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Are affordability pressures starting to bite in London?

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Are business rate hikes in London starting to hurt retailers?
The impact of structural change underway in the retail sector has been well documented, in particular, the impact of the growth in on-line retail. This has prompted retailers to proactively review their overall retail operations including their store network in terms of contribution to brand sales and ultimately, profit. Retailers have become increasingly forensic in analyzing their store portfolios and more proactive in closing stores that are no longer profitable. In location terms, the store types that have been most affected to date are those in smaller towns that are less dominant in retail terms. High street and shopping center retail units in secondary and tertiary towns have been closed as part of a retail network review. Looking back 15 to 20 years, an average retailer may have had a store network of c.300 stores but now it has been suggested that retail store networks could be efficient with c.100 stores with a strong complimentary multi-channel offering including on-line. Thus, the inevitable outcome is store closures in smaller, less dominant retail centers. This year alone, Mothercare announced plans to reduce their 152 strong store network to just 80-100 and similarly, fashion retailer French Connection recently announced they are targeting a network of c.30 stores by 2019, down from 75 stores 5 years ago. Gap Inc. owned Banana Republic exited UK bricks and mortar retail (8 stores in prime locations) last year citing tough trading conditions from Zara, H&M and Mango as well as high occupancy costs. Debenhams have also signalled that up to 10 stores are at risk in their portfolio (6% of UK stores). Other retailers include Argos which has closed 40 stores this year following the Sainsbury's takeover last year and more closures are likely.

Source : UBS AG

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