News Analysis: Trading down?

With two retailers closing their West End flagships, James Quilter asks whether premier trading areas remain a draw.

Few things raise Britons' hackles more than the end of a tradition.

And in the retail world, the exit of Dickins & Jones and Laura Ashley from London's Regent Street is something of a momentous occasion - and not in a good way.

The two stores have abandoned the premium shopping location for different reasons. For Laura Ashley it was due to high rents imposed by its freeholder, while Dickins & Jones owner House of Fraser blamed poor sales.

Though the area is still sought-after - Apple and Boots recently opened high-profile stores there - and while Oxford Street retains its iconic status as the nation's high street, premier trading areas in central London are not ideal places for many to trade. The footfall is tremendous, but so is the rent compared with mega-shopping centres such as Bluewater in Kent.

When retail consultancy the Javelin Group compared the leading shopping environments in terms of sales per sqft versus the cost of the premises, it found Oxford Street to be one of the poorest venues in terms of sales versus rent.

But there are reasons for trading in Oxford Street other than footfall and sales, according to Javelin Group director Robin Bevan. For many retailers, having a store on a high-profile site acts as a physical flagship to advertise the brand.

Bevan says the only stores that will be able to survive in these areas will be either 'retail beasts' with huge turnover or multinationals that can afford the costs associated with these stores.

Power brands

There is evidence that higher rents are changing the retail landscape in these areas, with Regent Street and Knightsbridge no longer the preserve of high-end brands.

'In Regent Street we are seeing the big-hitter brands that need the space,' says Bevan. 'That is also happening in Knightsbridge; there is an H&M store there and you would not have seen that 10 years ago. It is able to do that because of the strength of the brand and it can pay for the site. Site owners want powerful brands."

Rising rent is a prickly issue for retailers. Leases and negotiations are held together by the Upwards Rent Agreement, an institution peculiar to the UK. Its terms stipulate that any renegotiation of retail leases use the current fee as a starting point, regardless of the situation.

The trend is also to regard the most recent arrival to that area as a benchmark of what the fee should be.

According to the British Retail Consortium (BRC), the agreement is a hold-over from the 70s and high inflation, and was designed to prevent property owners going out of business. Now it could be having the opposite effect on retailers, as well as shaping the make-up of who gets on to the street.

'In prime high-street locations it is the retailers with the highest margins that can afford to be there, so it starts a vicious circle,' says BRC assistant policy director Rachel Burns. 'That can also be a barrier to getting independent retailers into those areas.'

However, Crown Estates, which manages Regent Street for the Treasury, highlighted recent government-funded research by the University of Reading that suggested retail tenants thought upward-only rent was less significant than removing lease restrictions.

Sizeable presence

For major retailers, rent is not such a problem. Boots, which opened an Oxford Street store earlier this year, says that although it has bigger sites, it needed a sizeable presence in central London to 'show what was good about Boots'. While Boots says it would not open a store that made a loss, it accepts the running costs for a central London store are high, and because space is a premium it is not the best place to test new products.

HMV's view is that although high rents affect the viability of these stores, the West End is synonymous with home entertainment retailing, so it must have a presence there.

Other retailers opening or moving flagship stores to the West End include Karen Millen, Quiksilver and Urban Outfitters. But not all retailers want to move into Oxford Street. TK Maxx says it runs a 'no-frills operation' and the business case for moving there would not fit with its strategy.

'Everyone is moaning about rents and obviously the going is hard right now,' says Mintel director of rental research Richard Perks. 'But retail is not in recession and there is no sign of change. Property companies will always try to get more rent but it is in no one's interest to have them all out of business.'

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