Are ‘Fewer, Bigger and Better’ stores driving a revival in shopping centres?

Department stores have gradually disappeared from our shopping centres with the demise of BHS in 2016, House of Fraser in 2018, TopShop in 2020 and Debenhams in 2022. The rise of online shopping, chronic underinvestment, over reliance on concessions, punitive debt and high occupational costs all contributed to their demise. Whilst some department stores have been redeveloped into mixed use spaces, the much cheaper option for landlords is to relet the space.

In the fierce battle for custom, retailers are targeting a new format of larger, better stores in the right retail locations to drive sales and profitability. This includes a mixture of retailers targeting new store locations and whilst some of this will be on retail parks and high streets, many are upsizing their existing footprint within prime centres. This helps Landlords to future proof centres by driving increased footfall and creating a more resilient retail mix.

M&S announced last year that it will spend £480 million on ‘bigger and better’ stores, opening 17 new stores, including five flagships in shopping centres (Manchester Trafford Centre, Birmingham Bullring, Liverpool ONE, Leeds White Rose Centre and Lakeside Thurrock), with payback expected to take around four years.

Zara the flagship brand of Inditex, is also making strides in the same direction with its expansion into a new 42,000 sq ft store in Gateshead Metrocentre last September. The Spanish retailer’s ambitious strategy to elevate their physical presence also includes a new 35,000 sq ft store in the former Debenhams unit at Meadowhall and expanding its footprint at Liverpool ONE from 27,200 sq ft to 42,000 sq ft, opening later in the year.

Primark has opened a refurbished 82,400 sq ft store in London's Westfield Stratford, almost doubling its original size. Primark is also expanding at Metrocentre in Gateshead, which will span around 80,000 sq ft once reopened later this year. The extension forms part of the £100m investment Primark is making into its stores this year.

Sports Direct has plans for more flagships in a move away from smaller stores. Sports Direct opened its new 50,000 sq ft store in Manchester’s Arndale Centre last year calling it the “most advanced store to date”. The sports retailer said some of its smaller shops below 20,000 sq ft in the catchment would be consolidated when opening a new flagship.

JD Sports has followed suit opening its biggest store yet in Westfield Stratford in April 2024 extending over two floors to 27,000 sq ft.

H&M is rolling out its new-look flagship stores across the UK, with Nottingham’s Victoria Centre former TopShop store its next destination this spring.

What does this mean for real estate values?

Prime (the top 10%) shopping centres are becoming more dominant and retailers are attuned to this. Bigger and better stores in dominant locations are more profitable. It wasn’t so long ago that space was seen as a liability following the demise of several department stores brands. The opportunity to consolidate portfolios, closing non-performing stores and reduce occupational costs, as rents and business rates have been rebased, is leading to an uptick in profitability.

Revenue and adjusted operating profit over the past 5 years are mapped out in the chart below.

Larger stores provide retailers with the flexibility to offer a wider array of product lines and services, including those that facilitate ecommerce. Primark will roll out ‘click and collect’ across their UK estate, recognising that stores hold the key to managing the cost of online returns, whist avoiding home delivery altogether. According to Inditex, shops serve as a showcase for the brand and as warehouses for ecommerce.

So, is this move towards fewer, bigger, better stores within shopping centres here to stay?

This trend is not without its risks, there is significant capital outlay on fit out and meeting ESG commitments over time, higher occupational costs associated with larger stores and the potential loss of market share following consolidation of local stores. Despite these risks, we think this trend is here to stay for the top multichannel retailers. Larger floorplates cater for occupiers’ modern retailing needs. For Landlords larger, high-quality stores enhance the retail mix and potentially return on investment.