Chain Store Shops Increase In Q3 Despite Administrations

London, 9 November 2012 – The number of shops operated by multiple operators in Great Britain grew by 919 in the third quarter of 2012 (Q3 2012) despite recent administrations, according to the latest joint research by global property advisor CBRE and Retail Locations.

The number of shops operated by multiples increased by 0.58% in Q3 2012, reversing the marginal decline seen in Q2 2012. The net increase in multiple branches so far this year now totals 665 (0.42%); however, this rate of growth is at barely a quarter of pre-recession levels.

CBRE’s Chain Expansion Quarterly1 tracks the cumulative number of branches of every multiple store operator nationally. The results are based on comprehensive listings supplied by Retail Locations, the leading industry database of UK multiple operators. This has allowed, for the first time, multiple expansion activity to be analysed on a branch-by-branch basis to isolate growth trends and to identify which parts of the shop property market are growing or declining.

Catering, leisure and retail operators respectively have added 605, 307 and 207 units so far in 2012. In normal market conditions, net retail branch growth is many times that of leisure/catering, illustrating just how sluggish retail expansion activity has become. The decline in service shops such as travel agents and banks continues with a further net loss of 454 branches so far this year, largely due to the growing influence of online services, the reason the net branch change so far this year is only 919.

Although the net addition of multiple branches has slowed, the amount of multiple floorspace being added has not, with the shop occupiers that are expanding tending to add larger than average stores (i.e. the net increase in branches might be small but the floorspace additions are not).

Jonathan De Mello, Head of Retail Consultancy, CBRE, commented:

“It is clear from branch change at the individual network level that a relatively small number of retail majors are now making most of the running in both branch expansion and Internet related investment. The strongest players continue to make large market share inroads. New entrants such as pound shops and discounters are generally increasing the pressure on tired brands. The longer the downturn continues, the greater the attrition.

“Recessionary tail-chopping is further concentrating market share in the largest markets and among the strongest players. The potential for clawing back market share lost through network contraction via the Internet is likely to prove small for most retailers so the current shakeout looks set to have a major impact on long-run sector market shares.”

Melitta Berrino, Senior Partner of Retail Locations, added:

“The real attrition is still coming on the services side, not in retailing, catering or leisure. The decline in the number of services shop branches – operators like banks, building societies, travel agents etc – is set to continue simply because services that can be transferred electronically are continuing to transfer to the Internet. The same is not true of tangible goods. Despite the continuing trickle of administrations, multiple branch expansion in tangible goods is continuing.”

Speculative retail development activity is effectively at a standstill. Grocers, pound shops and other large store players are all chasing the same dwindling supply of large unit space, for the most part on retail parks. Expansion activity at the large unit end is constrained by supply shortages. At the unit shop end it is simple demand weakness that is slowing expansion activity and undermining rental growth.

CBRE expects the net growth in multiple branches to continue in Q4 2012. On current trends, the total number of multiple branches will decline marginally in 2013 but, in large part due to large store expansion (grocers and pound shops in particular), net floorspace growth will continue regardless of administrations or the continuing shakeout on the services side where unit shop, rather than large store, space predominates (service operates tend to occupy smaller units).

The number of multiple retail units has grown by almost 50% over the 1998-2012 period and by almost 10% over the last five years. On the clothing side, if concessions are included, almost 20% of the increase recorded since 2009 has been accounted for by additional in-store clothing outlets introduced by the grocery majors.

Non-food merchandising by grocers has inevitably impacted on certain niche non-food retailers (particularly clothing), exacerbating the general pressures growing out of the now very long-run downturn. Catering continues to grow remarkably rapidly and is gradually taking on a core anchoring role in many shopping locations.

David Muslin, Director, UK Leisure, CBRE, added:

“Retail mixes without significant catering offers are now almost unthinkable. Leisure related branch numbers are also continuing to grow strongly, reflecting underlying changes in the nature of shopping activity generally.”