News analysis: Is London retail set for a golden age?
A curious thing has been happening around Central London retail. Its flagship shopping neighbourhoods were the biggest sufferers during, and after the pandemic with footfall devastated and brands exiting as their expensive flagships proved uneconomical. But London is now bouncing back more strongly than ever expected.
This is despite the on-going abolition of the key tax-free shopping perk for the international tourists who were previously Central London’s life blood.
So what exactly is happening and why is appeal of the UK capital’s shopping neighbourhoods proving to be so strong?
Last week, the New West End Company (NWEC) and Colliers issued a report reaffirming that they expect the West End to achieve its historic turnover figure of £10 billion as soon as 2025. That was a surprise as they'd issued that prediction last autumn after the Liz Truss government had said it would reintroduce VAT-free shopping for tourists. But that decision was reversed very soon after and many assumed central London might continue to struggle.
Other news — such as Mulberry closing its Bond Street flagship, workers still not returning to offices in pre-pandemic numbers, and the proliferation of American candy stores still a blot on the Oxford Street landscape — all seemed to suggest that Central London would face massive challenges for at least the next few years.
But that’s not the case. Not that everything is perfect. It's undeniable that some tourists who are looking for VAT-free perks are visiting cities such as Paris and Milan, instead of London.
Yet there’s also a noticeable increase in tourist numbers visiting London. But what’s important is the type of tourist who’s returning and combined with local shoppers exhibiting similar spending patterns, it’s making a big difference.
Take the West End. Turnover here was £8 billion in 2022 – a 56% increase on 2021 (although still 11% below 2019 levels) — and spending outperformed footfall.
NWEC talked of “a new type of West End customer emerging post-pandemic, one that is visiting the district less frequently, but making the most of each visit by spending more”. And it said it’s “partly driven by the influx of high-spending overseas visitors, outperforming the expected rate of recovery anticipated at the end of 2022”.
It’s expected that the overall volume of international visitors will have fully recovered to pre-Covid levels by around mid 2023 to early 2024 so that’s even more good news.
The recovery is spurring a spate of openings. Some 21 international fashion and footwear brands opened debut London stores last year, according to figures from property consultant Savills.
That’s down from 27 in 2019 but is still strong. And Savills said premium fashion brands continue to dominate, with the luxury sector actually a little more active than in 2019. In fact, there were nine luxury new entrants, ahead of the six seen in 2019.
Grosvenor recently pointed out that the vacancy rate in its portfolio in Mayfair and Belgravia dropped to just 0.8% at the end of 2022. In 2022, 45 new brands opened across the neighbourhood and a further 24 brands renewed their tenancies.
Carnaby/Soho/Covent Garden landlords Shaftesbury and Capco have also pointed to buoyant demand for units and consumer spend in their combined areas.
And of course, the fact that units on prime streets can now be locked-in for rents 20-40% less than they were a few years ago is crucial too.
That’s even leading unexpected retailers — such as online pureplays — to set up shop in the heart of London.
“We're seeing more online-only fashion brands, looking more, seriously a physical space,” Savills’ head of retail research, Marie Hickey, told Fashionnetwork.com, citing the example of Manière de Voir. The digital retailer is taking 5,189 square feet of “best-in-class” retail space at 354 Oxford Street for its first flagship.
“That's quite a big statement in terms of where the unit is, and the size of the unit,” Hickey said.
More Central London openings that have happened or are to come, include Uniqlo/Theory, On, Marc Jacobs, Aesop, Gymshark, Armani Exchange, among others, with Regent Street being particularly popular. Meanwhile Oxford Street seems to be rebounding as a destination of choice, and Mulberry may have exited Bond Street, but there have been plenty of openings there, as well as heavy investment in store revamps. Even with Bond Street rental prices easing, it remains one of the world’s most expensive streets on which to take a store.
WHO NEEDS TO QUEUE?
That’s because of its appeal to the very wealthy who are unaffected by the cost-of-living crisis. And that fact underlines Central London’s appeal overall. Even visitors to its mass-market stores are less financially challenged than visitors to other areas. That has helped a budget retailers like Primark that has seen a marked recovery in its city centre estate recently.
Savills’ Marie Hickey, told us that “the fundamentals of London haven't changed a huge amount” post-pandemic and the company is seeing strong demand for properties in key areas.
While the mass-market is partly behind this, the real key to London’s recovery is its luxury skew.
The bounce-back in some areas is being fuelled by the type of consumer shopping in those districts.
Looking again at Bond Street, Hickey said that while VAT-free shopping for tourists is important and its reintroduction would boost retail, for many Bond Street stores, its absence isn’t a huge issue.
“Anecdotally, what we're hearing is that spend has been a lot stronger in the likes of Paris. But if you look at Bond Street spend for some of those luxury brands, it has been really strong, even with the fact that those international shoppers can't claim back the VAT. That's down to the fact that those types of shoppers would never claim back VAT anyway if they've got to fill out a form and queue at Heathrow.
“For some of them, it’s the currency, that’s the attraction, the fact that sterling is down, particularly against the dollar.”
She cited historical data from Global Blue for tax-free spend that shows while among Bond Street shoppers, the Chinese were the biggest group claiming back VAT, when it came to total international Bond Street spend, Chinese consumers weren't even in the top five. Key groups were the French, Japanese and Americans. “The French couldn't claim back VAT anyway,” Hickey said.
Clearly, such shoppers felt that those aforementioned London fundamentals were appealing enough to travel there anyway.
Those fundamentals are helping other areas in Central London too.
Hickey pointed to strength on “the King’s Road, Westbourne Grove, Marylebone High Street, those affluent neighbourhoods. The King’s Road has been very buoyant. Pre-Covid it was a good market, but it wasn't the most exciting and dynamic. Post-Covid it has benefited because of agile working and people who are in and around the local area more often.”
This shows that while London is heavily dependent on international money, domestic spend is also important and this is clearly recovering. Hickey added that it’s been helped by the Elizabeth Line opening that has boosted the size of London’s catchment area.
GOLDEN AGE AHEAD?
It all suggests that London is perhaps on the verge of a golden age of shopping where (maybe) the VAT-free perk is reintroduced and other retailer-friendly measures are brought in.
NWEC’s chief executive Dee Corsi continues to call for a return to tax-free shopping, as well as relaxing Sunday trading hours that would help push the city closer that golden age to “hugely amplify the value of every international visit to the West End and bring widespread benefits across the country”.
She cited a report compiled by Oxford Economics, saying that restoring tax-free shopping would benefit the Treasury by £350 million a year, bringing in an additional 1.6 million visitors who would spend an extra £2.1 billion.
And she feels that while the next two years “will be more challenging than previously forecast in the face of rising costs across the board, the West End has continued to prove its resilience in 2022 and we are still on track to hit £10 billion turnover in two years.”
The streets of London may never have been paved with gold, but if things continue to come together, it could feel like they are for retailers!
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