UK Equities

A shift in the retail power balance

There seems to be no stopping the rise of online retail. Global online sales figures continue to soar as our appetite for on-screen shopping grows and grows. Over 2018, the percentage of sales made online passed the 8.8% mark globally – with the British consumer way ahead of the trend.

In the UK, 16% of all retail sales were made online last year. China (with 13.8%) came in second place and Norway (11.5%) third in the league of online shoppers, according to (1)

Many UK high street giants have been slain by customers who prefer to browse on-screen rather than in-store. And once powerful operators – like BHS and Toys R Us – have been unable to withstand the drop in footfall. The retailers who remain on the high street and in the out-of-town outlets, have had to shore up their businesses in the face of this changing landscape.

Given the pressure that ‘bricks and mortar’ stores are under, many landlords have adjusted their thinking when it comes to the traditional landlord/tenant model. The balance of power seems to be shifting, with a commercial landlord sometimes preferring to rent a property for nothing, or for a nominal sum, rather than have the liability of paying expensive business rates on an unoccupied property.

Meanwhile, growth in retail rents, which has been the trend for decades, finally looks set to stop, according to The Telegraph(2). Landlords will undoubtedly be affected and, should business rates also be forced to fall, local councils too will feel the chill wind of the retail store slowdown.

As a result of this new environment, WH Smith is one retailer that has achieved an average rent reduction of 30% across its estate over the past 12 months. For around 20 of its shops, the company has negotiated zero rent. According to CEO Stephen Clarke landlords have decided it is better to have a tenant in situ, paying business rates, even if rents are not being paid. (2)

The change from store shopping to online has thrown up many new obstacles for sellers, including the issue of goods being sent back as returns. According to the Centre for Economics and Business Research, around 25% of goods bought online in the UK are returned. Of the estimated £19 billion worth of products sold online in the 2018 Christmas period, £4.86 billion of them may have been returned.

Once a customer sends an item back – usually with the seller paying for postage – it has to be cleaned and repackaged for re-sale. This can be too costly a process for low-value items, with the result that only an estimated 50% of items returned go back on sale. Many items are sent back to the manufacturers, others go to discount sellers and wholesalers and, if the cost of putting items back up for sale is too high, they could well be binned. (3)

As always, with seismic change, there will be winners and losers. For transport and delivery companies, the rise of the online shopper, who buys products and then returns them, is very good news. Eddie Stobart Logistics (ESL), for example, appears to be well positioned to deal with this expanding demand for ‘reverse logistics’ (the process of dealing with returned goods). Through its iForce business, ESL serves some of the UK’s biggest brand names to help them maximise the potential of multi-channel retailing through supply chain and retail logistics services.

Despite the well-publicised difficulties in the retail industry, our long-term holding, the home furnishings company Dunelm, appears to be coping well with the changing habits of the nation’s shoppers. Dunelm, which began as a market stall in 1979, has benefited from a focused management team that has carried out a cash-generating strategy of self-help and market-share gains. A multi-year discipline approach to their property portfolio, in terms of location and rent structure, remains a differentiating feature of this business.




[1] International retail stats:

[2] WH Smith rent free:

[3] Cost of returns online:

[4] Eddie Stobart:


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