had been closed.

The growth of fast-food chains stands in stark contrast to the travails of the wider restaurant sector, which has suffered under a series of government lockdowns that have allowed takeaway food to be sold but ordered dine-in restaurants to close.

Jollibee plans to open 10 new sites this year, with the first a flagship outlet on London’s Leicester Square © Jollibee

One in six casual dining restaurants shut during 2020, according to the industry research firm CGA, as the pandemic hit a sector already struggling with high debts as a result of private equity ownership, over expansion and increasingly steep operating costs. Overall, 3,267 food-led venues closed — equivalent to 63 a week — CGA data showed.

Rose said that the closure of casual dining chains and the administration of several large retailers such as Philip Green’s Arcadia, owner of Topshop, and Paperchase had opened up opportunities for new entrants to the UK’s fast-food market that would not have been possible before, as landlords desperately seek tenants to take up empty high street lots.

“Fast food was historically excluded from real estate because rents were too high and landlords were more discerning about what brands they chose,” he said.

Parkinson said: “Our prime location is always on the main pedestrianised street on a corner site and they were few and far between pre-Covid but now they are jumping into our laps.”

The rush to expand has in part been driven by significant drops in property prices as the pandemic accelerates consumers’ shift to shop, order food and entertain themselves online.

Rents have fallen as much as 40 per cent in some locations such as London’s Oxford Street but are typically down around 20 to 25 per cent.

Tom Grogan, director of Lemon Pepper Holdings, the franchise owner of Wingstop UK, said the crisis “has allowed us to secure preferential agreements with landlords”.

Sayeed said German Doner Kebab found that demand was driven by teenagers and 20-somethings who were looking for alternative types of fast food: “McDonald’s and Burger King are great brands but people are looking for new things rather than just eating burgers and fried chicken.”



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