Location, location, location has long been the mantra in UK retail and there are many examples of retailers shifting their focus on where they open stores. Much of that is to do with the impact of the pandemic and new shopping patterns that have emerged.

The research shows an increase in store openings across all types of retail store locations, including high streets, retail parks, shopping centres and standalones, in 2021 compared with 2020. 

Although the trend over the course of the year was that more stores closed than opened, the net change percentage was much improved from 2020. Comparing UK openings in 2021 with 2020, there were 2,336 more high street store openings compared to 2020, 58 more retail park openings, 329 additional shopping centre store launches and 1,384 new standalone stores. In each of these locations, store openings were not too far off 2019 opening activity – down just 1,716 in total on a two-year comparison – which bodes well for the health of the sector.

Even compared with 2019, 2021’s net change figures for stores on high streets and in standalone locations are more favourable.

Shopping centres on the decline

LDC’s data shows shopping centres were impacted most by the pandemic, with a 5.4% net decline in store numbers in 2020. They did rebound in 2021 with a net loss of just 3.7%, although this drop was the largest across all retail locations last year.

Shopping centres have been particularly exposed to the challenges of the past two years and have, in part, become a victim of their own success. Over the past decade, malls have evolved into experience destinations sought after by consumers as much for their food and leisure offering as they are for retail therapy – and they also major on fashion in terms of tenant mix.

Fashion’s government-mandated “non-essential” status and the accompanying drop in demand for work outfits, holiday attire, formalwear and many other new wardrobe additions meant the sector was hard hit during the pandemic. Casual dining also struggled, with many administrations in this space, and LDC reporting that shopping centres were most vulnerable to each of these challenges.

Positively, for emerging retailers and brands, LDC says that the subsequent availability of units and the move to more flexible leases mean more independents are opening in these locations (see box, below).

All of this is playing out as property firms look to transform shopping centres to reignite the thrill of in-person shopping and add competitive social offerings to draw in crowds. Westfield London and Lakeside, for example, now house Puttshack, which mixes hospitality and mini-golf as a form of entertainment. Westfield has also been investing in tie-ups with online brands and non-retail players such as TikTok, blurring the lines between physical and digital, in an attempt to keep its sites fresh and attract footfall.

Retail parks on the up

On the flip side, retail parks have been the least impacted by the pandemic with Springboard data showing that this type of retail destination has consistently shown the smallest two-year comparison footfall declines since the pandemic took hold.

In March, footfall at retail parks was up by 4.2% – the only time in the last two years that any retail location actually registered a higher monthly footfall than in 2019. The relative success of retail parks in these challenging times is largely due to greater car accessibility, click-and-collect options, having bigger open-air spaces – which helped accommodate social distancing and allayed fears of spreading Covid-19 – and typically having locations on the edge of towns.

Frasers Group founder Mike Ashley’s commercial property strategy highlights the value of retail parks right now. Having bought up a string of out-of-town retail parks in recent years, Frasers placed 16 of them on the market in February, with reports suggesting they could fetch up to £320m, as the business looks to cash in on investor demand for this type of space.

According to The Times, which broke the news: “Ashley is seeking to cash in on renewed investor demand for retail parks, perceived to be less at risk than high streets to the rise of ecommerce."

Retail parks are also central to fashion giant Next’s strategy. They account for three fifths of its selling space and in its full-year results for 2021, it reported a marked recovery across all locations and retail parks especially, with only a -2% like-for-like sales performance for January 2022 compared to January 2020. 

Retail parks are also attracting more attention from food-to-go operators such as Greggs. In April 2021, Roger Whiteside, who recently stepped down as Greggs chief executive, told Retail Week he saw the biggest expansion opportunities for the food-to-go specialist in retail parks.

That said, retail parks have been affected by closures in fashion, electricals and casual dining in recent years. Despite having the lowest percentage of store closures when compared with high streets and shopping centres, it is the only store location type to see consecutive rises in store closures every year, rising from 963 in 2019 to 1,113 in 2020 and then 1,277 in 2021.

It proves that not all retail park locations can be treated the same and in-depth geographical and customer demand analysis is required before investing in this type of space.

High street’s heart still beating

With high street store openings in 2021 (21,712) only 791 behind 2019’s figure (22,479), and store closure numbers in 2021 more than 2,000 down on 2019's figure (24,847 versus 26,895), there are encouraging signs that the widespread retailer migration from high street locations experienced in the last decade has ended.

The pandemic forced more people to stay closer to home and despite things getting back to normality, this trend has continued with the rise in hybrid working. This has resulted in an uptick in consumers heading to the high street, prompting retailers to take a new approach to their expansion strategies.

Furniture retailer Ikea, for example, has opened its first high street store, in Hammersmith, west London, citing the need to be closer to where people are. Despite the success of retail parks in the pandemic, it is closing its big-box Tottenham store at Ravenside Retail Park as it switches focus.

Ikea said the Hammersmith location was chosen because it is a “vibrant destination where people live, work and socialise”. It highlighted the close proximity to four Underground lines and 68 bus routes, which allows it to be easily accessed via public transport.

The Ikea high street strategy continues in autumn 2023 when it will open on Oxford Street, taking the place of the famous Topshop flagship. Other locations of this type are under consideration, as Ikea looks to make shopping for its furniture and homewares more convenient.

Fashion brand Superdry is also investing in its high street presence, particularly in iconic retail destinations. In November, it opened its global flagship store on Oxford Street, London, complete with a gin bar, sustainability signage, dedicated event space to host press and influencer events, and a vintage Nike shop-in-shop. The shop spans 32,210 sq ft over three floors with the basement acting as a dedicated showroom.

The store forms part of founder Julian Dunkerton's ambitions to revive the Superdry brand and boost footfall. Dunkerton has said he is "a firm believer that physical stores will play a vital role in the future of retail".

Kingfisher chains B&Q and Screwfix are undergoing a “rightsizing”, according to the group, which is looking to open more smaller-format spaces.

In a full-year results announcement for the 12 months to January 31, 2022, Kingfisher said customer demand for speed and convenience will continue to drive the shift online in the DIY industry, “as well as the need for a wider network of smaller and more localised stores”.

As a result, more “compact stores”, which measure less than 21,500 sq ft, are being opened and previous plans for larger new store openings have been amended to mostly focus on what the company describes as “medium-box” sites of between 21,500-86,000 sq ft. Part of this move involves “rightsizing” a small proportion of its larger-format stores of more than 86,000 sq ft.

Giving an indication of how much further Screwfix can grow in the coming years, Kingfisher said it has 790 shops but the medium-term target is for more than 1,000 sites in the UK and Ireland.

Garden centre chain Dobbies has rolled out several Little Dobbies stores on high streets. When opening a store on London’s Chiswick High Road in 2021, chief executive Graeme Jenkins said they had been created “to meet the growing demand to shop local”.

Meanwhile, Pets at Home, whose traditional retail strategy centred around large-scale sites in retail parks, has begun to tap into consumer demand for more convenient options. Two smaller “next-generation stores” were opened in London in the third quarter of its 2020/21 financial year – one replacing an existing Camden shop and a completely fresh space in Putney. 

Former chief executive Peter Pritchard wanted to tailor the shops to the London shopper, with smaller pet food bag sizes that can be carried home and other grab-and-go items. The stores also offer the same pet care services its larger shops provide.

“They are high street based, they are typically half the size of a traditional Pets at Home store,” Pritchard explained, adding that 20-25 shops of this nature could open in the coming years.

He said: “In London, retail parks are few and far between. With the changes we’re seeing in the retail landscape this year, we are anticipating a greater availability of [high street] sites to open up in London in the short term.” 

There are plenty more examples of retailers looking to the high street, when traditionally retail parks were their preferred destination, suggesting positive momentum for this location.

A combination of advances in technology, changing consumer needs, and new entrants to the market is driving fast-paced change in store formats.

Micro but mighty

There are several retailers experimenting with smaller formats and this links to what we referenced in the previous chapter on how retailers used to operating stores at retail parks or on the edge of town centres will need to reduce square footage when opening on high streets.

Like B&Q, Homebase has unveiled smaller shops with a more dedicated focus – such as its Decorate by Homebase offering, which majors on paints and goods for internal projects.

Rather than being employed solely for stock replenishment, staff have more of a consultative role in the store, helping shoppers trial different colours next to one another, for example, using the brochures and samples available. In the seating areas provided, a combination of Homebase employees and dedicated colour consultants and interior designers – all trained by the Dulux Academy – can interact with customers and provide technical advice and inspiration.

These shops, for instance its Walton-on-Thames smaller format that opened in April 2021, stock 2,500 of the most essential products for home and DIY projects such as light bulbs and screws, as well as an order-and-collect service for customers to order from Homebase’s full range of 35,000 items to pick up in store within an hour, or for home delivery.

On an even smaller scale, cosmetics retailer Lush launched what is effectively a vending machine at Coal Drops Yard in King’s Cross, London, in April 2022.

Open 24 hours a day, and described as an “automated retail experience”, Lush commissioned Anmac – a retail solutions company run by Hollywood film designers – to bring the machine to life. 

Lush has described it as “retail theatre that never sleeps”. Charlotte Howe, from Lush's retail leadership team, called it: “A 360-degree retail experience, with a sustainable design that runs on a low-energy output and provides an attractive display for fresh, handmade gifts.”

The machine will operate for six months on a trial basis and will be regularly refreshed with different types of product. One reason Lush has launched the micro-offering is to see how it can sell some of its popular products without incurring the enivronmental impact of running a full-size store.

Popularity of the pop-up

Pop-up stores are being used both by pureplays to dip their metaphorical toe into physical space, and by retailers and brands looking to test a new geographical location or concept.

Shopping centre groups such as Unibail-Rodamco-Westfield have welcomed an ever-changing range of pop-ups over the past two years, many of which focus on sustainability or tech-led interactions that are in keeping with consumer demands.

In the past year, Westfield London has hosted two pop-up spaces from sustainable fashion brand We Are, which gave visitors the chance to make alterations to their clothes to increase their lifespan. Additionally, the venue has hosted a Samsung product showcase, an experimental Lego promotion, TikTok's 'For You House' and a L’Oréal skincare range pop-up.

At Westfield Stratford City, shoppers have been able to experience pop-ups from plant-based food and drink brand Alpro, heated tobacco company Ploom and lingerie specialist Victoria’s Secret, each conveying strong campaign messages or introducing consumers to new ranges.

Grace Charge, head of brand experience and partnerships for UK and Europe at Unibail-Rodamco-Westfield, says there will be continuing opportunities for brands to invest in “experiential activity” at Westfield in the expectation consumers will continue to crave in-person experiences following lockdowns.

Meanwhile, UK beauty retailer Space NK has adopted a strategy of working with brands on standalone pop-ups. Unilever-owned Tatcha and Selena Gomez’s Rare Beauty are examples of the companies Space NK is supporting by financing their pop-up space as part of deeper relationships with these brands.

Reflecting the strength of the market, specialist pop-up retail company Sook has now hit £1m in sales, with chief executive John Hoyle telling City AM in April that an “explosion” of social media brands are looking for flexible spaces to try out their concepts in real life.

Sook, which appeared in Retail Week’s Discovery 2021 report showcasing the most inspiring retail tech start-ups, operates a model that provides “versatility and flexibility” to retailers at a time when many big names have fallen by the wayside, partly due to inflexible arrangements with landlords.

“We can test [locations] with low commitment and try again,” Hoyle explained.

Retailers and brands should look to pop-ups as a viable option and route to market in the immediate future.

Everything under one roof

Fashion had the worst net change in terms of store openings in each of the last three years, our data shows, as the number of company voluntary agreements (CVAs) and administrations jumped and the shift to online saw more brands rationalise their physical estates. Between 2019 and 2021, the net number of store openings stood at -4,465. For comparison, the next most affected sector – electrical goods and home entertainment – recorded a net number of store openings of -2,115 over the same period.

Next, however, has been a big winner here, becoming something of a modern department store online and offline, with investments in brands such as Reiss, where it took a 25% stake in 2021 with the option through to July 2022 of adding another 26%. The deal also involves Reiss using Next’s Total Platform, meaning it uses the high street mainstay’s tech and fulfilment infrastructure to serve its online business.

Meanwhile, in 2020, Next acquired a majority stake in Victoria’s Secret, and – following a concessions deal agreed in 2018 – Mamas and Papas has continued to roll out shop-in-shops at Next stores. These investments, and openness to working with other retailers and brands, is reflected in the retail space inside its flagships.

Next even opened its first 'department store' at the end of March, showcasing lots of these new partnerships and concessions. As many retailers are adopting smaller formats, Next is going the other way and becoming a multichannel powerhouse that is supporting the growth of others, while benefiting from the additional customer demographics these businesses attract.

The store innovations we have highlighted are built with customer experience in mind – shops are no longer simply about a transaction. Even the functional, tech-enabled, assistant-free grocery stores cropping up across the UK are offering consumers a fresh experience compared with before.

Overall, the sectors that rebounded the quickest after the pandemic were those based on leisure: cafes and fast food; entertainment; restaurant and bars; pubs and nightclubs. LDC suggests the pent-up demand and need to socialise after lockdowns drove these sectors’ growth.

Some retailers are aiming to capitalise on these pockets of growth with Primark and Flannels, for example, both including hospitality and catering in their most recent flagship launches. Starting with its 2019 Birmingham store opening and as of 2021 in its Lakeside shop, Primark is putting Disney Cafes inside its stores. A Greggs cafe opened in its Birmingham flagship to much fanfare, too.

Last December, Flannels welcomed all-day dining destination Café Clo to its mix at Leicester’s Fosse Park. These trials and new concepts show in a digital age physical retail stores are transitioning from being primarily a distribution channel for products to becoming a location for experiences, with more attention paid to how they make a customer feel.

From a transactional perspective, the existence of ecommerce means there is no reason for stores to exist, so their function is to fill the gaps online retailing cannot offer – and play up to their crucial role in supporting the communities they reside in.

For retailers – particularly those in emotive categories such as fashion, furniture and beauty – stores can also act as the physical manifestation of all these businesses offer in the online world. They may have huge online followings, be famed for YouTube product demonstrations and do much of their business via ecommerce, but the opportunity to bring their consumers together for special events or to interact with new products in compelling flagship locations, means stores will maintain a key role. 

Non-retailers such as TikTok, Netflix and Meta are also opening stores and pop-ups to maximise on entertainment and experiential consumer demand. Even Coca-Cola opened a five-month London pop-up, in April, to sell products and limited edition merchandise and ramp up its marketing activity in a fresh way.

There is no one trend here, either. Some of the historically big-box retailers are eying smaller premises because they no longer need to display all their merchandise or they want to open in locations closer to where people live. But other retailers are opening larger-footprint stores, in line with the rise in new complementary partnerships being forged. What is clear is that store formats must continue to evolve in order to keep shoppers interested and to stay relevant.

What should retailers expect for store openings, closures and vacancies going forward? 

The retail CEO’s take

Next chief executive Lord Wolfson has built up a reputation over the years for astutely observing and predicting how wider macroeconomic trends will impact the retail industry.

Reflecting LDC’s positive view on how the retail industry performed following the end of lockdowns, Next reported a “better than expected performance” within its stores division after shops reopened last April, according to Wolfson, speaking in January 2022.

Wolfson warned that what he deemed a positive performance occurred in a subdued market generally and indicated that projections for the year are continually evolving.

“The original expectation was that retail [sales from stores] would be worse than the -7% we now expect for the rest of the year,” he explained.

“We are less pessimistic about [physical] retail and not quite as optimistic about online. Because so many of our retail costs are fixed, it means we’re now looking at a slightly more favourable margin mix.”

The shock of the pandemic prompted the collapse of some big retail names, including department store chain Debenhams, and Wolfson thinks Next’s store performance has benefited as a result.

“If you look at the high street today, versus where it was two or three years ago, there are a lot of names that were there that aren’t there today and that may be helping us more than we anticipated,” he noted.

Next and Wolfson have devised a 15-year ‘stress test’ for the business – which the chief executive said is a “scenario” to consider rather than an expectation or plan. It shows that a 330-store network is sustainable and worthwhile within Next’s multichannel model, even if shop revenues fell at a rate of 10% a year. 

Other well-run retailers will have done their own modelling, but Next displays a rare openness around these issues. As a market outperformer with locations across the country, it serves as a good template for the wider industry to consider when planning stores in a multichannel world.

The analyst prediction

LDC figures show that physical retail has bounced back after the Covid-19 crisis in a stronger-than-expected fashion. This is largely due to a successful and swift vaccine roll-out in the UK, the return to working in offices and extended government support, which particularly helped the independent sector recover.

The Omicron variant, which seemed like a major threat to retail when it emerged at the end of 2021, seems to have been brought under control. The UK government's 'living with Covid' approach means the threat of temporary shop closures – which were so damaging to the sector – no longer hangs over retail.

However, there are several factors influencing how the recovery will continue. For example, the end of commercial rent moratoriums and various support packages that provided vital assistance to the sector during the pandemic.

At the onset of the pandemic, the UK government announced that commercial landlords were to be precluded from forfeiting commercial leases and evicting tenants for non-payment of rent. This measure was originally in place until June 30, 2020, but was extended several times before finally ending on March 25, 2022.

However, LDC director Lucy Stainton believes “these factors are already evident in vacancy rates”. 

“Many occupiers have already negotiated deferred rents with landlords and therefore lessened the impact of the end of the moratorium. A number of landlords are also expecting planning approvals to come through, enabling them to repurpose long-term vacant stock that is unlikely to come back on to the market,” she adds.

LDC notes that this accounts for nearly 4.7% of all units, meaning repurposing activity is likely to support a gradual fall in vacancy rates but not an immediate recovery to the levels reported in the second half of 2019, before the pandemic.

Stainton says: “Units will be taken from the market and new occupiers will continue to open in available space, while larger occupiers continue to churn units at lease renewal events and adapt to both local and national trends.”

Given the continuing economic uncertainty, LDC hedges its bets on what 2022 will look like in terms of UK net store openings and closures, giving a wide spectrum of 6,450 to -9,160.

Although the lowest projection represents a lot of units lost across UK high streets, shopping centres and other destinations, this scenario would be a less dramatic outcome than any of the past three years and much better than the -11,319 net change experienced in 2020.