Intu losses widen as CVAs bite, launches new 'transformational' strategy
today Jul 31, 2019
UK shopping malls are under huge pressure at the moment as a wave of retailer failures and CVAs sees retail space lying empty or generating lower rents. Earlier this week Hammerson highlighted just how much this has affected it and on Wednesday it was rival Intu Properties’ turn.
The report for the first half of the year from the owner of The Trafford Centre, Lakeside, Metrocentre, Victoria Centre and St David’s talked of a “challenging” period. It suffered “further downward pressure on like-for-like net rental income and property values resulting from a higher level of administrations and CVAs as some retailers struggle to remain relevant in a multichannel world.”
But CEO Matthew Roberts said “while there are no quick fixes, I am confident that we can address [these challenges] head on.”
It has launched a “transformational five-year strategy” with the priority being to fix its balance sheet and to reshape the business. But Roberts added that “regardless of current sentiment, one thing is clear: the physical store is not dying, it is evolving. The right store in the right location still plays a vital role in retailers' multichannel strategies and we are starting to work with them as partners sharing the risks and rewards.”
It's clear the new strategy won’t just be about shops. “Our centres will transform as we turn them into thriving communities — places where people want to live, work and have fun, as well as shop,” Roberts said.
More of that later, but for now, the big news was the last six months' performance. With an occupancy rate of 95%, the company saw a 7.7% like-for-like net rental income fall, and a total drop of 17.9% to £205.2m.
Underlying earnings plunged 32.1% to £66.4m and it posted a loss of £830m, much wider than the £486m loss of a year ago. The value of the group’s shopping centres in the UK and Spain dropped by a massive £872.1m — or 9.6% like-for-like — to £8.4bn, although it said there’s “continued demand for top quality Spanish centres and strong income performance” there. It expects the overall decline to continue in the second half.
Back with that new strategy, in order to fix its finances, the company is cutting capital spending, not paying a dividend for now, and disposing of some properties.
Also key is its move to strengthen its centres and its relationships with brands. It will “identify, nurture and support leading brands; invest further in data and sharing the insight; develop new product and service propositions for our customers to reduce their costs, remove hassle and improve sales; and lead the way in modernising the lease structure, to include store-generated online sales.”
It will improve the visitor experience and dwell time with street food, experiential markets and paid-for experiences. Plus it’s focusing more on using its landbanks for residential, hotel and flexible working property rather than just retail.
But it remains committed to retail. “The right stores in the right locations still play a vital role,” it said. “Two statistics tell this story well. First, 85% of all retail transactions still touch a physical store. Second, recent research by CACI has shown that the presence of a physical store can double a retailer's online sales in that local catchment.”
Similar research also suggests that 78% of transactions will still touch a store in 2026, even with the overall percentage of online sales increasing from 20% to 30%. The growth in click & collect and online sales that have been researched in-store gives an overall compound annual growth rate in sales that touch a store of 3%.
And Intu said that if the overall number of stores in the UK declines over this period, then the productivity of the remaining stores will improve, “and this should be weighted towards the best retail and leisure destinations.”
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