All owners of retail property have a fundamental and serious question to answer: what is the point of shops? Do we really need to visit them any more?
Investors have been fretting about the value of bricks-and-mortar retail property for some time. The share price of Hammerson, the UK’s largest listed landlord of shopping centres, has long traded below the value of its real estate portfolio. In the US, listed funds are aggressively shorted by investors betting against retail property.
It is traditional to blame Amazon, a shorthand for the internet and online shopping. But put the idea to landlords that stores are becoming obsolete and they are unfazed. They roll out well-rehearsed arguments as to why shops — old-fashioned and quaint as they are — are still a great idea, though many of us now whimsically buy whatever we want with a quick tap on our smartphone. Unfortunately, these arguments are largely based on a misunderstanding of how people use the internet.
Take the many retail landlords who claim to have developed mobile apps. Such apps can help shoppers find items they want in a shopping centre’s stores. The customer is expected to go to a shopping centre, then go online and search for the store’s clothes, before leaving the app to buy the clothes in the real world. It does not take a genius to know that if someone is looking at clothes on their phone, they can, and probably will, also buy the clothes on their phone.
Landlords also argue that we need shops to return the things we foolishly bought online after seeing only a picture of them. Clothes that, perhaps, we did not traipse over to a shopping centre to try on. One problem for the landlords is that people can use the postal service to return their goods without ever entering the shop. If the item was ordered online and arrived by post, it can be returned by post too. There are now few people who order something online and then visit an actual shop to return it. There are even a growing number of return outlets, run by companies such as Collect+, where retailers can offer a returns service without needing a full store of their own.
To make matters worse for retailers, lots of offices, which many of us commute to every day, have both changing rooms and the ability to receive post. The clothes are delivered to the office post room (often conveniently located near the changing room) and tried on. If they do not fit or are not liked, they are put straight back into their bag and taken to the post room. Nobody even leaves the building.
Even the argument, usually delivered with zeal, that shopping is fun because we are social animals, is losing its shine.
I am sure lots of people like visiting shops, but for others it is, and always has been, a chore. The idea of having to use up free time to wander around a sterile, overly lit cavern does not appeal. A busy UK shopping destination such as Oxford Street can be an awful scrum, saved only by its proximity to lively Soho, which provides an easy escape route.
For listed landlords, defensive consolidation had looked like an answer to tough trading conditions. However last month, Hammerson, owner of the Bullring shopping centre in Birmingham, walked away from its high profile acquisition of UK rival Intu, while European giant Klépierre has been frustrated in its attempt to buy Hammerson. But Unibail-Rodamco, another French landlord, was recently successful in buying Australia’s Westfield.
Brookfield, the Canadian private equity group, has other plans. In its attempts to buy one of the largest US shopping mall owners, GGP, it is candid about plans to build residential property on the spare land around the shopping centre. Some of the retail space could also be converted to other uses, such as homes or offices. It seems that, increasingly, even investors that buy large amounts of retail property are doing so to repurpose it.
As the millennial generation, which famously loves the internet, seizes a growing proportion of overall consumer spending, other retail landlords may need to follow suit.