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|Final Report for|
Transport for London
Factors Affecting the Structure and Pattern of Retailing in London
Said Business School, Oxford
The Oxford Institute of Retail Management
This report provides the response to an Invitation to Tender for research aimed at exploring the past and future implications of structural change in retailing for shopping patterns in central London, issued by Transport for London. The need for the research arises from interest in the longer term past and future geographical contexts for shopping behaviour and shopper movement in the capital.
The report is based on core conceptual research, supported by a new analysis of shopping trip data, together with the evidence and opinions sought from practitioners and others with knowledge and experience of retailing in London, which respectively serve to quantify and validate the conceptual research.
The report’s authors are Dr. Jonathan Reynolds, Elizabeth Howard and Latchezar Hristov, of the University of Oxford. The scenarios workshop, which provided some of the future-facing insights used in the report, was facilitated by Martin Duckworth of Martin Duckworth Associates. Mapping was undertaken by MapInfo Corporation.
We are grateful to workshop participants and to others who contributed their time and experience to the preparation of this report.
© Oxford Institute of Retail Management, Saïd Business School, University of Oxford, 2006. http://www.sbs.ox.ac.uk/oxirm
Management Summary 5
Looking back 5
Exploring possible futures 8
High impact certainties 8
High impact uncertainties 8
0. Objectives and study methodology 10
1. Setting the Scene 11
2. Looking back: historical explanations for retail change in
central London 13
a. Retail structure 14
General observations 14
The “London Lens” 20
Case study 1: Innovative London ‘high streets’ 21
Case study 2: Tesco in London 25
Unresolved questions 27
b. Store channels and new locations 28
General observations 28
The “London Lens” 31
The growth of ‘prestige’ department stores 32
The development of large comparison goods 33
Retail warehouse parks 36
Unresolved questions 38
c. Growth in non-store channels 39
General observations 39
The effects of the Internet on price levels 40
The effects of the Internet on retail brands 41
The “London lens” 41
Case study 3: online grocery retailing in London 43
Consequences of online activity for London retailing 45
Unresolved questions 46
d. Lifestyles, demographics & consumer behaviour 47
General observations 47
The “London Lens” 50
Londoners’ attitudes to fashionability 51
The role of convenience 52
Unresolved questions 53
e. Shopping trips 54
General observations 54
The “London Lens” 55
Extent & geographical distribution of shopping trips 55
Domestic and international tourism 62
Unresolved questions 64
3. Exploring possible futures: the evolution of
retailing in central London 65
a. High impact trends 67
Consumer attitudes & behaviour 67
Strategic initiatives by retailers and developers 67
Characteristics of London 68
b. Low impact trends 69
Consumer attitudes and behaviour 69 Strategic initiatives by retailers and developers 69
Characteristics of London 70
c. High impact uncertainties 71
Political and regulatory change 71
Economic change 72
Scenario 1 for 2016: “New Localism” 75
Scenario 2 for 2016: “Big, Bad and Boring” 76
4. Conclusions and implications 78
Appendix 1: Shopping centre pipeline, London 2005. 85
Appendix 2.1: Dominant grocery goods catchments for London, 2004. 87
Appendix 2.2: Tesco stores in London, 1970 88
Appendix 2.3: Tesco stores in London, 1980 89
Appendix 2.4: Major shopping development schemes completed
In London, 1963-79 90
1. Retailing has become a significant contributor to economic growth in the UK. It was the 6th largest sector in the UK by value added in 2004. UK food retailers alone increased their contribution to value added by 10% between 2003-04. As far as the London economy is concerned, retailing and wholesaling contributed 12% of gross value added in 2002 and 9% of employment in the capital in 2003. The transport implications of retailing are also significant. Nationally, shopping accounts for 20% of all trips and is still the most frequently-cited reason for travel in the UK. However, trips have changed in their mode, length and complexity. This is particularly the case in London where, for example, growth in the number of public transport journeys of all kinds ran at five times the rate of population growth between 2000 and 2004.
2. Retailing in, and shopping trips to, central London make especially important contributions to the successful growth of London’s economy as a whole. But trends in trips to particular shopping destinations – such as the West End - cannot be evaluated in isolation, over the short term. Longer term economic, social, regulatory and technological issues determine the level and character of demand and the way in which the retail industry organises itself to meet that demand. Moreover, changes that are occurring in the retail environment appear to be increasing in pace and in their effects upon firms and formats as well as upon trading locations.
Looking back: historical explanations for retail change in central London
3. In some ways, London’s retail structure has been as responsive to change as the rest of the UK, but there have also been significant differences because of the capital’s distinctive geography.
This makes the business models of London retailers especially sensitive to the state of the consumer economy.
4. Levels of competition among shopping locations have greatly increased over the past twenty years, in London as elsewhere. Central London’s pre-eminent position at the top of the UK shopping hierarchy has been challenged. Consumers perceive that other centres offer relevant counter attractions, as they make both national and international comparisons. Over the past twenty years, for example:
Over the longer term, shoppers use the benefit of a new range of locations for goods of all kinds – both comparison and convenience – to make comparisons with the quality of existing provision: sometimes favourably, often unfavourably.
5. E-commerce or internet shopping is becoming an established part of many shoppers’ repertoires, creating both opportunities for and pressures on existing retail businesses.
6. In terms of consumer behaviour, demographic change has been the most obvious driver of retail change over the past twenty years, as retailers have responded to the shifts in demand associated with the associated lifestyles of different groups. London has a younger and more ethnically and culturally diverse population than elsewhere in the UK, and this has led to some obvious differences in retail supply. However, less concrete differences in attitudes and behaviour have been perhaps as important in driving changes in central London retailing. For example:
7. Fewer household shopping trips are being made nationally than two decades ago, but these trips tend to be longer. Multi-purpose trips with a shopping element have become more prevalent, in response both to changing lifestyles, and the attractions of a larger set of competing comparison goods centres, with a reduced set of more concentrated convenience shopping locations.
Exploring possible futures: the evolution of retailing in central London
High Impact certainties
High impact uncertainties
But we also identified a set of changes which were potentially of high impact as well as being uncertain in their scale and incidence. Leaving aside the effects of unforeseen ‘shocks’, such as terrorism or pandemic, three in particular stood out:
9. To maintain the relative role of central London in the retail pattern, and maintain its absolute retail health, will therefore require some combination of:
0. OBJECTIVES AND STUDY METHODOLOGY
0.1 This report explores the broader, contextual changes which, over the past twenty years, have affected the retail sector in central London. It also considers the ways in which the retail landscape may change over the next decade, in the implicit recognition that some of these changes will have transport implications.
0.2 This study does not seek to replicate the work being undertaken by GLA Economics. Whilst it will cross-refer to published aspects of that research as appropriate, the purpose of this report is to highlight some of the longer term trends in retail supply and consumer demand; the context which will have affected the way in which the retail sector is manifested within London – and central London in particular – and to consider how the retail landscape may change over the next decade. In examining a number of different possible futures for the sector, the study will highlight the issues that we feel should be of concern to retailers, developers and policy-makers.
0.3 The research was not explicitly designed as a further detailed analysis of the impact of congestion charging on retail businesses. There is a substantial existing literature in this area to which the reader is referred1.
0.4 The Oxford study was designed to provide a mix of qualitative and quantitative approaches to the brief, placing as much reliance on the professional judgements of experienced practitioners as on available quantitative analysis. The methodology employed comprises a mix of four elements:
• A critical synthesis of available conceptual and empirical analysis conducted on retailing in London and – more selectively – in the UK as a whole, over the past twenty years;
• A new analysis of shopping trip data in relation to London, including selected time-series analysis;
• Individual interviews with acknowledged experts and practitioners, with experience of retailing in London from a variety of perspectives. Quotations in the report, unless otherwise attributed, are drawn from these interviews; and
• A scenario development process, which drew on well established methodologies, involving an expert group drawn from the interviewees and representing the fields of retail property, planning, public and academic sectors as well as retailing itself.
Insights from the data analysis, the interviews and the scenario planning workshop are used to quantify and validate the conceptual research.
1. SETTING THE SCENE
1.1 Like any other human activity, changes in the scale, nature and scope of shopping trips undertaken by consumers cannot be seen in isolation. Understanding the ways in which trips to shopping locations like central London evolve is especially complex. They are of course the result of the dynamic interaction between the changing locational impact of consumer demand and the geographical distribution of supply. Whilst we can debate visible short-term changes and effects, it is often the longer term processes which prove, in the end, to be more significant. Writing about retailing in the London of the 1890s, one historian comments:
“The fulcrum of the revolution in retailing was one William Whiteley. The Sam Walton of his day, William Whiteley claimed to sell ‘anything to anybody combining dissimilar goods in one business and offering cur price goods for cash only’. .. The expansion of Whiteley’s emporium was greeted with unrest and effigy burning by shopkeepers in the streets of London.” (Rappaport, 2002)2
1.2 In understanding the evolution of retailing in central London, we must recognise the economic, social, regulatory and technological factors which determine the level and character of demand and the way in which the retail industry organises itself to meet that demand. These factors may range from lifestyle choices, to the level of competition within the retail market place and the ease of entry for firms, through to decisions about housing provision, the availability and price of broadband access affecting e-commerce usage, or government attitudes towards urban regeneration.
1.3 How do we make sense of this situation to provide an intelligible context for policy-makers and retail business decision-makers in London? One approach to this question lies not in examining shopper movements in isolation, but seeing them through the lens represented by the longer term, strategic changes that are occurring in retailing itself.
1.4 In a strategic sense, retailers are concerned with growing larger, faster and more profitably than their competitors, being different from their competitors, attracting and keeping customers, and gaining efficiencies in systems and procedures. At the same time they must do this within the constraints imposed upon them by the environment within which they operate. These strategies have locational consequences in both the short and the long term.
1.5 Marketers and economists used to regard retailers as mere ciphers in the distribution channel, working as intermediaries just to smooth the flow of goods and services between suppliers and consumers. However, it is now clear that in practice, the leading retailers are much more active agents in their own right. They actively monitor the consumer environment and their strategic positioning; they develop strategies accordingly; they have more power to forge their own destinies. Their locational decisions ‘on the ground’ embody their perceptions of and reactions to changes in the competitive, regulatory and consumer environments. The flows of people, goods and money that have been generated make the sector’s largest businesses some of the most influential corporate agents in the economies of developed countries. The UK Department of Trade & Industry’s 2005 Value Added Scoreboard showed that general retailing was the 6th largest sector in the UK by value added; with UK food retailers growing their value added by 10% in the past year alone.
1.6 Yet contemporary changes that are occurring in the retail environment appear to be increasing in pace and in their effects upon firms, formats and trading locations. Retailers have always had to evolve or die (as the well-acknowledged retail life cycle model suggests), but this pressure seems more compelling at present. Retailers’ strategies have to become more flexible. The growth of international competition, continuing concentration in the industry, the slowdown of domestic demand and the direct and indirect effects of the Internet and of e-commerce on browsing and buying behaviour will, we believe, lead to a substantially transformed sector over the next ten years.
1.7 Paradoxically, for a sector which employs 10% of the UK’s workforce and was the 6 largest sector in terms of the economy’s value added, retailing’s changing structure and resultant locational impact is somewhat under-researched by policy makers, other than in terms of the implications for development control. For example, the recent ODPM report on the State of the English Cities makes just 8 references to retailing in a 267 page report.th Regional spatial strategies undertaken on behalf of the regional assemblies have addressed retailing, but largely in relation to likely comparison goods floorspace needs within particular centres, rather than placing such discussion in the context of longer term structural change within the sector.
1.8 In respect of London, where retailing and wholesaling contributed some 12% of Gross Value Added to the London economy in 20023, research and analysis on retailing over the last two years has been somewhat more advanced. GLA Economics is in the process of undertaking a major study of retailing in London and has produced a series of working papers addressing particular issues facing the sector.4 It is clear that retailing in central London is seen as a key element in the successful growth of London’s economy:
“Growing population and prosperity mean that London might need around a million square metres of comparison goods floorspace. Nearly half of this will be required in central London. .. Of particular importance will be the need to sustain the West End as a world class retail, leisure and entertainment quarter, able to compete with places like l’Avenue Champs d’Elysées in Paris and East 57 Street in New York. This will require policies in place supporting the development and improvement of the area, deepening its distinct retail offer and addressing the transport and environmental factors that have held the area back in recent years.” (GLA, 2005)th
2. LOOKING BACK: historical explanations for retail change in central London
2.1 In this section, we identify and prioritise the broader features of structural change in retailing to have affected retailing in London over the past twenty years. What have emerged as the dominant formats and forms of trading? What has been their impact on the scale and nature of shopper trips over the longer term? We have identified a selection of trends, two of which are particularly related to aspects of retail demand and three to aspects of retail supply, that have shaped the sector over the past 20 years. It is important to recognise that the manifestations and spatial expressions of changes in retailing identified by these trends reflect underlying processes and drivers and that each trend is the expression of a complex system of relationships. The changes which we are particularly interested in tracking are those in:
2.2 For each set of trends, we summarise a series of general observations, before interpreting them through a “London lens” and considering some of the more significant drivers affecting the development of that set of trends.
a. Retail Structure
2.3 Much of the success of the UK economy between 1992 and 2004 can be attributed to the strong growth in household consumption. Retailers played their part in both stimulating and accommodating this upsurge in demand. But more than this:
“The retail industry has huge economic and social significance. It improves the standard of living and increases employment opportunities, it invests and innovates, is responsible for anchoring urban regeneration in many parts of the country.” (Department of Trade & Industry, 2004)5.
Over the last five years, the volume of retail sales has increased by 23%. Retailer concentration is increasing as the most successful retailers grow. This is driven by economies of scale in buying, operating costs, and in the transfer of best practice - between operating units and from experience in other countries. Internationally, retailers such as Tesco, Kingfisher, Dixons, Mosaic Fashions, Debenhams and Body Shop have created a growing physical presence in overseas markets. In London and the rest of the UK, H&M, Zara, IKEA, Aldi and many others have developed substantial presences.
2.4 The sector has traditionally been characterised statistically in terms of kinds of business (food, non-food and mixed retail businesses). This differentiation has become more difficult to sustain as some of the larger food retail businesses have extended their activities into non-food and consumer services, becoming in effect general merchandisers. More realistic differentiators are convenience vs. comparison or price vs. quality.
Table 2.1: Key business indicators for UK retailing
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