PMA Conference 2015:

The new retail normal – adapt, or die!

May 2015

Jonathan De Mello – Head of Retail Consultancy, Harper Dennis Hobbs

UK Retail Market Overview

After a long, deep recession, UK retail is very much in growth mode

• House Prices Rising

• Unemployment Down

• Growth in UK Economy

• Attractive Compared to Eurozone

• Majority Government

• Geopolitical Risks (Russia, ISIS etc..)

Retail

Sales

Conservatives vs Labour on key retail-related topics

HDH || Page 3

Topic Policy Best for

Retail

Corporation Tax

Conservatives: Rate remains at 20%.

Labour: Be the most competitive in G7.

Business Rates

Conservatives: Overall review but keep discount for small business. -Labour: Cut and freeze rates for small businesses (affecting 1,500

properties). -

Energy and

Infrastructure

Conservatives: Promote competition to keep energy prices down,

invest in road network, broadband, HS2, airport expansion.

On energy

Labour: Freeze energy prices until 2017, invest in broadband, HS2

and a “quick response” to airport expansion.

On

infrastructure

Homes

Conservatives: 200,000 starter homes. Right to buy.

Labour: 200,000 new homes per year. Public sector building.

Wages and Tax

Conservatives: No tax on minimum wage. Allowance increased to

£12,500. No change in VAT/NI. Further steps to eradicate

‘exclusivity’ in zero-hours contracts.

Labour: £8 min wage. New 10p lower tax rate. No change in

VAT/NI. Ban zero-hours contracts. Introduce tax rebates for

businesses that sign up to the living wage.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

LFL Profit and Sales Growth 2014

Profit

Sales

Retailer Results

There are both winners and losers in the current retail climate

Occupier Demand

The UK is very attractive to international retailers

Corporation Tax Rates

The UK has comparatively low corporation tax rates

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

United States

Japan

France

Italy

Australia

Spain

Germany

Netherlands

Denmark

Sweden

United Kingdom

Singapore

Corporation Tax Rates 2014

The UK has Further Potential for Retail Development

The UK has lower retail floorspace/capita than other mature retail markets

0

2

4

6

8

10

12

14

16

USA Norway Australia Sweden Holland UK

Shoppin

g C

entr

e S

q F

t per

Capit

a

Shopping Centre Sq Ft per Capita 2014

UK Pipeline Developments

Retail Development is back!

0

5

10

15

20

25

30

35

40

Russia Turkey Ukraine France Poland Italy Germany UK

Shoppin

g C

entr

e D

evelo

pm

ent

Pip

eline

(Million S

q F

t)

Shopping Centre Development Pipeline Westfield London Extension, 800,000 sq ft

Westfield Croydon, 1,500,000 sq ft

New Retail Quarter, Sheffield, 600,000 sq ft

Westgate, Oxford, 800,000 sq ft Bradford, 570,000 sq ft

HDH Retail Centre Vitality Ranking

Size is not the only barometer of retail success

Suitability of Retail

Vacancy RatesGood Quality Tenants

Undesirable Tenants

Vitality Ranking – Most Vital

Westfield London

Guildford

Leeds

HDH Vitality

RankingRetail Centre

HDH Vitality Score

(0-400)

HDH Retail Spend

Potential Rank

1 Westfield London 312 13

2 Chelsea 290 98

3 Knightsbridge 261 128

4 Canary Wharf 254 149

5 Brent Cross 246 36

6 Richmond 244 195

7 Cambridge 240 39

8 Bluewater 236 17

9 Kensington 208 116

10 Bath 208 50

11 Guildford 205 47

12 London West End 201 1

13 Kingston upon Thames 201 14

14 Westfield Stratford 200 18

15 Cribbs Causeway 197 62

16 Islington - Upper Street 193 293

17 Edinburgh 191 12

18 St Albans 186 164

19 Trafford Centre 180 24

20 Harrogate 180 96

21 Chichester 179 121

22 Brighton 176 23

23 Meadowhall 175 26

24 Oxford 173 41

25 Chester 171 29

Vitality Ranking – Least Vital

Bootle

St Austell

Dudley

HDH Vitality

RankingRetail Centre

HDH Vitality Score

(0-400)

HDH Retail Spend

Potential Rank

476 West Bromwich 24 190

477 Bournemouth - Boscombe 24 266

478 Long Eaton 24 306

479 Letchworth 24 320

480 Retford 23 354

481 Ilkeston 23 273

482 Dewsbury 23 238

483 Rotherham 23 176

484 Wallasey (Liscard) 23 375

485 Arnold 23 350

486 Newport (Wales) 23 111

487 Stockton-on-Tees 22 205

488 Edinburgh - Leith 22 414

489 Aldershot 21 201

490 Folkestone 21 218

491 Stoke-on-Trent - Longton 20 381

492 Ramsgate 19 317

493 Stroud 19 332

494 Brighton - London Road 17 380

495 Bristol - Bedminster 16 385

496 Dover 13 284

497 Ellesmere Port 12 372

498 Morecambe 9 402

499 Llanelli 8 304

500 Dudley 5 196

HDH & ICSC European Retail Rankings

Rank Retail Centre Country 2013 Market Size

1 London West End UK £8,493,485,515

2 Paris France £7,745,406,304

3 Madrid Spain £4,926,451,871

4 Rome Italy £4,622,860,453

5 Munich Germany £4,444,971,145

6 Milan Italy £4,318,948,547

7 Moscow Russia £4,291,854,148

8 Berlin Germany £4,284,490,711

9 Zurich Switzerland £4,281,277,446

10 Istanbul Turkey £4,279,179,768

11 Barcelona Spain £4,277,636,903

12 Amsterdam Netherlands £4,212,777,818

13 Glasgow UK £4,198,475,372

14 Birmingham UK £3,533,037,026

15 Lisbon Portugal £3,472,789,928

16 Manchester UK £3,433,894,721

17 Hamburg Germany £3,131,461,847

18 Copenhagen Denmark £3,113,604,763

19 Stockholm Sweden £3,112,895,469

20 Vienna Austria £3,112,011,588

21 Oslo Norway £3,111,237,394

22 Saint Petersburg Russia £3,108,344,516

23 Leeds UK £3,071,126,314

24 Liverpool UK £3,037,856,442

25 Lyon France £2,971,179,362

26 Cologne Germany £2,962,266,596

27 Marseille France £2,961,774,210

28 Turin Italy £2,947,904,701

29 Frankfurt Germany £2,947,731,752

30 Dublin Ireland £2,943,855,526

31 Nottingham UK £2,935,465,883

32 Cardiff UK £2,750,065,854

33 Newcastle upon Tyne UK £2,743,580,472

34 Rotterdam Netherlands £2,667,924,672

35 Lille France £2,657,420,832

36 Brussels Belgium £2,650,917,613

37 Prague Czech Republic £2,624,905,610

38 Naples Italy £2,570,792,603

39 Valencia Spain £2,541,774,639

40 Düsseldorf Germany £2,515,945,202

41 Helsinki Finland £2,487,036,493

42 Stuttgart Germany £2,483,413,603

43 Antwerp Belgium £2,481,335,432

44 Bordeaux France £2,375,163,268

45 Toulouse France £2,346,104,046

46 Edinburgh UK £2,300,131,321

47 Strasbourg France £2,269,303,188

48 Warsaw Poland £2,265,834,768

49 Nuremberg Germany £2,189,154,013

50 Gothenburg Sweden £2,188,905,882

Physical retailers with successful online platforms

• Apple• Argos• John Lewis• Next• Estee Lauder Companies

£0

£200

£400

£600

£800

£1,000

£1,200

2008 2009 2010 2011 2012 2013 2014

Joh

n L

ewis

Dir

ect

Sale

s (m

)

John Lewis Direct Sales

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

Physical Only

Online Only

Online and Physical

% Unique Customers % of Total Transaction Spend

Retailer X: Online vs Physical Transaction Numbers

Customers who shop from online and physical channels have higher average transaction values

Shopper TypeAvg Physical Spend Per

Transaction

Avg Online Spend Per

Transaction

Avg Spend Per

Transaction

Physical Only £63.2 £63.2

Online Only £117.2 £117.2

Online and Physical £79.8 £137.9 £95.4

Total £65.1 £135.7 £68.3

Estée Lauder Companies: Bobbi Brown

Bobbi Brown have a large and profitable retail ecosystem

Concession/

Wholesale

Online

Free-standing

store

Bobbi Brown trades from concessions

or wholesale outlets in specialist

beauty retailers and department

stores

Bobbi Brown trades from

permanent free-standing

stores in a number of locations

Where suitable,

Bobbi Brown also

operates pop-up

stores – such as in

London’s Canary

Wharf

Bobbi Brown trades online, from both its

own website and those of other routes to

market, such as department stores

= Maximisation of brand equity and

profitability across all channels

The Retail Ecosystem

Store NameStore Sales Growth

(2007 to 2013)

Online Sales Growth

(2007 to 2013)

US Store 1 118% 70%

US Store 2 70% 45%

US Store 3 69% 60%

US Store 4 52% 18%

US Store 5 50% 26%

US Store 6 47% 41%

US Store 7 34% 30%

US Store 8 34% -9%

US Store 9 33% 10%

US Store 10 29% 39%

Average Growth by Top 10 Stores 53% 33%

US Store 211 6% 0%

US Store 212 1% -12%

US Store 213 0% -26%

US Store 214 -3% 40%

US Store 215 -5% 11%

US Store 216 -7% 16%

US Store 217 -10% 37%

US Store 218 -32% 25%

US Store 219 -49% 50%

US Store 220 -81% 47%

Average Growth by Bottom 10 Stores -18% 19%

Top

10

Sto

res

By

Sale

s G

row

thB

ott

om

10

Sto

res

By

Sale

s G

row

th

E-commerce Growth

E-commerce growth is slowing, and competition is increasing

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

£0

£10

£20

£30

£40

£50

£60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mark

er

Share

of

all R

eta

il S

ale

s (%

)

E-c

om

merc

e S

ale

s (£

bn)

Growth in the UK E-commerce market

E-commerce Sales (£ bn) Market Share of all Retail Sales

Major online players experimenting with physical

• Amazon• ASOS• Ebay• Google• Net a Porter

Kindle Pop-up San Franciscob store Asos pop-up

The eBay Inspiration Shop, New York

Pure plays with successful physical outlets

• Athleta• Bonobos Menswear• Oak Furniture Land• Pro Direct• Rapha• Simply Be/Jacamo

Pure Play Fashion Retailer X: Case Study

Retailer X

Customers

Index Vs UK

(UK=100)

1 Wealthy Urbanites 8.9% 217

2 Maturing Affluence 17.2% 346

3 Prosperous Families 28.8% 241

4 Settled in Suburbia 17.9% 122

5 Mixed Neighbourhoods 8.0% 92

6 Average Families 7.6% 52

7 Students and Graduates 2.5% 46

8 Struggling Workers 5.0% 32

9 Poorer Families 3.1% 29

10 Borderline Poverty 1.1% 11

CAMEO Group 0 50 100 150 200

Pure Play Fashion Retailer X: Case Study

BrandCorrelation with Retailer X

Customers

Jo Malone 91%

Toast 88%

The White Company 85%

Space NK Apothecary 82%

L.K.Bennett 79%

Jigsaw 78%

Anthropologie 77%

Phase Eight 77%

Noa Noa 76%

Mint Velvet 73%

East 73%

Le Pain Quotidien 72%

Maje 69%

Sandro 68%

Department StoreProportion of Top 4

GroupsCorrelation with Retailer X

Customers

Debenhams 35.7% 5.9%

Fenwick 50.5% 75.8%

Harvey Nichols 50.4% 65.7%

House of Fraser 41.8% 38.1%

John Lewis 51.2% 89.8%

Selfridges 36.8% 10.8%

UK (%) 35.7% 12.7%

Rank Score Retail CentreWeighted Spend

(£m)

Count of Consumers in

the Top 4 CAMEO

Groups

Proportion of Consumers

in the Top 4 CAMEO

Groups

Most

Relevant

Brands to

Retailer X

JLP Or Fenwick Presence

1 3,539 Chelsea £795.3 70,590 63.4% 11 Peter Jones

2 3,071 Bath £1,289.3 98,077 46.3% 8

3 2,794 Guildford £1,365.5 130,696 63.6% 9

4 2,472 Cambridge £1,465.2 148,334 64.6% 7 John Lewis

5 2,254 Kingston upon Thames £2,127.4 192,270 61.7% 6 John Lewis

6 1,734 Westfield London £2,265.5 194,885 57.9% 3 John Lewis (2017)

7 1,658 Richmond (London) £413.2 36,332 59.8% 5

8 1,582 Leamington Spa £818.3 82,532 65.0% 2

9 1,561 Oxford £1,445.0 136,182 55.9% 4 John Lewis (2017)

10 1,521 Kensington £701.9 67,578 71.3% 3

11 1,483 Cheltenham £889.9 63,933 45.0% 4

12 1,447 Bromley £1,673.2 123,280 50.7% 1

13 1,361 St Albans £499.0 41,653 54.6% 4

14 1,357 Winchester £410.7 39,869 61.7% 2

15 1,304 Canterbury £972.6 73,873 44.2% 1 Fenwick

16 1,293 Islington - Chapel Market £245.4 19,006 48.8% 6

17 1,231 Chiswick £261.1 21,986 55.6% 1

18 1,217 Solihull £1,050.1 68,303 35.0% 3 John Lewis

19 1,186 Chester £1,644.2 113,324 40.1% 5

20 1,149 Harrogate £815.7 69,732 55.2% 7

Pure Play Fashion Retailer X: Case Study

Pure Play Fashion Retailer X: Case Study

Retail Centre Phase

Chelsea 1. London Flagship

Chelsea 2. London Concessions - John Lewis

London West End 2. London Concessions - John Lewis

London West End 2. London Concessions - Fenwick

Kingston upon Thames 2. London Concessions - John Lewis

Bath 3. Regional Priorities

Guildford 3. Regional Priorities

Bromley 4. London Stores

Richmond (London) 4. London Stores

Kensington 4. London Stores

Isl ington 4. London Stores

Leamington Spa 5. Regional Stores

Canterbury 5. Regional Stores

Cheltenham 5. Regional Stores

St Albans 5. Regional Stores

Winchester 5. Regional Stores

Westfield London 6. Regional John Lewis Concessions

Cambridge 6. Regional John Lewis Concessions

Oxford 6. Regional John Lewis Concessions

Solihull 6. Regional John Lewis Concessions

PMA Conference 2015:

The new retail normal – adapt, or die!

Questions?