Online and out-of-town

The income squeeze over?

October was a notable month because for the first time in 5 years earnings growth (on regular pay) was actually higher than inflation.  It would be wrong to get too excited too soon, but this is a notable landmark and is a great boost for consumers ahead of the Christmas period.  It has always seemed to us that consumers spend on the basis of how they feel about their own finances and not on what they read about the state of the economy in the media.  Add to that the fact that the October retail sales figures were a lot better than they might have been given the weather and we feel confident about our forecast of 3% growth in retail sales (ex fuel) in December.

We have argued before that, online is strengthening the high street. The development of C-stores, of Click and Collect outlets and even the footfall, which may come from collection stores and lockers, all tend to help the high street.

But the same is not true for out-of-town stores and while one cannot attribute all of out-of-town retailing’s problems to online, there’s no doubt that the overall impact is negative.

Major out-of-town failures

Partly because of the growth of online and partly for a variety of reasons from poor management and the recession through to changing fashions, there have been several major out-of-town failures.

  • Comet and several smaller electricals retailers, such as Millers and Powerhouse.

  • Furniture and carpet retailers, starting with MFI right at the beginning of the downturn, but followed by many more from World of Leather to Homeform and Allied Carpets to Floors 4 U.

  • Focus DIY and now Homebase is planning to close 80 underperforming stores.

What is an out-of-town store?

It has to be a destination store for a particular product. The stores succeed because they can display a wide range at competitive prices in products, where such a format would not work on the high street. That is why DIY, furniture and electricals all moved out-of-town in the last 30 years of the last century.

Most other retailers were less successful in doing so. Matalan tried to emulate the success of continental clothing retailers out-of-town and while it has been profitable, its sales performance has been unexciting and sales per store are lower now than 10 years ago. Brantano has tried to do something similar in footwear, but it has been loss making for every year, bar one, since 2006. Mothercare has succeeded out-of-town, but then there is no national high street competitor and it is a destination store in its field.

While out-of-town may have started with furniture, electricals and DIY, more recently we have seen the development of hybrid schemes – collections of large stores operated by high street retailers, notably Next, M&S and Boots.

These hybrid schemes are popular, though we have our doubts about them. Surely buying clothing is the classic comparison shop (ie one would want to visit several shops before making a decision). During the last spike in petrol prices there was a definite reluctance to drive to out-of-town centres and that could well happen again, especially as growing numbers cannot afford to run a car.


The problems of a few out-of-town retailers would not matter much if there were plenty of replacements, but we think that several out-of-town centres have struggled to find them. Few retailers are expanding out-of-town at the moment and the biggest takers for these sites are probably Matalan and Mothercare.


But now B&M is talking about taking some of the Homebase stores. B&M is one of a highly successful group of non-food discounters. They have prospered on the high street selling a wide range of low priced merchandise, including food. Opening out of town should have its attractions because of the low occupancy costs there. B&M must have done its sums and decided that it has enough customers who would want to drive to such an outlet, even though many of its high street customers are among the least affluent and many probably do not have a car.

B&M is an opportunist out-of-town. It is unlikely to be a destination store in its own right, and must look to benefit from the footfall generated by stores that really are destinations. To us the idea that someone like B&M should be considering such a move is a sign of weakness for those centres and a warning sign for out-of-town retailing as a whole.

Time for another clear out

We have seen major changes out-of-town before and the time is coming for another. In the 1990s we saw the demise of first generation out-of-town stores – generally small and stand-alone units that were overtaken by larger stores in purpose built developments. Now the time has come to say goodbye to many of that second generation.

So we need to think about what people actually want out-of-town. There are few retailers that really can manage on their own – B&Q Warehouse and IKEA, perhaps, though in practice they are usually near other major retailers.

The most successful out-of-town parks become destination centres for a particular product. For example, furniture retailers do better when they are near to other furniture retailers. The great advantage for out-of-town stores is that they can be showrooms of a comprehensive range of products.

But now they need to be part of a centre which is more than that -a centre that combines several different specialists and provides leisure facilities as well. And that means a full range of leisure services – from gyms to cinemas and restaurants, perhaps pop-up events and Sunday street foods. The out-of-town centre that succeeds will need to become as much a destination as a high street.

But at the moment there are few that achieve that combination. It seems to us that the growth of online retailing has exposed the weakness of many older developments and we doubt if B&M is any more than a short term solution to their problems.

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