Pop Goes the High Street
2018 has not exactly got off to a flying start for retailers: we have seen Toys R Us and Maplin enter administration, Debenhams, Mothercare and Carpetright all issue profit warnings and John Lewis report a 22% decline in profits. This is hardly surprising considering the squeeze on household income resulting from inflation outpacing wages, higher borrowing costs and record levels of consumer debt. Throw into the mix a combination of rising rents in many areas, together with a significant increase in the national minimum wage for young workers from 1 April this year, and for many retailers you have the ingredients for a perfect storm.
Yet not every aspect of fashion retail is struggling. 2018 has seen a clear trend emerge: while instore sales are down, online sales are up. Next, for example, often regarded as a bellweather of UK fashion retail, has reported a 7% decline in in-store sales against an 11.2% increase in its online performance. So what can retailers do to address this imbalance?
The last few months have seen many retailers seeking to right-size their real estate portfolio. Marks & Spencer is currently undergoing an operational turnaround, involving the closure of 30 UK stores as well as converting 45 of its stores to food only-outlets. On 21 March 2018, New Look’s creditors approved a company voluntary arrangement that could see 60 stores closed. And both Carpetright and Select have recently announced they plan to follow suit.
But what if a brand is not quite ready for such a permanent contraction of its store portfolio and would like, for now at least, to keep its options open? What if a fashion retailer or brand is, conversely, looking to expand but is nervous about committing to a long-term lease? What if a landlord is faced with an insolvent tenant and is looking to mitigate its losses? Well, it seems pop-up shops may provide the answers, and a range of possible benefits.
Typically structured as a short-term licence arrangement, pop-ups offer retailers and fashion brands the flexibility to test a new location, product or sales format without the long-term commitment and cost of a traditional lease.
They also allow the opportunity to capitalise on increased spending around certain seasonal events. For example, last year, Amazon trialled a pop-up store in London’s Soho Square to showcase some of its Black Friday deals.
Further, the temporary nature of a pop-up creates a “here today, gone tomorrow” message, which encourages consumers to buy. They can generate enhanced brand awareness by allowing an online retailer to engage with customers through a physical experience before directing them to their website.
Department stores can drive footfall by promoting newer, more vibrant pop-up brands. House of Fraser, for example, has recently partnered with tech firm Popertee to analyse certain House of Fraser stores’ customer profiles and match them with relevant start-up retailers looking to launch their brands and test their products.
They allow landlords to generate revenue out of otherwise empty stores.
Care does, however, need to be taken when considering any pop-up arrangement, for a few reasons:
- There is no automatic right for the pop-up retailer to stay on if the pop-up is a success. And the landlord may be tempted to set a higher rent or fee if the pop-up retailer wants to stay longer or take the space again at a later date.
- Landlords may well not have the correct planning consent for the particular type of pop-up, so may not be able to give any assurances that the retailer can operate at all and may require the right to terminate the retailer’s occupation if it receives any complaint or threat of enforcement action from local planners.
- Pop-ups can also create risk for landlords, particularly where one landlord has multiple tenants, for example in a shopping centre or parade. There, the landlord may have covenanted with its other tenants only to grant leases for, say, high class retail or a particular tenant mix and so could face action from its other tenants if the pop-up retailer is not considered to be of suitable standing.
That said, pop-up stores represent an exciting opportunity in an otherwise bleak retail environment to experiment with bringing something new and vibrant to the High Street and, hopefully, to fight back against the predictions of yet another tough year. So, let’s watch this space – with a fair wind we may see pop-ups bringing the new lease of life the High Street so desperately needs.
Rebecca Walker (right) is a senior associate in the Restructuring & Insolvency department at Stevens & Bolton LLP and regularly acts for clients in the retail sector.
Helen Wheddon (left) is a partner and head of Real Estate Disputes at Stevens & Bolton LLP.