Retail real estate- getting into shape

On Thursday 31 January, BNP Paribas hosted its annual “Capitalise: Prospects for Property” seminar. On a crisp London winter morning, hundreds flooded into the National Gallery to hear expert views on the global economy, politics and the current state of UK real estate.

75 minutes into the seminar, attention turned to the retail sector, together with the growth of e-commerce. Denizer Ibrahim, Head of Placemaking and Masterplanning at BNP Paribas Real Estate Advisory led a discussion entitled “Retail- Nose to Tail”. The panel comprised Darren Hall, a supply chain and operations consultant at Scoptima, Katherine Russell, Head of Real Estate, Planning, Policy & Commercial at the John Lewis Partnership and Anita Simaza, Head of Retail and Logistics and Industrial at BNP Paribas Real Estate France. The panel left the audience with plenty to ponder but three themes stood out:

1. Sleeping on the shop floor? There is no doubt that the industry is grappling with a shift in how consumers engage with their retail real estate. With online now representing 40% of John Lewis business, Katherine Russell admitted that John Lewis simply has too much “back of house” space. What is the solution? The latest hot topic in retail is “consumer experience”, and Russell explained how the shop floor at John Lewis is evolving, with for example concierge services, personal styling and even the opportunity to sleep in store overnight. For Waitrose, the offering includes cooking events and soon in store nutritionist advice. For Russell, the excess space is an opportunity to enhance the customer experience, potentially re-purposing for alternative use that is complementary to the in store offering, or perhaps even use that is completely divorced. The Bowl at Selfridges on Oxford Street (skateboarding) immediately springs to mind as a possible example of in-store diversification.
2. “It is much easier to put on weight than take it off”: these were the words of Hall, succinctly describing the current conundrum that faces many retailers. Hall gave the example of Tesco, which having arguably over-expanded, is now looking to slim down. However Hall reminded the audience that the Tesco estate not only comprises the shop floor, but also a network of assets that grew to service the in store offering (e.g. warehouses). It is not quite as simple as closing or re-purposing shops. There is an associated infrastructure issue too.
3. “E-commerce and automation = job losses?”: Is automation more bad news for the retail sector? The panel offered a different perspective. As Hall stated, there is no such thing as a “lights-out” warehouse. There is great demand for warehouse labour, irrespective of the rise of automation, and Hall explained how the e-commerce boom has consequently had a direct impact on local labour markets. Hall identified the extremely low unemployment rates in logistics clusters such as Milton Keynes and Lutterworth (2%). Local operators cannot recruit, or keep employees, with local “job-hopping” for higher wages prevalent. With labour in demand, e-commerce operators therefore seek out alternative locations. Hall identified the M62 corridor, where higher unemployment rates (4-7%) have attracted operators such as ASOS (Barnsley). Finally, the panel reminded the audience that even with the advent of technological innovation, e-commerce depends on the “man in the van” or “the man on the bike”. For Russell at John Lewis, the role may soon go further, with the proposal that delivery drivers unpack groceries in the kitchen in your absence. It seems the labour market in retail is only set to evolve.

For more, key takeaways and talking head videos, check out this link.

Edward is a senior associate in our Commercial Real Estate team.