The number of large department stores in England has fallen by 25% in less than a decade according to new research by secured lending platform Lendy.
It said department stores have been more sharply affected than the rest of the high street by online shopping, as the unusually heavy debt burdens carried by department store groups has hampered investment in ecommerce and in store refurbishment.
The group added that department store groups have built up that debt burden through an unusually high level of M&A activity that the sector has been subject to in the last 15 years.
An of example of this was the purchase of Debenhams by PE investors in 2003, which gave it a debt pile of £1bn that the company has been paying down ever since. BHS went into administration with debts of £1.3bn after its owners used debt to help fund dividend payments.
With money being spent on servicing the debt repayments, rather than investing in their e-commerce channels, these group’s have been unable to keep up with online competitors such as ASOS or Farfetch. Other large format retailers that have struggled in the current economic climate include Marks and Spencer, as it recently announced plans to close 100 stores by 2022.
Despite ongoing pressures facing the retail sector, a statement by Lendy said: “Retail property can still be a sensible choice for property investors. However, investors must pay close attention to the financial strength of the retailer and ensuring that the yield on the property makes up for the risks in the sector.”
Liam Brooke, co-founder of Lendy, said: “The falling number of department stores shows they have borne much of the brunt of the shift towards internet shopping. Local authorities will have to consider whether they want to make it easier to change the use of department stores to being partly residential as it will be hard to fill these properties with new tenants.”
He added: “However, retail property can still be a successful investment as part of a diversified portfolio. As with all property, retail property investors must carefully consider all risks when deciding to invest in certain projects or not.”