A new future for high street retail?

The last week was a grim one for anyone involved in what we call high street retail in the UK – the mainstream department stores and fashion stores that are the anchor of big shopping malls and take up many of the store fronts in a typical urban city centre shopping area.  One of the big chains, already being run by administrators in the first stage of a UK bankruptcy process (the equivalent of a US Chapter 11), announced that it was going to close after over two centuries of trading, and two fashion chains announced that they were going into the start of the same process.  It seems highly likely that the result will be many empty spaces in UK retail centres – there were suggestions that up to 25% of premises will be empty, putting pressures on the property companies who own them, and the banks who in turn lend to them.  A downwards adjustment in rents is inevitable, as many other retailers are also under similar pressures.

The cause is not being attributed to Covid lockdowns, but to the pressure from online sales, to management who failed to keep up with the trends in terms of the product offer, and changes in customer buying behaviour.  These changes are not unique to the UK.  US shopping malls reported their highest level of vacancies at the beginning of this year, at almost 10% of total retail space, and two months ago, Moodys warned that continental European retail assets will lose 15% to 20% of their value by the end of 2021 compared to June 2020 (vs. 30% in the UK).

There is an obvious lesson to be learned for automotive retail that you should not assume that what has worked for one or two centuries will still work in the future, but I think we all understand that, and the focus in our sector is on how to respond, rather than on the need.  It is in that context that I imagined how the problems with fashion retail and department stores might create new opportunities for automotive retail.

One of our challenges is how to maintain a physical presence in areas of high footfall – previously considered to be the very shopping malls that now face the problems described.  ICDP analysis has shown that standalone mall outlets for automotive retail cannot be financially justified with the combination of typically low sales volumes and high operating costs.  Either volumes need to increase, costs come down, or other benefits in terms of broader marketing aims taken into account.  Perhaps the problems facing general retail can be turned into an opportunity for automotive?

There is clearly going to space available, and rents will be lower than in the past.  Flexibility in terms of minimum commitments and rent reviews are also likely to be improved as landlords try to fill that empty space and keep the footfall up to justify the locations to other tenants such as restaurants and entertainment venues.  That opens up the immediate opportunity for more single brand micro-outlets of the type that we have become used to, but with improved viability.

But what if we satisfied a long-held desire of consumers to see a range of brands in one location, at a time when traditional motor shows are also struggling due to the high costs for a limited audience over a week or two?  A department store could be turned into a permanent motor show venue (subject to some practical issues like vehicle access and safety considerations), with ‘shop in shop’ outlets sharing the overhead and a range of other car, motorsport and mobility related outlets to help draw in the buying public.  Our consumer research shows that most new car buyers have narrowed their brand choice down during their online research phase, so intrabrand competition is arguably not a threat for those who are actively buying, and speaking to the CEO of a dealer group recently with many multibrand rooftops, he told me that brand-switching was quite unusual.

Who would run this type of local permanent motorshow?  It would clearly be within the skillset of an existing dealer group, but there could be a whole new range of entrepreneurs coming from either a property or retail background who would see this as an opportunity.  In China, there are a range of entrepreneurs running their huge used car markets, hosting many individual traders and a number of shared service providers including F&I, smart repair, vehicle logistics and number plate production.  These locations become destinations in their own right, the traders and dealers operating on the site benefit from the footfall and shared overhead, the customers have simple one-stop shopping.

Perhaps, in an age when some are trying to ban cars from city centres, it is time for the car to return?