Vodafone thinks now is a good time to expand its retail estate and has set itself the objective of adding 50 new stores between October this year and March 2009, which will take its estate up to 400 units.
The operator’s sales chief, Tom Devine, says: ‘There is an element of opportunism – if we invest now then we are ready for the upturn, especially as you consider it does take time for a store to bed in. We are looking all across the UK. There will be some concentration in the south-east as we expand around Greater London. We can’t be any more specific, as this is all subject to negotiations and the right outlets coming up.’
David Williams, head of retail strategy at commercial real estate advisor CBRE, believes that Vodafone’s decision to open an additional 50 stores is a sensible move. By adding these stores to its portfolio now, Vodafone is securing enough sites for the rest of 2008 and 2009.
The move will also enable Vodafone to avoid the insecurity and lack of future visibility in the real estate market, resulting from a number of new in and out-of-town developments put on hold recently.
Landlords losing power
The slowdown in consumer spend is having a serious impact on store footfall. Research firm Experian found that out-of-town stores suffered a 5.8% fall in visitor numbers during June and shopper numbers in town centre stores declined 1.5%. The greater fall in the out-of-town stores has been put down to the reluctance by consumers to spend money on filling their tanks with petrol to get them to the centres. Instead, they are choosing to shop locally.
Because footfall is down, retail property is becoming harder to sell. Williams says the market has ‘moved in favour of the occupier’, and believes that Vodafone is taking advantage of this and securing its new sites at favourable rates.
Malcolm Pinkerton, senior analyst at Verdict Research, says there is plenty of evidence of this new trend: ‘The power is now with the retailers. They are saying, “we’ll take the space, but on our conditions”. Landlords have to offer incentives on new sites.’
This has meant that deals are being struck on very favourable terms for retailers, which might involve five-year rent-free periods and shop-fits being paid for by the landlord.
Landlords are under increasing pressure to fill vacant space on the high street, after the revisions to the government’s planning policy in April. The policy now states that landlords must pay full rates on empty units, whereas they had to pay only 50% of the total for un-let units before the policy was enforced.
The increasing amounts of space appearing on the high streets as a result of the abandonment of stores by electrical, music and video retailers is also making the current environment favourable for retailers on the hunt for sites. ‘Spending [in these industries] is going online so the need for stores is reducing,’ says Pinkerton.
In popular town centres where it had previously been difficult to find suitable stores, the current climate is creating openings for mobile companies still keen to enter premium locations. But mobile retailers are left competing for the best sites among themselves.
Pinkerton says: ‘Mobile retailers are taking up a lot of the vacant space. They want a guaranteed high footfall in quality locations in town and out of town. The more premium the locations they go after, such as small market towns, the more competitive it becomes between them to secure the site.’
Williams says: ‘We advise Phones 4u and they are still busy [looking for property]. It’s a competitive situation with 3, Orange and O2 still bidding, but they are all being more selective about sites.’
Ian Thurman, head of location planning at CACI, a site location specialist that deals with the majority of major mobile retailers, says that Vodafone and the other networks’ experience stores have gradually helped to change shopping centre developers’ and landlords’
view of mobile retailers. Thurman says: ‘They do not look on them as parasites anymore. Stores were reliant on existing customer flows in shopping centres, but now they [operator stores] are bringing new customers in. And these are often customers that shopping centres want to bring in, such as women and Asian groups.’
Just like on the high street, there is still competition between mobile retailers when units become available in premier shopping malls, such as Westfield in London, the Eden Shopping Centre in High Wycombe and Liverpool One. Mobile companies’ willingness to pay is often used by developers to set the rental standard.
Tom Cullen, director of retail agency at property firm Colliers, says the developers of new centres will often put in two 1,000 sq ft units on corners and near entrances to encourage competition between the networks. He says: ‘They are seen as big payers and will often set the ‘Zone A’ level in the scheme.’
Only months ago it was difficult for mobile retailers to secure sites in shopping centres because of the limits on how many were deemed acceptable in a single mall. In this sense the economic downturn has proved helpful for the mobile industry as landlords and developers are more anxious to talk to previously unwelcome potential tenants.
One retailer that has taken its foot off the expansion accelerator is Carphone Warehouse. In June, Carphone Warehouse chief executive Charles Dunstone said: ‘We have chosen to slow our rate of physical expansion temporarily, diverting more of our resources towards the evolution of our retail proposition.’
With no new shops on the horizon, Carphone is adapting its existing stores to stock a range of laptops.
The sale of a 50% stake in its retail business to Best Buy will entail a shift for Carphone from seeking smaller stores in town centres and shopping centres to larger units in out-of-town retail parks. Early proof of this shift could be seen in the retailer’s recent first quarter trading update that showed Carphone had only opened three stores, having opened a total of 48 outlets and closed 45 units.
Because of Best Buy’s focus on larger-format stores, Robert Clark, research director of Retail Knowledge Bank, is puzzled as to why the US retailer did the £1.1bn deal with Carphone. However, he can see why it was appealing to the retailer: ‘It says a lot about Carphone’s position and its prospects. Arguably, it is in the worst position on the high street of all the mobile retailers and I’m not sure where it can go. Dunstone and [David] Ross [co-founder] got out as they could see the end of the road.’
Thurman agrees that Carphone’s position is under question. He wonders how its proposition of offering the best deals on the high street will enable it to compete effectively with the networks that are increasingly going down the ‘experience’ stores route. Such outlets are arguably as much about building the networks’ brands as they are about generating returns, which is a luxury that Carphone does not have.
With their continued willingness to compete aggressively for premium sites, both in shopping centres and town centres, Cullen believes that any slowdown in mobile retailers acquiring sites is likely to be down to them having already secured the sites they wanted around the country rather than the credit crunch.
Cullen says: ‘If they are slowing down then you have to bear in mind that they’ve done a lot of deals [over recent years] and they are in a lot of the centres already. Even in suburban shopping centres there are already three mobile retailers.’
Williams agrees and points to his client Phones 4u as an example: ‘They are still looking to exp