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Supersized Stores: Too Big to Succeed?

posted: 30 June, 2016

Britain’s once fast-flowing shopping centre pipeline seems to have been switched off. This isn’t just a result of the recent EU referendum; it’s been heading south for some time. The slowdown has now reached 2009 recession levels and the viability of many new developments is being called into question. It seems likely that millions of square metres of new shopping centre developments, planned to open over the next the next five years will be cancelled.

The reason for all of this is simple. Bricks-and-mortar retailers are struggling to compete with their digitally-native rivals, who enjoy much lower occupancy and operating cost bases, and unrestricted trading laws. This intense competition is forcing many to recognise that they simply have too much space. As demand falls, rents will continue to soften. Many shopping centre operators are having to face up to lower non-prime rents for the foreseeable future, spelling bad news for pension investment funds and savers.

Similarly, the profitability of the traditional ‘big four’ UK supermarkets continues to be squeezed by the aggressive growth of the deep discounters like Aldi and Lidl, who typically operate from much smaller stores, with lower operating costs, and narrow private-label assortments to sustain low price points. Big-box retailers are being forced to reinvent themselves, however, slimming down their supersized selling space and merchandise assortments can only go so far to restore their shrinking bottom lines.

Finding creative and imaginative ways to attract new customers whilst retaining existing customers is key to recovery. Protecting market share by reigniting rounds of price-cutting alone is a zero-sum game.

In attempting to bridge the widening chasm between online and bricks-and-mortar retail, we have seen a number of shop-in-shop alliances emerge. Sainsbury’s partners include Timpson (shoe repairs) and Jessops (cameras). Meanwhile, Asda have partnered with French sports giant Decathlon, and Morrisons have launched a tie-up with online shopping fulfilment service, Doddle.

Whilst this appears on the surface to be a progressive initiative to satisfy changing customer shopping habits, perhaps a word of caution is in order. For the host to minimise the risk of cannibalising its own sales, such partnerships need to be more complementary than competitive. However, if this balance is not struck, by continuing to add ever more ‘useful services’, the big four run the risk of inviting the competitors to park their tanks on the lawn.

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