Retail

The Trafford Centre - click for a bigger image

Evolution in Retail

The central irony of capitalism is that by far the easiest way to become rich is to do something which improves the lives of other people. I know! Who would have thought it? Annoying, but if that is the only way I guess we just have to put up with it.

Here is the progression in retail:

Barter

People wander about and swap stuff face to face

Money

A medium of exchange becomes prevalent such as cowrie shells, lumps of gold or silver and eventually coins

Markets Mark 1

People who wish to buy or sell gravitate to areas where they stand around in the open air and haggle

Markets Mark 2

Stalls are set up in the open air and people buy or rent them as a base

Markets Mark 3

Stalls are set up inside a closed in area as protection against the weather and people buy or rent them

Shops

Solid buildings made of brick or stone are built, each one of which specialises - butchers, bakers and candlestick makers

Paper Money

Paper Money was brought to Western Europe and brilliantly exploited by John Law who at one point was the wealthiest man in France. Ladies of Quality would offer him their bodies in return for being allowed to invest in his ventures (I don't know about you but I always find it tricky when this happens).

This meant you could go shopping without having to lug around lumps of gold and silver but the main effect was to expand credit and thereby promote economic activity ie the shops got busier

Department Stores

Huge shops are built like Selfridges where you can buy virtually anything under one roof - the air is one of opulence and people are happy to pay more for the privilege of shopping in comfort. For example, Harry Gordon Selfridge. Or John Lewis. Or Marks & Spencer.

Everything is Sixpence

Woolworth was the original "pound shop" in the sense that everything cost the same - sixpence (2.5p). The irony is that they were put out of business partly by the Pound Shops but mainly by their own incompetence. F W Woolworth.

Mail Order

Thanks to new innovations like the Royal Mail, you can receive a printed catalogue from through the post with hundreds of pages of stuff for sale. You send off your money and the stuff arrives a couple of days later in a van. For example Littlewoods or Freeman.

Mail Order by Bloke

Places like Argos where you order from a catalogue in a big warehouse and instead of the Royal Mail bringing it two days later, a bloke goes out the back and gets it for you. Argos founded by Richard Tompkins

Supermarkets

Huge shops where you can buy a vast array of stuff (mostly food) cheaply. For example Jack Cohen who founded Tesco.

Discount Supermarkets

Medium sized shops are built where you can buy a limited array of stuff (mostly food) very cheaply. For example Albert Gubay of Kwik Save or the Albrechts of ALDI

Shopping Centres

Huge buildings like the Trafford Centre are built where you can park for free and spend all day in Arabian Nights luxury eating, drinking and buying stuff to your heart's content. John Whittaker of the Trafford Centre.

Retail Parks

A collection of huge specialised shops like B & Q, Currys, PC World, ASDA and so on all clustered in one location which you can drive to if you have a car. If you don't have a car you can go on the bus but probably don't bother. Lots of Americans!

Internet Mark 1

This is like a glorified mail order catalogue - you look at stuff on a screen instead of on a sheet of paper and you place an order and it arrives a couple of days later in a van. Jeff Bezos of Amazon!

Internet Mark 2

You point your phone at a price tag in a shop and a search engine finds the item online as cheaply as possible and places an order without you having to do anything! It arrives a couple of days later in a van. Meanwhile the shop keeper is going bust as he is effectively running a free showroom. Jeff Bezos of Amazon!

Internet Mark 3

You point your phone at a price tag ... and it arrives minutes later by drone (but see Drones above) at an agreed delivery point specified by what 3 words. Every ten foot square in the world is uniquely specified by three English words - so your desk might be at "Plastic Clock Trousers" - my desk is at "Irritating Universal Expert". Jeff Bezos of Amazon!

The drone enters into a dialogue with your phone and then releases the item into your hands by lowering it on a length of cable with an electric release mechanism. When it is done the drone flies off and sits on top of a lamp post recharging until its next job - like a buzzard or a Mexican bandit in a Clint Eastwood film.

But how do you stop them delivering bombs or drugs? Or being controlled by an enemy bent on your destruction? It is often social considerations that derail progress. Politicians may decide (quite reasonably) that the risk exceeds the reward.

Each of the above innovations has created seriously wealthy people - Jeff Bezos of Amazon being the latest - maybe you can be the next? Or even better, maybe I can be the next? This is NEW wealth - you have created a company out of thin air which is immensely valuable.

Creative Destruction

Each of the above steps succeeded because it made the customers happier than the previous system. They obtained goods or services which were either better, cheaper or quicker. Ideally, all three.

So the customers are happy, the provider is happy because he now owns a very valuable business and it's a win-win situation? Well, not totally because there are victims here - the people who got rich from the previous innovation tend to suffer as they struggle to hold onto their shrinking franchise. Well, I think we can all agree that that is a very sad situation - instead of being the world's richest man you are suddenly only at number 15. But life goes on.

This process is known as creative destruction - the old system is destroyed and a new one takes its place. The result right now is that the centre of Burslem, Stoke on Trent is a desolate ruin - rows of derelict shops and no people.

Death by Sixty Cuts

Do these innovations have an immediate impact? Well, some do but mostly the new and exciting innovations ("wow - cowrie shells are so cool") tend to take much longer to take over the market place than you would expect. That is because most people are extremely set in their ways - once they master barter, they don't want to have to cope with the new, exciting cowrie shell system - it is confusing and annoying.

The innovation obtains relentless market share as the old farts die off. They embrace the new system at the age of 15 and then die, still using the old system, at 75 and over a period of about 60 years the old sytem is destroyed and replaced.

The motor car arrived in about 1900 but in 1941 when the National Socialists invaded Russia, their main means of transport was the horse and cart. Yes, really. And in 1955 when I used to go to grammar school on the number 47 bus in Hull, horses and carts were still very common. Especially milkmen, brewers and rag and bone men. I can still hear the latter in my head - "OLE-DIE-ON OLE-DIE-ON OLE-DIE-ON". But by 1960 they had become pretty rare. The motor car had won - but it took 60 years.

Haircuts and Itchy Feet

Conventional shops are being relentlessly destroyed by the internet at the rate of about 1.5% pa. But hang on a minute, what about services? Exactly, you can't get your hair cut over the internet. And people still have the need and desire to get out of the house and wander about.

Does that mean that all those shops selling stuff are going to be replaced by shops offering services? Well, if you had asked me a few months ago I would have said "yes they are - problem solved". My local town Altrincham hit rock bottom about three years ago - the usual rows of To Let signs. It had taken a triple whammy - firstly from the Trafford Centre (see photo above) and secondly the Altrincham Retail Park just up the road. The final straw was the internet.

But suddenly Altrincham town centre is thriving - how come? Well, one of the huge property funds spent about twenty million pounds building posh shops in the pedestrianised area and the Local Authority also spent a fortune making the major through route more attractive. There are lots of hairdressers, nail bars, restaurants, bars and cafes but a surprising number of small shops selling stuff.

Saved by Services?

Helped but not saved, unfortunately. Let's take an average punter, Mrs Bloggs. Twenty years ago after she had coped with her rent, food and other essentials she might have had £100 (the exact figure does not matter) left per week to spend in the shops within a ten mile radius of her house. But now, she spends on average £20 of that buying stuff over the internet. It follows from this, as surely as night follows day, that she now only has £80 to spend in the shops within a ten mile radius of her house. Whether she spends it on stuff or services does not matter she is spending less there every year.

THE PUBLIC ARE SPENDING AN EVER DECLINING AMOUNT OF MONEY IN PHYSICAL SHOPS BECAUSE OF THE INTERNET

As explained above it is not just that people spend more every year over the internet it is that people who spend nothing or very little (ie old people) die off and are replaced by young people who spend a much higher proportion. So the amount spent in the shops endlessly shrinks and will continue to shrink for many years to come

Margins

Not only does the internet take away money from the high street, it also hits margins. The spend of £100 from Mrs Bloggs twenty years ago was probably at quite high margins - if you wanted a toaster you paid what the local shop keeper wanted. These days, he has to keep his prices within reason if he is to stand any chance of survival. So £100 at decent margins has been replaced by £80 at lower margins and in a few years time that will be £70 at even lower margins

My Predictions

The future is a brick wall six inches in front of your face but if I had to guess I would say the following:

Local Convenience Shops

The local shop selling convenience food may well be hit by Internet Mark 3 (Drones - see above). The Co-op half a mile from me is always busy. They sell awesome bread and have an ATM, postbox, parking and litter bins. Very handy. But what if a drone could bring me awesome bread in 5 minutes and deliver parcels for me? It just arrives and takes my parcel to a central depot for delivery onwards or just flies direct if it is local.

A drone costing £1,000 and written off over a year can deliver and collect stuff for about 20p per hour - say £1 allowing for other costs. A fraction of the cost of a man and his van - which must cost at least £25 per hour.

If drones are not legal then the corner shop may well survive - kept busy by disorganised people and the lonely.

Small town centres

Small town centres which are surrounded by relatively affluent people or relatively poor but energetic people will recover and many of the shops will become hairdressers, nail bars, restaurants, cafes, takeaways and the occasional real shops selling actual stuff!

Small towns surrounded by relatively poor people with no trading tradition are probably doomed for now but may end up having (God forbid) Government money (ie money from you and me - mostly me) thrown at them to turn them into housing of some sort.

Small clumps of shops on corners

Small clumps of shops on the corners in residential areas will (and already have) turn into takeaways, cafes and hairdressers. I randomly looked at five shops on a corner in Birmingham and there were a hairdresser, two takeaways and two ethnic restaurants.

Small Shopping Centres

There is a small shopping centre in Kirkcaldy that was sold for £10m in 2005. Last year it sold at auction for about £300,000. I should have bought it really but I was expecting to get it for about £50,000 - better luck next time.

This is an extreme case but the pattern is repeating itself all over the country. The costs of running a mall endlessly increase and the revenue from rents endlessly decrease. Not to mention empty rates as tenants give up the struggle. This process continues until the mall disappears up its own balance sheet.

In other words they are doomed

The Trafford Centre

This deserves a section of its own (see photo at the top). The Trafford Centre is frigging awesome and a tribute to John Whittaker's amazing energy. It is my destination of choice on a Sunday afternoon when it is pissing down with rain in Manchester (ie most of the time). The ambience is Arabian Nights on steroids. The palm trees have mostly gone but looking around you could easily be in Saudi Arabia - probably fewer white people than in Saudi Arabia but you get the idea.

But are these people wandering about actually buying anything? Sure, there is a queue a mile long in Cafe Nero (that's me at the back) but as I look around and calculate, only one person in ten seems to be carrying a bag of purchases. The rest are sheltering from the rain like me - free parking, free luxury toilets, free heating, lighting and cleaning. You can hang around there all day and spend absolutely nothing - what's not to like?

Meanwhile the costs are inexorably rising and the rents are inexorably decreasing - like the share price of the owners of the mall, Intu, which has dropped from £10 to 40p. Ouch. Even worse, it is said that John has borrowed against his shares in Intu (he owns a huge chunk). To borrow £300m against shares worth £3bn looks safe enough but now ... scary.

What will happen? Intu will doubtless go bust in due course but what will happen to the bricks and mortar? Or rather marble and statues? Last week I told a colleague of mine in an email that it will be boarded up by 2030 but I think that was a bit pessimistic on reflection.

If self drive cars become legal and stay legal (unlikely in my opinion - see Self Drive Vehicles above) then they could build thousands of apartments on the car parks. Residential land for apartments in Manchester is going for incredible prices. Bits of land I should have bought a few years back for five grand are now going for millions.

Meanwhile the shops are still occupied but that proves nothing - where are the rental values going? As Simon Wolfson of Next said:

“In terms of Retail stores, the situation is not quite as one way as it might at first appear. Fifty percent of on-line orders are delivered to our stores. For some customers, home delivery is inconvenient; others prefer to avoid the cost of home deliveries. Returns are a central part of our on-line service and 82 per cent of all returns come back through our stores. It is counter-intuitive, but the fact is stores have now become an important part of our on-line service. The rents we are paying for our properties are way out of kilter with the value they provide as collection and returns centres, so if stores are to remain open, retail rents must fall and fortunately, that is exactly what they are doing."

I could not have put it better myself - so boarded up by 2035 then.

Retail Parks

I sold one of these last year for £7.6m and at the time I agonised endlessly. Do I regret it? The short answer is no. Would I buy it back at auction? Yes I would - for £5m - maybe slightly more if the sun is shining.

The situation is not quite as desperate as Shopping Centres because the running costs are negligible - you just need to keep it tidy via a modest service charge. But the rents are going in one direction - down. Buildings let at £13 psf are having rent renewals at £9 psf up North. And how long before they are paying £5 psf and people are turning them into warehouses and industrial buildings?

Not quite there yet but watch this space.

Conclusion

Bob Cory

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Modified on 18/07/2025 at 11:13:40 by ℗ Bob Cory