Hammerson is moving out of retail parks and cutting the space it allocates to department stores and fashion retailers as it concentrates on the top end of the retail market to adapt to changing shopper behaviour. The property developer and operator said, in half-year results today, that the ‘big day out’ was now the fastest growing shopping mission – and it is responding accordingly.
Hammerson said it was seeing a “step change” in the mix of retailers that occupy its centres, which include Bullring, Birmingham, Victoria, Leeds, Cabot Circus, Bristol, and Les Terrasses du Porte, Marseille. It is going to reduce the space dedicated to department stores by a quarter and to high street fashion by a fifth. These are the sectors where, according to ONS figures, shopping is moving online fastest. Instead, the mix of retailers that occupy its centres is rebalancing towards “differentiated brands, aspirational fashion, leisure, events and lifestyle spaces.” Marketplace food and improved event spaces are expected to bring customers into centres more often, spending more in stores, while space is expected to be given to more "digital native" brands.
Hammerson said that over the first six months of its financial year occupancy rates stood at 97.2%, with new leases worth £13.6m signed with retailers, and a small uplift in leasing volumes at UK shopping centres “despite an unusually turbulent retail backdrop”. Currently, 104 shop units are occupied by businesses that are in administration or subject to creditor voluntary arrangements (CVAs), with 87 still trading. This reduces net rental income by £2.1m in the half-year, a figure that is expected to rise to £5.8m in the full-year.
At the same time, Hammerson is investing in experiences, events and digital, while also looking to cut costs by £7m a year and to sell property worth £1.1bn by the end of 2019. So far this financial year it has already achieved £300m of this total, including the sale of four UK retail parks.
Hammerson chief executive David Atkins said: “Our reshaped strategy sees us taking decisive action to further reposition our portfolio. Through increasing the level of disposals, including exiting the retail parks sector, we will now focus solely on winning destinations of the highest quality: flagship retail destinations and premium outlets. These are the venues we believe will maintain relevance and outperform against the shifting retail backdrop.
“Our customer and retailer offer will be amplified and this includes a step change in our retailer line up. We will reduce the amount of space let to department stores and high street fashion as we actively focus on the latest consumer trends and take bolder steps to provide the best retail mix. Our results today demonstrate the resilience of our business.”
The update comes as Hammerson reports half-year results. Revenue of £152.5m in the six months to June 30 was down from £160.1m at the same time last year. Pre-tax profits of £55.8m were down from £289.7m last time. Last time, pre-tax profits were boosted by gains including upward property revaluations. This time, pre-tax profits have been hit by factors including downward property revaluations.
Hammerson says even though the UK is the most advanced multichannel retail market in Europe, with the highest rate of online sales, 85% of sales still involve a store and, according to Global Data research, two-thirds of sales growth over the next five years is expected to come from sales that are led by stores. “The store remains fundamental to consumers for discovering and buying products, building a relationship with brands, fulfilling the growing demand for social and stimulating experiences and accessing customer service,” it said in its figures.
As more shoppers buy online, especially in fashion, but continue to visit the store to look for items, there is a new role, says Hammerson, for stores as a brand showroom. “There is also growing evidence that more brands are going direct to consumers with physical stores, and while this trend currently represents only a small portion of total space, there is clear headroom to grow.” In particular it expects luxury stores to outperform the market.
Hammerson is trialling “frictionless parking” at its Dundrum Town Centre site, allowing shoppers to park without parking tickets or payment machines. Otherwise known as free parking, similar trials are planned for the UK later this year.
Image courtesy of Hammerson