C@W solves the retail and housing crisis. Before lunchtime.

Yeovil High Street has seen better days. 

Currently it's a rambling collection of not very good stores sandwiched between empty units. There are almost as many fake fronted stores, covered over to disguise their absence of tenants, as there are genuine ones. A gap toothed, broken fence of shops runs down the main high street and the uncovered parallel centre. 
In a secondary shopping precinct of ten units just one is let.
I looked at an empty unit across from this one today. I looked at it back in 2005 when it was a baby goods shop. A really nice one. But the rent was too high. And the rates and service charges meant almost £80,000 of profit would have to be spent on nothing of any worth. The shop was last let in 2009. Its been empty for almost a decade.

Yeovil is far too sprawling. No retail consultant needed to see that. Shoppers walk far up and down for not very much. The cinema and leisure complex is well removed from the high street. Meaning a swathe of closed and cheap and grubby units, with some decent eateries and a hotel separate the two. Always, always the planning should have united them into one continuous experience. 

Another problem is the lack of big names. Yeovil is a 45,000 population town. Now that's piddly by Home Counties standards. Woking commuter town is coming up to 100,000. Tunbridge Wells in leafy Kent is 112,000. Even what almost passes for a village outside Birmingham, Sutton Coldfield, is 100,000. The ever ghastly, concrete ugliness, of Slough, is 150,000. So 45,000 is no great shakes.

But, it is, all there is. The catchment is much wider than normal. Twenty or thirty miles out in all directions. And while Somerset is sparsely populated, they all have to shop somewhere. And that should be Yeovil. Simply because there isn't anywhere much else better.

But Yeovil town centre has created big problems for itself. There are several, nearby, out of town retail parks. And many of the names in town, moved out when the crash came. So Yeovil High Street has Primark. And H&M. An average M&S. HMV. Monsoon. Laura Ashley. Entertainer and JD.

While out of town is Matalan. TK Maxx. Next. Sport Soccer. Pets at Home. Costa. Homebase, B&Q, even KFC is out of town. 
There is no 'destination.'

My associates today were looking at the possibilities of shrinking the UK retail space. 
They don't need to.It is shrinking itself. 

But these local officials wanted to consider, perhaps, possibly, turning shops into houses. Something readers here have long thought needed to be done. And quickly.

But the problems are very many. Landlords. Rents. Leases. Listed buildings. Access. And loss of a handsome £30-£100k of retail rates for a paltry £3.5 maximum from two houses on the same spot.

Retail units and high streets, unless very old, are not designed for modern housing. They are pedestrianised. There is road access. But there is no parking. No gardens. No outdoors at all. They are odd shapes. And odd heights. In odd places. 
So flats would seem a better option. But these retails have no stairs. And the upstairs may be a different landlord to the down.

All could be overcome. But it would take a lot of will. And a lot of complex negotiating. And there would be immense pressure from existing tenants to prevent it. Shops need footfall. Houses are not footfall. Other retailers are footfall drivers. If you own a clothes shop, a Mcdonalds opening on one side and a Vodafone on the other is fantastic news. Four flats whose owners will be at work all day is no use to you at all.
So the whole high street. Or Side streets need to be converted in one go. To make it work at all.

So, as we ordered our lunch in Boswell's of Yeovil /{4/5 trip adviser seemed fair}  the usual daunting and unrewarding and difficult prospect of turning bad retail into good housing loomed like it has every time someone tries to look at it since 2008.

Until.... I cracked it.

Don't try and turn bad retail into good housing. Turn bad retail into good retail. Which is what it was built for. 

The trend to online won't stop itself. All the food stats show people want to shop more locally, more often. Using more locally sourced and prepared products.* The big out of town weekly shop is declining. The thinking is the successful shopping areas of the next ten years, assuming there any left by then, will be a mix of leisure. Services. Retail. Medical. Education. Hospitality. A lot less physical goods. But a lot more food and drink. Spas and art classes. Tattoo designer and video gaming big screen type venues.**

So instead of shrinking the high streets, that are built for this type of thing and set up for it. Axe the out of town retail. And use those giant. Flat. Fully accessible, mostly empty spaces, to build brand new homes. 

 

 This is one of those Yeovil retail parks. A good one. A mostly successful one. But look at the size of it. How many homes can be built on here? There are 560 car parking spaces here. And room for more.

The access and commuter roads are all in place. So are the bus routes. A station is within a moderate walking distance. And so is Yeovil town centre. Which is where these new dwellers will go to shop.

So, how does this work?

The retailers are offered deals to take the existing units within Yeovil town centre. Good deals. Fantastic deals. Rent free periods. Fitting costs. Renovations. Big rates reductions. Whatever it takes.
Added to this carrot is the whacking great stick of a new, out of town tax, the government will be persuaded to introduce. And not before time.

The landlords, who have invested millions in their retail parks that will produce rents for pension funds, will receive the immediate boost from turning commercially valued land into residential  valued space.Why struggle with the ever diminishing and declining retail brick business, which is already far too large for the available clients, when there is money to be made in the under-capacity, in demand, housing market?

Then, the stabiliser for the whole project. The 5%, post Brexit, VAT rate, for designated high street zones that will not apply to online warehouse operations. That will level the playing field. 

Restoring the high street. Recreating some of the million lost retail jobs. While leaving the internet and online much as it is now.

I think that before my ordered ham and cheese toastie arrived, I had solved both the retail crisis. And the housing crisis. Restored half a million jobs to the economy. Solved the declining local authority business rates problem in the long term. Boosted their domestic council tax funds. Solved the problem of the missing and scattered big name anchor retail brands. And with the high street premises VAT cut, devised a way for the government to present a visible, tactile, financial reward to the public, that clearly demonstrates the possibilities and opportunities of the post European Union era.

When the dessert comes, I think I'll mull over immigration. 
Sort that old chestnut out.



*I have a big issue with those stats about locally grown,pay a bit more, shop a bit more often. They are in every trade magazine. But they never explain the popularity of Lidl and Aldi which is a drive for cheaper goods and food. Or the poundshops. Which is a cheaper driver. Cheaper than the internet.
Or Primark discounting. The rare retail success at the moment. being a former discounter myself I'm well aware that the 1991 recession was not too bad. And Q3/4 1991, which killed a lot of companies, was a real boom time for us.
However, the trend is true. So longer term..

** Yeah I know. Sounds very much like an 'architect's impression' of a hotel and resort. But again, the trend is correct. More services. Less Retail.

Tesco has worst results in its history.

Tesco has lost a gazillon-megabillion of pounds. Or , more factually, made a £6.38 BILLION loss.
They have lost about one quarter of the defence budget. Staggering loss.

A few years ago i asked the readers if they really had fallen out of love with Tesco. The response was an almost universal YES. Which was surprising as Tesco was, and still is , the biggest beast in the retail park. So someone must be loving them?

Retail analysts have been giving their ideas on what's gone wrong and also what Tesco needs to do to put things right.
Here are some ideas.

Tesco should consider closing 200 under performing supermarkets/superstores and focus on growing the more profitable remaining 700 stores.

Pretty standard response. Analysts always use the close unprofitable option as first response while we figure out a better answer. Closing stores isn't easy. These mega stores have thousands of workers. They may have leases, although Tesco often own the land. They may not save that much on the economies of scale and distribution run. It all depends where they are and how much they lose. 


“Tesco needs to recognise how much the retail landscape has changed, and adapt its strategy accordingly. It’s been focused on ‘big box cathedrals’

That is true. But it wasn't so true 5 years ago when Tesco was really losing ground to rivals. And Tesco pioneered the Metro shop. People are buying lesss and often. But Tesco does that too. 
Moving away from its 'big shop' units isn't going to help them today when they still have all those units. 

“It’s hardly surprising that Tesco is in this position, when customers can not only buy cheaper in Aldi and Lidl but also get a better customer service, like in-store sampling.

This is the idea that the smaller stores do more samples of their food and brand awareness - promoting products and getting customers involved.  I never like this idea. Its training heavy and requires a higher skilled and more motivated staff to carry it through. Older readers may recall I counseled COMET against this 'superior customer service' idea, which they tried as an answer to online purchases. Comet are no more, whilst Currys, who did a different thing, survived.
Its a hard thing to do. And I can't see selling a lot more of a new type of  cheese will plug the billions hole.

Tesco is struggling because of increased competition.

Well du'h! Does go on to say about the fuel price wars..which is a good point. Also says the clubcard isn't the power weapon it once was and although 40% of people use a loyalty card, they may have more than one. 

And ..it should say ..60% don't use a loyalty card at all.. Tesco needs those 60%. 

 Tesco has an epic database and it should look at how this data be used.

This is interesting. The idea is the consumer has a standing order and a delivery of basics comes round without having to do anything. Then the customer tops up with items that are on the lorry. A sort of mini supermarket that comes to you. Described as a 21st century milkman.
The real idea is to dump hundreds of poor selling products from the stores and have a much slicker targeting of data. 
I'm not wild about the idea except for the bit about data focusing. Tesco made themselves off the back of their use of technology, that gave them an edge over Sainsburys. They could do so again.

Tesco has a number of larger stores that are costing a fortune. So a key priority for Tesco has to be making better use of these bigger stores.

This, I like the most.  If Tesco can find a good fit partner to take space in their gargantuan stores, that lowers the cost of those stores all round. Who is a good fit? I'd be knocking on Primark's door. Or I would if Primark wasn't owned by a rival. But a similar , celebrated clothing retailer.
TK Maxx? Sports Direct? Next ? Or stuff it full of service industry type nailbars, coffeehouses, hairdressers, computer repair, fast and medium food outlets. Get some rental in and some alternative customers. 
M&S and Tesco had a very fruitful partnership a while back. They each took separate units on a retail park, but with a shared atrium. Could do such things again. Halfords needs footfall. Tesco doesn't have much overlap with them.
Or niche retailers. Soaps and gifts. Furniture. Beds. ..

Its an idea. Not easy. But immediate.

Or 

Any ideas that you might have to turn around the retail giant?

Too many shops

Retail units into homes. That's the latest cry. The Week has got in before the minister with its SELL THEM ALL! message. They say the government has given up on the high street. It won't even look at any of the hard bits of their own trumpeted Portas review. Business rates being the most obvious solution to the problem. Instead it went for the easy and almost useless parts. Fancy dress themed days. Street theatre and papering over empty units with colourful images of busy shoppers like some Potemkin village.

But how easy would it be to convert the High Street to domestic use?
Lets have a look.

This examples is from Bromley high street which  is a busy, built up, long established typical metropolitan south London/suburb high street and shopping centre area found in most 15,000+ population towns in the UK. Actually Bromley is much better than most. It has a million+ people catchment. Dudley could only hope for a tenth of that. All images picked at random from google.

Lease for sale.

You can see the flats above. Curtains are a dead give away. Retail stockrooms don't have curtains. Or windows that can open without bars on them. Internal theft being what it is. This is for sale as a going concern. But lets assume it isn't and was an empty.

Easy to convert. Brick frontage same as above. The window symmetry is going to be hard. Might just be able if the door was the other side. But that's an architect's problem. 
The upstairs is two flats already let to students as the uni is across the road. And making it into a student flat would be the best move. No garden and no views. Just a brick yard.
Its not very large, but bigger than many flats in this area. Maybe 800sq ft? The listing doesn't say.

Lack of parking is a problem. Current UK planning laws require appx - 1.75 car parking spaces per bedroom. At least 2 spaces required here. + turning and motorcycle and cycle spaces. Not insurmountable by any means. That massive high street pavement won't be needed if no one is walking on it. Two cars could easily park nose to the glass there. Or 1 space and a small front garden, as with a more traditional terrace.

A similar property. Hayes this time. Similar high street. Two flats above. One 1,000 ft lower unit for conversion. Same problems. Garden and parking and views. Would make nice terrace houses if all the units were converted. But few would buy a 5/6 bed £750,000 town house with a 10ft garden and only on street parking.
So flats it is. At least the gas will already be connected. Very few retail units without cooking/catering have gas. No need. 

Three small offices above the shops. Two person offices. Another typical high street set up. 
Converting the retail to offices would be very easy. Or a garage for two cars and a utility/ storage room? Trouble is it would cost you around £300,000 to have off street parking.
Monaco prices.

Retail to office is already happening on high streets, in a reversal of the last two decades trend. Shops becoming offices. One reason is there are a lot of empty retail units and rents can be as low as a minus figure. The tenant pays no rent but pays the rather hefty rates and service charges bills.  In villages an office in a former shop is even more attractive as the rent and rates are low already. Just blind over the large glass windows. 
Another reason is that once the planning consent for A1/A2 retail to B1/B2 business has been approved there is no further planning approval requirement for B use to residential.

The real problem seems to be cost. All of these shops are expensive to buy. The majority are currently lease anyway. To buy the cheque centre in the middle picture which is freehold is £250,000 + taxes. Then there is the fit out. How much to fit all the partition walls. Kitchen. Bathroom. Flooring. Plumbing. Gas. Complete new brick frontage and windows to rear. Garden. Parking. Chances of there being any heating is remote. The project is same as a total derelict refurb. 

So once the money is spent there is a the least desirable of flats a ground floor one. With no or minimal garden and views of not anything much.  And, as with many high streets, this is on a very busy main road. 

It can be done. But unless the prices come down, which they may well do if the recession never ends and the internet continues to take business, it seems the work involved and investment made may not see the best return.

Of course if you already own the premises then the proposition is much more attractive. Just the conversion costs and rent the flats. But cheque centre was/is paying £1400 a month. Looks to be about £500 pcm over the odds for an average two bed basic maisonette in Hayes. Quite a haircut. More a full number 1 clipper. And if everyone does it,  rents fall.


The internet accounts for 1 in every £10 spent. Supermarkets for another 3 or 4 of the ten. Still leaves 50%+ of ALL shopping in the UK on the high street. High street not quite dead enough yet for the economies to work. Better and cheaper by far for the landlord to just lower cheque centres rent by £250 a month.

every little helps

Overall, group pre-tax profits rose 5.3% to £3.8bn in the year to February.But profits at the UK operation fell 1% to £2.5bn compared with the year earlier. Tesco also said that UK sales fell by 1.2% in the second half of its financial year.

Woe is the world. Tesco Super conglomerate, the Microsoft of the food world, has not made as many billions as previously. All good things come to an end. Upward trajectory is impossible to maintain indefinitely.

But why did profits fall? People spending less? The internet? The departure of Terry Leahy? The backlash against evil billionaire corporations wanting to sack their workers and hire unpaid jobseekers? Farmer's markets?

Doubt it.

More likely is the rather honest answer from chief executive Philip Clarke "Tesco didn't put enough into the stores and maybe took a little out".

What he means is they have not carried out refurbishments of tired stores. Not employed enough staff to man the checkouts and fill the shelves. They haven't kept an eye on competitors who have been moving away from the bags of fresh produce, to loose. Bags of bananas and carrots fit the Tesco logistics well, being able to send them to any size store.
But customers don't necessarily want 10 carrots or 6 apples. They want 1 onion and a few spuds for a stew, and other supermarkets have been seeking out this higher profit margin customer.

Its good that Tesco realise that they need to do something. Often large chains just blame the recession. Or fashions. Or stock levels {as M&S claimed yesterday. Something that just doesn't ring 100% true.Winter stock sales have been very poor because of a very mild winter. I know of a firm that almost went bust this winter, purely because they sold only 1/4 the volume of heavy winter lines they sold last year.} Or rents or something.

When Tesco took the king of the supermarkets crown from Sainsbury's twenty years ago, Sainsburys did not react quick enough. It did not see the threat. It wasn't overly concerned. they had been king for decades themselves. They always would be. But one year their new hi-tech, just in time, replenishment failed and customers, unable to buy the milk they had gone in for in the first place, switched to Tesco and found them cheaper.
And bigger. And with more variety. They've been there ever since.

I'm not a Tesco shopper. The Morrisons cheaper fuel means they get my business. But I did go to Tesco recently. Mrs Q insists that Waitrose is no more expensive than similar products from Tesco. And she's ex -M&S foods so wont accept lower quality.
I very much doubted this. So off to Tesco I trekked. First thing was, it had far LESS variety than the same size Waitrose store. Little in the bakery. Less in the deli. Probably more frozen meals and such, but Mrs Q avoids them, so no chance to check.
Overall Tesco was the winner, but by a slim margin. Slim enough not to bother about unless your budget is very tight.

When I used Tesco, years ago, they were miles cheaper. Even with Mrs Q's M&S 15% discount it was still cheaper to get a pint of milk from the next door Tesco than off the M&S shelves. Either Tesco have overly increased their prices or their rivals have reduced theirs. I expect its a bit of both.

Tesco will address this rapidly. They'll be back with super profits again soon.

Mothercare

Mothercare announced a closure of nearly a third of its stores.

Its not quite as dramatic as the headline suggests but they will still be shedding stores and staff.
110 high street stores are to close by March 2013. But then the leases on 40% of its High Street Stores are due for renewal by 2013.
Mothercare are preferring the out of town shed units, and have done for quite a while. A big, single storey space, with ample parking outside suits ther format better than a cramped, multi floor unit, far from the paying car parks.

Mothercare are in talks with other chains who might like their good sized high street locations, so its not a JJB type desperate situation. Its a managed transition.

But not good news for Mary Portas, Mary Queen of Shops, the TV retail guru who is to carry out a government-backed review aimed at halting the "decline of the High Street" in England.

Well,if you want some advice Mary, you know where we are.

Oh, and just to repeat C@W advice that we've been saying for a few years now.

1.Look at the overseas operations.
Wednesday's preliminary results from Mothercare underlined the extent to which the company is performing better overseas than in its traditional home market. Underlying profits in the UK slumped to £11.1m in the last year, down from £36.1m Underlying profits overseas, though, jumped by 18.5% to £27.5m.
2. Internet sales.
Mothercare's exposure to the UK high street will be reduced with the focus placed on out-of-town Parenting Centres and online sales.

Consumers where art thou?

Mark Wadsworth had a pretty good set of links about the last few weeks retail announcements, on his blog, here.

Lots of points raised in the comments about why this recent set of bad news may have come about too. I doubt the most touted two, VAT hike and Fuel prices making people unwilling to drive, have much to do with it. Sure fuel rises are the problem. But only in as much as energy and fuel price hikes have forced consumers to cut discretionary spending.
General inflation cash squeezing is the culprit. There's no money left.

Officers Club which has gone into administration again, is a victim of better rivals. The average Officers club is 1000- 2,500 sq ft. A Primark or Matalan, selling similar ranges, are ten times that. Republic, Fat Face , Bank etc all have much more popular brands. Officers Club traded on discount clothing. That 75% off fools no one any more, when a similar item can be found at H+M for a cheaper price. Officers Club was just a decade old format, unable to compete.
{ 56 OC stores were sold to Blue Inc, who used to be Mr Byrite, a twenty year old fashion menswear store, widely copied by every discount fashion chain in the 1980's and 1990's. Blue Inc is very similar to officers club but have some 'designer' brands.}

Mothercare is more of a worry. They have good store mix of centres, streets and out of town an almost monopoly high street position. Baby wear should be recession proof. Online must be taking its toll. But Mothercare also has the answer for Britain's chain stores. The 9.5% drop in sales hid a 10% rise on its global profits. Mothercare had shown a 22% increase in its foreign business at the end of last year.

The firm said it expected the 894-store international division to continue its rapid growth with at least 150 new stores opening in 2011-12.

As the UK struggles Chinese, Indian and Latin American domestic consumers continue to rise. A long established retailer, who knows how to market and manage can do very well in the emerging markets.

The H.M.Flee continues

"HMV suppliers have credit insurance withdrawn"

Shares in HMV Group are expected to fall on Wednesday morning after suppliers of CDs and DVDs to the retailer had their credit insurance on future sales withdrawn."

Credit insurance is to enable suppliers to be protected from a company going bankrupt. It puts off new suppliers and makes old ones very wary about delivering stock. But no one wants to be solely dependent on the small profit margin from online and supermarkets.

It doesn't spell the end for HMV. Topps Tiles had credit insurance withdrawn and noticed no ill effects. It was restored soon enough. But it finished off MFI who collapsed soon after. So not the end but it isn't a good sign.
On the message board seems traders are having profits with HMV shares fluctuating between 24-26p.
Blaming Peston, which is a bit unfair. He's just passing on the message.
I wouldn't wish to be holding them in the morning!

Still, it could be worse. Take a look at Borders in the USA

Holidays at home

Bourne Leisure, the operator of Haven holiday parks and Butlins, has paid out more than £40 million in dividends last year as Britain’s ‘staycation’ trend boosted profits.
Bourne Leisure reported pre-tax profits of £88 million, up by 61%, with turnover 6.3% higher at £791.6 million in 2009.

Centre Parcs had a record level of occupancy in 2009 too, generating increased revenues.
The horror word STAYCATION was making business news as well as holiday reports from bandwagon jumping columnists. Last year £27 million was the estimated boost to the Uk tourist industry.

John Dunford, a director at Bourne Leisure, said a £79 million investment in its resorts and hotels also paid off .. “There was continued growth in short breaks, but also more people spent their main holiday in Britain.”

He has reason to be happy. Haven was seeing a 40% increase in bookings in 2008. The poor rate of the pound to the Euro and Dollar seems to have led to many people taking their second, or even main holiday in the UK. The great summer weather up to early August, can only have helped.

All the more wonder why Blacks Outdoors, who own the Blacks and Milletts chains have been doing so badly.
Like for likes, after the closure of over 100 stores in 2009, was 'disappointing'. Someone must be taking their business.Wonder if it might be Go Outdoors. One to watch for the future..

BQ almost, almost, booked a UK holiday this year and left it too late to book before deciding to go with the guaranteed weather of southern France. But without exception, on a non scientific poll of the office, on a huge sample of 20, everyone else had a UK holiday, mostly camping. I wonder if any other readers had UK holidays and noticed the increased numbers of Brits filling up your usual UK destinations?

Statement of things you already knew.

Back to school sales boost retail figures
So says the latest British Retail Consortium figures.

Back to school can't boost sales figures. It is a given sales opportunity, like Valentines. Kids went back to school and the new school year began at this time last year and every year before, since about 1870. Spending might have been higher against the truly dismal August 2009, but that's not the same thing as saying school kids kit out boosted sales.

Not much in the figures, a 1% increase. Where there is some data that supports a long held C@W view is that strong web presence is essential. "Internet, mail order and phone sales grew in August to 17.8% year-on-year growth, up from 11.3% last month, and above the average for the last 12 months."

The rest is as expected. TV's stopped shifting after the lousy South Africa performance, and beer and burgers fell back once the sun went in. "Computers and laptops were given a lift by back-to-school and college deals. "
Really? How surprising. I'd add that both Toys 'r' Us and Clinton Cards are expecting to see an increase in business in December.

Retail still looks likely to be flat to a very small gain for the rest of 2010.

{Anecdotally, Toys, which accounts for only about 10% of BQ industries sales have been terrible. I don't pay them too much attention as they are really just filler lines. But at least 50% down over the key school holidays. A lot are SOR now, but still. Awful figures.
Noticed Sainsbury's and Asda had a sale on toys very early in the summer. Wonder if they had noticed a significant fall off too?
The toy reps haven't even been on the phone telling us what the 'big new thing' is for Xmas. I expect Xbox Kinetic, a system to make XBOX like the Wii. Adult and kids games in one package... Bad news for Nintendo, who's own 3-d DSI looks unavailable until the following Xmas.
BQ's hot tip last January about an Iplayer/freeview/internet combi box looks like fantasy}