INTRODUCTION
General Introduction
The UK retailers have encountered the most challenging trading environments over the past 10 years or so. The growth of internet and mobile shopping has presented itself as a significant threat to shopping centres with more and more products and services being traded online. As a results phrases such as “click and collect; click and deliver; freshly clicked and one click purchasing have been adopted by the English Language (Jones and Livingstone, 2015). According to De Kare-Silver (2001), experiencing and trying new products is what shoppers focus on as orders can be delivered directly to their homes.
Due to the current trends of consumers switching most of their shopping to the internet and the increase in shops online, the growth of online retailing has been an ongoing debate all around the world, at the heart of which is the resilience of the physical store and high street (Jones and Livingstone, 2018). According to Grimsey, (2018) 17% of consumers in the UK purchase goods online compared to just 5% in 2013.
In the late 2016 figures indicated that UK online shopping accounted for 15.8% of all retailing (ONS, 2016a). There is an established literature exploring online retailing, for example, Charlesworth, (2009) and Laudon and Traver, (2013).
Many retailers have been under pressure of the competition by online retailers who are offering cheaper prices and convenient shopping environment, and this resulted in conventional retailers seeing their margins squeezed being unable to raise prices. The main driving force is the rapid growth in ownership of smartphones (Grimsey, 2018). Therefore, conventional retailers are faced with a challenge to offer more than just price to customers (Deloitte, 2013).
Analysis by Morgan Stanley stated that retailer’s margins shrink by half a point for every percentage point of shopping that moves online (economist.com,2017). Renting a store, fitting it out and signing a lease, buying stock and staff employment, business rates and other operating costs that requires a financial commitment from a retailer.
For retailer to increase sales and extend brand reach geographical expansion was the only way, however, e-commerce has enabled online retailers to do these with less financial commitment. Because of these high occupancy costs, some tenants have been going into administration and CVAs resulting some stores being closed. This has resulted in void units and oversupply of space in shopping centres (Zhang et al, 2015). A research by Deloitte (2018) states that there were signs of restructuring across UK high street because of the growth in online shopping with 4,400 net closures in the first half of 2018, an increase of 103 as compared to 2017. However, online retailing is not considered to be the only factor leading to these closures (Deloitte, 2018). Traditionally, in a healthy retail market these void units were filled quickly by current occupants looking to expand their business or by start-ups seeking to take advantage of the high footfall in an established market. Be that as it may, some studies foresee negative impact on the physical store while others argue that there is no real future for online shopping and e-commerce and that the physical store will continue to be attractive to shoppers (Deloitte 2018).
Start-ups find it easier and more attractive to launch a retail business over the internet as it is cheaper to develop a website than to commit to leasing a physical store. Another alternative is to trade on Amazon or eBay, which gives the benefits of trading on a known and trusted platform by consumers offering a website infrastructure with little to no financial commitments.
This dissertation will examine the impact of online retailing on commercial property investments and the way investors perceive its implication on their investment values. Both the positive and negative effects of online retailing on property will be discussed. The paper will start by examining the historical trends, then the rise and growth of e-retailing and multichannel shopping and their effects on retail estate.
Research Background
The retail sector has undergone transformation several times. The development of big cities and railroads in the 19th century came with the introduction of department stores. In about half a century after their introduction, department stores which were mainly based in city centres were after challenged by the development of retail parks because of the popularity of car usage. The hypermarket types together with the discount chains arrived in the 60s and 70s. In each case these changes reinvented consumer preferences and retail landscape rather than get rid of what was developed before (Jones 2010).
Mobile technology, tablets and the use of in-store technology has now revolutionized the retail industry by allowing customers to access more information on products, their prices and every piece of important detail, and shopping has never been more convenient (Hammerson, 2013). This can be done through hypermarket, high street or diverse shopping centres, marketplaces or online portals (Scottish Retail Consortium (SRC), 2018).
In the UK internet shopping has developed into a dynamic shopping channel which accounted for 15.8% of retail sales in the last Quarter of 2016 (ONS,2016a). Being the most developed online market in the world (Cushman and Wakefield, 2013), the UK internet sales grew from 2.7% to 11.5% as a proportion of total retail sales between January 2007 and November 2014 which is an average spend of 753.4m weekly. This level of internet sales growth has implications not only on retailers but also on investors, consumers and the overall economy. The UK retail sector represents 10% of total employment in the country which is approximately three million people. However, this a fall in the number of employees by 0.2million people between 2008 and 2014 (BRC, 2016). In 2013 the value of commercial property in the retail sector was £293bn which was about half a million shops in operation and a representation of 45% of overall commercial property (Mitchell, 2014).
Most large retailers in the UK have embraced the internet by providing for multi or omni channel retailing, offering consumers various platforms such as mobile applications (by tablets, phones and laptops), social media and company websites, whereby they can browse and purchase goods in addition to shopping in-store (Jones and Livingstone, 2018). However, it is not clear as to how this impact direct property investments in the industry, therefore, this paper will assess the role played by the physical shop and the changes that this industry transformation has brought about.
RESEARCH AIM
As outline above the UK retail sector is undergoing rapid and profound transformation brought about by technology and consumer preferences. Trading and revenue generating channels have changed, thus impacting on the demand for physical stores, the relationship between owners and occupiers and lease agreement terms. Online shopping is the mode of shopping that allows the consumer to purchase goods and services directly from the seller through a web browser on the internet. Ecommerce is the action of buying and selling product and services over the internet, however, these terms will be used interchangeably in this dissertation. Access to the internet and suitable method of payment are important for customers to be able to make their purchases online.
This paper will analyse these changes and their implications on commercial retail property investments based on both primary and secondary sources. Literature research on retail trends will be carried out and semi-structured interviews.
- the impacts of online retailing to commercial retail property and occupier demand?
- How do investors view online retailing in terms of its implication on their investments?
RESEARCH OBJECTIVES
- Analyze retailer trends including online retailing
- A coherent outlook of retailers that are impacted the most and the long-term decisions they undertake to adapt to the changes.
- Analyze changes in occupier demand where possible for physical store.
- The impact on real estate requirements and needs of occupier, owners and developers, and the evolution of the functional role of the physical store.
- Assess the performance of physical shop as an asset class
- And understanding of the cause of internet shopping effects on property and their limitations.
The first chapter offer an introduction to retailing which includes background description of the retail industry, e-commerce and internet shopping. The definition of the problem and the overall outline of this paper. The research aims and objectives.
The literature review aims to review the changing retail trends and thorough examination the previous research on traditional (physical) shopping centres and online retailing. Finally, the implication of internet shopping to retailers and their strategic responses.
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