A Boots pharmacy on Oxford Street in London, the UK. Picture: SIMON DAWSON/BLOOMBERG
A Boots pharmacy on Oxford Street in London, the UK. Picture: SIMON DAWSON/BLOOMBERG

When the strongest players pull back from a market, that looks like a bad omen for the weaker peers left behind. But in UK retail, there are silver linings for the stragglers.

The iconic John Lewis Partnership last week said it would close eight shops including two big department stores, with the loss of up to 1,300 jobs. Walgreens Boots Alliance is cutting 4,000 jobs in its UK Boots business, including in the head office. It will also close 48 optician practices. The group was already shutting 200 Boots stores.

Further pain had been expected for Britain’s shopping malls and high streets amid the pandemic. Though some shoppers are returning, mostly to retail parks, June footfall was down 57% year on year, according to data provider Springboard.

But the latest retreats are especially significant. John Lewis has only 36 large department stores, a relatively small estate. It has benefited from owning Waitrose supermarkets, which have performed well during the pandemic. Meanwhile, some 40% of sales were already online before the Covid-19 crisis, thanks to early digital investment.

There is a question mark over whether John Lewis really needs to cull two major sites. Its Watford store, northwest of London, already had a rent-free deal with landlord Intu Properties. Likewise, an important anchor tenant such as John Lewis could have surely done a deal with Hammerson, the landlord of the Birmingham store, for better terms.

As for Boots, the chain has suffered from a slump in sales of high-margin beauty and fragrance products, but most of its stores remained open during the lockdown while the government forced the closure of non-essential shops.  

Other retailers have not enjoyed these advantages. Mid-market fashion looks particularly exposed. Marks & Spencer Group traditionally caters to an older demographic in its clothing and home furnishings business. Rising Covid-19 cases around the world may be making its customers even more reluctant to venture out. The group is already about halfway through closing 110 stores.

Billionaire Philip Green’s Arcadia Group also faces a fall in demand for clothing. It has some big sites in city centres, where consumers are particularly nervous about shopping.

But as the big names pull back, the tenants who remain enjoy a lessening of competition. Plus they gain some bargaining power over landlords. New Look Retail Group is among the firms in discussions about moving to more flexible rents. The shock of John Lewis closing two flagship stores could make property owners more acquiescent.

One player who can be expected to make the most of this environment is Mike Ashley. The retail entrepreneur owns a majority stake in Frasers, whose Sports Direct division is likely to have traded well through the pandemic, bolstered by online demand for home workout gear. With rival Debenhams and now John Lewis shrinking, that can only help Ashley’s bid to transform some of his House of Fraser department stores using his much-maligned “Harrods of the High Street” concept. And he’s not one to miss an opportunity to put pressure on landlords. In fact, it’s his speciality.

Bloomberg

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