Times are a changin’ in retail. That was the message on 24th July from Hammerson, the FTSE 250 owner of mega-malls like Birmingham’s Bullring and Brent Cross as it announced a major strategic shift in response to high street turmoil.
The £300m share buy-back, sale of retail parks Bristol and Kirkcaldy for £164m and a further commitment to get out of others heralded a shift from where they were a year ago. The pursuit of Intu is now a distant memory. But in fairness to Hammerson, the entire landscape has changed: from US tariffs and French premier Macron slowly breaking the unions (they have a French presence); to Asda and Sainsbury’s merger and the pressure being felt now even by the likes of M&S and John Lewis. And that’s without the continued rash of insolvencies, as retailers dissolve loss making bits of their business to re-emerge free from debt and untangled by poorly negotiated leases that, in the case of House of Fraser, ran for decades rather than years.
Hammerson said it had 104 stores leased to companies in administration or in company voluntary arrangements (CVAs). While some CVA-wielding companies like Blacks (see my BBC interview on this from 2009) have been revived, many – such as BHS – went on to fail anyway.
Stores as living billboards
Today, successful retailers are picking the right geographic positions and ensuring they have just enough shops to serve the customers that actually exist. It makes perfect sense that Hammerson should do the same. Many realise that stores will, in some cases, be living billboards for their online presence. And this is something that mall owners need to tap more into. But above all, everyone needs to now recognise that not every suburb of the UK needs its own John Lewis.
Irrespective of Trump, stifled inflation or general Brexit gloom, people still need to buy stuff and Hammerson’s portfolio remains strong and profitable. Its statement pledged to shift its focus away from high street fashion, which is also under pressure. Instead it will look at premium outlets of “differentiated brands, aspirational fashion, leisure, events and lifestyle spaces” rather than the department stores and high street fashion outlets that are taking such a kicking at the moment. This is a sensible strategy but it will take time to see results.
Europe has far less retail space per capita than we do in Britain and this, together with stricter rules around Sunday trading and less concentrated take-up of e-commerce (relatively speaking) means that Europe, in some cases, is a better bet. And as Hammerson chief David Atkins said: “We believe continental European and Irish markets are more stable than the turbulent UK retail market.”
The challenge of property – as highlighted by the gating crisis two years ago when fund managers stopped people withdrawing cash from many property funds – is that it’s a long-term game priced daily. The problem those fund managers faced was that their funds are priced daily despite having none of the liquidity of equities. Shares in property firms can be traded easily, but changing the underlying bricks and mortar takes time.
Unfortunately, any FTSE-listed property firm is constantly stuck between a rock and a hard place: have a large development pipeline and analysts criticise you for being over exposed; sell off of assets performing well to achieve a good price and they criticise you for dumping good stock (though far better than selling when they have dropped further in value); or retrench from development and be told you’re doing a U-turn even if that’s precisely what those same people previously recommended. This is largely why politicians never tell it like it is.
Common sense plan
Yet Hammerson’s plan makes sense and shareholder anxiety should at least be eased although turmoil in retail will doubtlessly continue.
The growth of e-commerce and the year-on-year improvement in omni-channel fulfilment mean that retailers can meet the demands of the same number of consumers with significantly less space. Department stores are already feeling this reality, with M&S chairman, Archie Norman, telling shareholders a fortnight ago that “we have no God-given right to exist.”
Hammerson are effectively getting ahead of the game with this change in strategy, emphasising that they understand where the sector is going and how best it can be utilised to serve consumer demands. By consolidating their portfolio in more differentiated, experience-driven outlets that serve retail, leisure and events purposes, Hammerson are creating flexibility within their portfolio, both in terms of flexible leases that support turnover and multiple possible uses for their assets.
Not only will this bolster their portfolio against the ebb and flow of the market, it will also give them the opportunity to respond quicker going forward. Unlike many other investors, the residual value of all of these assets is high – so even if one day there is less demand for stores, they will still be attractive to another party.
Some techno-maximalists in the property sector’s ranks were obviously frothing at the news of Hammerson, suggesting that it follow in the footsteps of the likes of Alibaba, who have bought supermarkets and department stores as fascia for their online empire. This would mean it becoming a tech company – with a totally different risk profile and a wholly different earnings multiplier (Hammerson’s shares are less than 11 times earnings – which is far more conservative than any tech firm could ever even sniff).
How it would do something like this is unclear, but I can guarantee that sticking Hammerson on the blockchain will do little to placate shareholders’ fears. Nor will splashing loads of cash buying up offline retail outlets at a time when they are trying to consolidate and future-proof their UK portfolio. They’re already undertaking a major pivot and “becoming a tech company” is more akin to a triple backflip. That said, looking at the systems for inventory management, collection and customer engagement – and finding ways to extract value for its customers – will be of use. The stuff just has to be of value and not driven by cheap headlines.
Undoubtedly, technology and data will play a role in Hammerson’s future, as retailers and merchants become more attuned to customer experience and use real-time data analytics to gain actionable business insight. Yet, these aspects will be complements that strengthen Hammerson’s position, not underwrite it. The fundamental that will cement Hammerson’s UK position is creating the flexibility – and therefore the opportunity – for more high-end, bespoke and consumer-centric spaces that don’t just sell products, but offer experiences and entertainment, in areas with favourable demographics and projected growth. Headlines tend to write themselves, but in the case of Hammerson, we all need to take a closer look.
It’s nearly 10 years since warehouse developer Brixton collapsed before being bought by its rival Segro, after an ill-fated foray into expensive double-decker warehouses and other nonsensical exploits. As it neared the end, the company’s chief executive issued a perverse financial statement littered with Bob Dylan references. That isn’t a mistake anyone should repeat. But with some laser sharp focus and a clear message that “less is more,” Hammerson will be able to ride out the storm and take shareholders with it.