What is really happening out there post BREXIT?

August 1, 2016

So we are now six weeks on from the momentous surprise and perhaps shock vote on the UK’s membership of the EU.

Every day since the 23rd of June has had been a surprise for many reasons – be it the change in the government leadership team, the terrible human tragedies in France and Germany, the attempted coup in Turkey, the change in investment actions versus rhetoric of some large international corporates (GSK) and the see-sawing of the financial markets and currencies.

On a more specific retail front we have seen:

  • A number of retailers financial results being down
  • Banks announcing further closures on what was originally planned
  • More detail on how and why BHS will no longer be around post August
  • Property REITs suspending trading
  • Valuations written down
  • Store Twenty One’s and My Local’s administrations and store closures
  • Councils buying shopping centres (others being withdrawn from the market due to pricing issues) and being heavily criticised (the latest being Northumberland County Council)
  • Starbucks sales estimates being well below estimates
  • Sainsbury’s getting the all clear to buy Argos
  • Steinhoff to buy Poundland (once bitten but not twice shy),
  • The ongoing growth of food and beverage operators including Sugar Dumplin, most of the burger chains whilst the number of curry houses shutting up shop increases but not for the reasons you might think. 

So what is going on?

Everyone I meet has the same question, as we are in fast changing times where no one can predict or forecast anything it appears. Is this because of technology speeding everything up to a point of intellectual paralysis, is it the fact that we live in a global economy so no decision can be taken in isolation or is it that human paranoia brought on by both these factors means that we are more irrational than ever before?

In such a situation I like to stick with what I do know and at LDC we track over half a million shops in over 7,000 places so we can focus on what we see from the 67,000 field visits we carry out each month.

Whilst I would never claim that this is perfect, it does provide some degree of evidence base and therefore trust and rationality to what the post BREXIT vote impacts might be.

We are told that consumer confidence is at its lowest level since 1990 (source GfK) whilst also being told that UK unemployment is at its lowest level since July 2005 (4.9% according to the ONS).

According to the EY Item Club, Consumer spending is expected to increase by 2.2 per cent this year but then drop by 0.6 per cent in 2017, the first decline since 2011.

Finally the World Bank has raised its 2016 forecast for crude oil prices to US$43 per barrel from US$41 per barrel due to supply outages and robust demand in the second quarter.

Add to these profit warnings, a possible interest rate cut (not sure why that is necessary) and food inflation then it is a complicated picture where for every negative there is also a positive. A good example is the currency exchange rate where it is bad for holidaying abroad but nil impact for us staycationers. UK manufacturers are doing well out of a weak pound (unless they import raw materials!) but other imports especially clothing are seeing significant price increases from their manufacturers.

So all in all it is a fluid time, uncertainty reigns but not as much as many predicted post BREXIT and there are many unknown unknowns as Donald Rumsfeld famously said!

One of these is that many retailers and leisure operators have strategies that may struggle to deal with these changes initially and whilst many are still expanding (perhaps based on decisions two years ago where new developments are the case) others are waiting and watching.

Profitability is and will continue to be the biggest issue facing retailers and leisure operators and this in turn will feed back into the investment market. The market is about the type of demand and the type of supply and the match between what occupiers want and what our towns, shopping centres and retail parks, have or are allowed to have and at what price is the key mismatch today.

My view is that these are challenging times but no more challenging than before and that those who invest now will see positive returns going forward as they are the ones who will put their customers first and by doing so will reap the rewards of the future.

Value for money and service is the key driver and to achieve this you need to know what you are prepared to spend on this and it must be in balance with your product or service offer. One thing that the last 7-8 years has shown us is that consumers will spend money when, where and how they want to and this is often on things that were considered discretionary in the past.

I will leave you with two stats…

Tattooing and piercing

One is that tattooing and piercing might be considered discretionary and an expense you could put off but how wrong you would be when you see that in the country’s top 650 towns alone the number of tattoo parlours has more than doubled from 541 shops to 1145 shops (+112%) since 2010.

Vacancy Rates

The second is that vacancy rates have continued to fall as our monthly releases have shown along with our most recent report this week with the British Council of Shopping Centres (BCSC) so all is not bad and as we leave summer we head into the golden zone of Christmas so lets wait until the end of the year when things are clearer, the data is more evidential and the political roadmap is more defined.


GB Shop vacancy rate 2008-2016 (Source: LDC)

This and much more will be the focus of LDC’s 14th Retail Summit on the 20th September 2016, kindly hosted by BLP Law and chaired and hosted by exceptional people who will have a fascinating angle to add.

This post originally appeared on Matthew Hopkinson's blog here.


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