A new report by global professional services firm Alvarez and Marsal, in partnership with Retail Economics, has shown that store-based profit margins for the top 150 UK retailers have more than halved in less than a decade, dropping from 8.8% in 2009/10 to 4.1% in 2017/18.
“Ballooning” operation costs have increased by 10.8% since 2014 as a legacy of inflexible lease structures and changing shopping habits, Alvarez and Marsal estimates that large multiple retailers now occupy up to 20% more store space than they need and can financially justify.
The report also found that business rates rose by £7.5bn in 2018, following a government revaluation, and in some parts of the county, they now exceed retailers’ rental values. Alvarez and marsal also revealed that rental retail and capital value expectations have fallen to 10-year lows as investors “lose confidence” in the market as demand for UK retail space are at its lowest since 2007.
Richard Fleming, managing director and head of restructuring Europe, Alvarez and Marsal, said: “Most of the U.K.’s biggest retail brands are in the midst of a fight for survival. We have already seen some high-profile casualties, and many more are on life support. But reports of the ‘death of the High Street’ have been greatly exaggerated.
“We’re entering a new era of retail, presenting opportunities for forward-thinking incumbents, entrepreneurs and investors. Those that collaborate with landlords and local authorities will be the big winners going into the next business cycle.”
He added: “This needs to involve striking the right balance between retail and leisure through strategic partnerships, nimble pop-up schemes, agreeing temporary rent cuts that allow companies to reshape their debt and operational structure, or adopting turnover-based rents where retailers and landlords stand or fall together.”