Fascination Street

It is without question that the past few years have been tough for retailers with many falling by the wayside.  Some struggle to adapt to current market trends or consumer habits but for the majority rising rents/Business Rates and the pressures of online shopping have been the deciding factor.

Established businesses such as HMV, Debenhams, Evans Cycles, Select, Maplin’s, House of Fraser and Mothercare to name but a few have all entered into administration or have at least reduced their business models to buy time with the administrators/liquidators.  Those who have been less fortunate have disappeared completely as was the case with Toys R Us, BHS and Woolworths.

With the administration (or the threat of administration) on large retailers the impact can be felt throughout the UK and more often than not it can be polarised in certain towns and cities that are reliant on big brand retailers to generate footfall, attract other retailers/businesses or more importantly provide jobs for the local economy.

The large department stores of House of Fraser and Debenhams are good examples as to the role they play on the high street. Both have had an extremely turbulent 18-24 months with administration and store closures, in particular House of Fraser reduced their stores from 59 to 28 which in turn was to the detriment of 6,000 employees.  Typically, these department stores occupy space in the order of 100,000sq.ft  per store although for the bigger cities this can be as much as 300,000sq.ft and they often occupy prime ‘anchor’ positions.  Therefore the loss of such retail space in any town or city is evidently noticeable.

Step forward Mike Ashley, the billionaire businessman who is synonymous with the Sports Direct brand but has more recently had a penchant for acquiring failing retail businesses or at the least controlling shares.

To date Mike Ashley’s empire includes Evans Cycles (purchased out of administration for £8m) House of Fraser (purchased for £90m from the administrators) and more recently Jack Wills who were again purchased out of administration in August 2019 for a reported £12.7m. These businesses accompany his similar clothing brands of French Connection, Flannels, Agent Provocateur and of course the flagship Sports Direct.

In having so many synergistic businesses it is quite easy to see that  Ashley’s vision of creating a low budget  ‘Harrods of the High Street’ by putting all of his ventures under one roof is a distinct possibility but whether this is a positive thing for the high street only time will tell.

In my opinion, for one person to have a controlling say of the High Street is a dangerous proposition as they are capable of reducing high streets to ghost towns through the amalgamation of businesses.

Take Derby for example, we understand that Sports Direct et al are due to take occupation in the former BHS store which fronts onto Crown Walk and St Peters Street.  On the face of things, it will be beneficial in helping improve footfall levels to each respective area but conversely there will be empty units created on Sadler Gate and the Intu by displacing these retailers from their existing locations.

Furthermore, as Jack Wills is now part of Mike Ashley’s stable he has decided to restructure this business and as a result the Sadler Gate store has closed, which considering that this has been trading for a little over 2 years sends the wrong message to any other potential business looking to open a store in Derby.

Whilst it is unclear whether this closure is related to the trading performance of this store, one would expect that as part of the acquisition Jack Wills assets and liabilities would have been picked through and therefore, it would be an opportune moment to renegotiate new lease terms with all landlords.  Some may co-operate and buckle to their reduced rental offers or concessions whilst others may stand firm, a tactic that isn’t always successful particularly when the tenant has other businesses/sites that can accommodate.

An opposing view is that Mike Ashley may be viewed as saviour in the eyes of fellow tenants, as in driving rents down he sets a dangerous precedent for landlords.  If landlords are lowering rents, then this will set the tone for the rest of the high street or shopping mall, and reduced rents will clearly benefit incoming tenants or others looking to review leases.

Furthermore, given that Mike Ashley’s businesses are in every major town or city then they will clearly provide a valuable source of income through Business Rates to each Local Authority.

Mike Ashley has long been a supporter of trying to reduce Business Rates for high street retailers who typically pay proportionately way more than online retailers who occupy huge out of town distribution centres.   He has suggested (along with many others) that to level the playing field, online retailers should be taxed at a higher rate on sales and therefore, in theory this will offset any revenues lost by the government reducing business rates.  Potentially this makes it more appealing for retailers to have high street stores in lieu of distribution warehouses.

The combination of reduced rates and rents could certainly help to re-invigorate the high street.

Whilst we don’t know where things will lead it will certainly be fascinating to watch!