South Coast Metropole South Coast Metropole - King Sturge

Retail and leisure market review
On a macro level, the retail sector fared extremely
well in 2007. Despite the cumulative effects of
five interest rate rises over a short space of time,
rising energy costs, the wettest summer on record
and the well-documented credit crunch, consumer
confidence remained remarkably robust. Monthly
like-for-like retail sales were ahead of the previous
year for every month during 2007.
Retail sales monitor. BRC-KPMG total and LFL retail sales
vs ONS retail sales value and volume (seasonally adjusted
7%
6%
5%
4%
3%
2%
1%
0%
Jan
07
Feb
07
Mar
07
Apr
07
BRC total retail sales
Source: King Sturge
May
07
ONS retail sales volume
Jun
07
Jul
07
Aug
07
Sep
07
Oct
07
BRC LFL retail sales
Nov
07
ONS retail sales value
Contrary to most media reports (many of which
seem determined to talk the UK economy into
recession), this strong performance continued
to the all-important Christmas period. The British
Retail Consortium (BRC) reported that total sales
growth for December was 2.3% year-on-year, or
0.3% on a like-for-like basis. Doom-mongers may
point to the fact that the rate of growth was lower
than in previous years but this misses the point.
The fact that the sector reported any growth at all,
against extremely tough comparatives of 2005 and
2006 and defied weakness in the wider economy,
marked a very solid performance.
As ever, there were significant performance
disparities between both retail sub-sectors and
individual operators. In simplistic terms, food
retailers fared very well, while the clothing sector
struggled. In bulky goods, DIY was strong, while
electricals and furniture were weak. As discretionary
purchases, these sectors tend to be the first to
suffer from a forthcoming downturn.
While retail trading generally exceeded expectations
last year, few retailers are under any illusions
Dec
07
Jan
08
140
135
130
125
120
115
Index 2000 = 100
that 2008 will prove anything other than difficult.
Consumer confidence is already showing signs of
weakening, while retailers are bracing themselves
for margin-eroding cost inflation (eg cost of raw
goods and energy). This year has already seen a
number of retail casualties, with high street names
including Dolcis (footwear), Select (value fashion),
Elvi (plus-size fashion), The Works (discount
books) and Ponden Mill (soft furnishings) going
into administration. However, for all the downturn
in retail sales and belt-tightening by retailers, it is
important to stress that the underlying occupational
market is still holding up relatively well.
Trends in house prices, retail sales and housing equity
withdrawal (HEW)
30%
25%
20%
15%
10%
5%
0%
2002
2003
2004
Y-on-Y house price growth
Source: nationwide/ONS/Bank of England
2005
2006
2007
Y-on-Y retail sales growth
HEW as % of income
A strong occupational market was the key brightspot
for an otherwise difficult retail property market in
2007. According to the IPD Annual Digest, total
returns in retail fell by 6.1% last year, the worst
annual performance since 1990. This was fuelled
by a 10.1% slump in capital values, the first time
growth had been in negative territory since 2001.
On a more positive note, the strong occupier market
resulted in a 2.1% increase in rental values.
Internet shopping continues to grow exponentially,
but rather than representing a threat to the High
Street, the trend is, if anything, helping the high
street retailers: 14% (7% 2006) used the Internet
for most of their Christmas shopping in 2007,
with 74% using the web for at least one purchase
(Source RLI). Some 72% of retailers (51% 2006)
now provide online stores to complement their high
street businesses.
Although these figures are ostensibly poor, we
believe that this marked a correction in the market,
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