April 15, 2024


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Who Wins When Retailers Retreat?

3 min read

(Bloomberg Opinion) — When the strongest players pull back from a market, that looks like a bad omen for the weaker peers left behind. But in U.K. retail, there are silver linings for the stragglers.

The iconic John Lewis Partnership Plc last week said it would close eight shops including two big department stores, with the loss of up to 1,300 jobs. Walgreens Boots Alliance Inc. is cutting 4,000 jobs in its U.K. Boots business, including in the head office. It will also close 48 optician practices. The group was already shuttering 200 Boots stores.

Further pain had been expected for Britain’s shopping malls and high streets amid the pandemic. Although some shoppers are returning, mostly to retail parks, June footfall was down 57% year-on-year, according to data provider Springboard.

But the latest retreats are especially significant. John Lewis has only 36 large department stores, a relatively small estate. It has benefited from owning Waitrose supermarkets, which have performed well during the pandemic. Meanwhile, some 40% of sales were already online prior to the Covid-19 crisis, thanks to early digital investment.

There is a question mark over whether John Lewis really needs to cull two major sites. Its Watford store, north-west of London, already had a rent-free deal with landlord Intu Properties Plc. Likewise, an important anchor tenant such as John Lewis could have surely done a deal with Hammerson Plc, the landlord of the Birmingham store, for better terms.

As for Boots, the chain has suffered from a slump in sales of high-margin beauty and fragrance products, but most of its stores remained open during the lockdown while the government forced the closure of non-essential shops.  

Other retailers have not enjoyed these advantages. Mid-market fashion looks particularly exposed. Marks & Spencer Group Plc traditionally caters to an older demographic in its clothing and home furnishings business. Rising Covid-19 cases around the world may be making its customers even more reluctant to venture out. The group is already about halfway through closing 110 stores.

Billionaire Philip Green’s Arcadia Group also faces a fall in demand for clothing. It has some big sites in city centers, where consumers are particularly nervous about shopping.

But as the big names pull back, the tenants who remain enjoy a lessening of competition. Plus they gain some bargaining power over landlords. New Look Retail Group is among the firms in discussions about moving to more flexible rents. The shock of John Lewis closing two flagship stores could make property owners more acquiescent.

One player who can be expected to make the most of this environment is Mike Ashley. The retail entrepreneur owns a majority stake in Frasers Group Plc, whose Sports Direct division is likely to have traded well through the pandemic, bolstered by online demand for home workout gear. With rival Debenhams Plc and now John Lewis shrinking, that can only help Ashley’s bid to transform some of his House of Fraser department stores using his much-maligned “Harrods of the High Street” concept. And he’s not one to miss an opportunity to put pressure on landlords. In fact, it’s his specialty.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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