Financially troubled retailers have been closing more than two in five stores in the UK as the high street comes under increased pressure, according to a new report issued by PricewaterhouseCoopers (PwC) on Friday. PwC examined the administration announcements of 22 troubled retailers and found that on average they were proposing to close 43% of their stores. This means that if just 10% of national retailers get into financial difficulty in 2009, then approximately an additional 4,400 stores could come onto the market. Previously, a similar exercise was carried out in October 2007, May and October 2008 when increases of 27%, 36% and 38% were recorded.
Financially troubled retailers have been closing more than two in five stores in the UK as the high street comes under increased pressure, according to a new report issued by PricewaterhouseCoopers (PwC) on Friday. PwC examined the administration announcements of 22 troubled retailers and found that on average they were proposing to close 43% of their stores. This means that if just 10% of national retailers get into financial difficulty in 2009, then approximately an additional 4,400 stores could come onto the market. Previously, a similar exercise was carried out in October 2007, May and October 2008 when increases of 27%, 36% and 38% were recorded.
Barry Gilbertson, corporate restructuring partner specialising in real estate at PwC, said: 'Trying to calculate the financial effect of these vacancies is also quite complex, but if the average rent paid to lease a high-street store or shopping centre unit was to be, say, £160,000 per annum then the rental lost to UK landlords just from these 4,400 stores would be around £700 mln a year.'
PwC is forecasting that retailers will be able to obtain rental cuts as more companies in the sector run into financial trouble. On Friday morning, the Office for National Statistics reported a decline in UK retail sales of 0.8% in December, the biggest fall since records began in 1986.
'Landlords may even be prepared to waive rent altogether, provided that the tenant stays in occupation and, at least, pays the service charge, insurance and local authority rates,' said Gilbertson.
PwC updated its analysis following a spate of insolvencies of well-known retailers in 2008, listing at least 38 insolvencies, or confidential restructurings by the end of December 2008. There was data for 22 of these retailers, who had previously traded from 3,642 stores. They had to jettison 1,553 stores, equivalent to 43% of the total portfolio. PwC then extrapolated this research across a range of national retailers to measure the impact of the changing shopping environment.
There are enough shopping centres in the UK development pipeline to open seven centres the size of Bluewater - which is one of the largest in Europe. The retail market has already seen the openings, in 2008, of Liverpool One, Cabot Circus in Bristol and, most recently, Westfield, in West London.
Gilbertson said: 'When all this new retail space is added to our predicted store closures coming also onto the market, the downward pressure on retail rental levels increases even further. For tenants, this pressure should mean cheaper rents, but for landlords life will be even tougher, as some tenants go out of business and other tenants push hard for lower or deferred rental payments.'
