Location matters most in recession

As much as £4.1 billion of annual sales are up for grabs as a result of the many retail failures in the market, which represents a major opportunity for those merchants that most deftly play the consolidation game.

By Glynn Davis

At a recent event in London - 'Riding the Retail Recession' - location specialist CACI outlined how important it is for retailers to employ retail location strategies in order that they can play a successful part in the current consolidation and avoid following the many merchants that have gone into administration.

Nielsen Harrap, principal consultant at CACI, says location strategy is fundamental to retail success because without knowing how locations interact with each other it is difficult to understand the mix of stores required for the best overall effect on trading.

Retailers need to consider these issues when both adding stores and undertaking closures because, Harrap says, simply closing those stores with the lowest turnovers could be a mistake.

Using CACI analysis retailers are able to look at how industry trends are affecting their store base and how future events could impact on each unit. One current trend is the "drying up of funding for new retail schemes", and with the use of CACI 'Centre Futures' it is possible to see how the UK's retail centres are being affected by this.

It has found 10 million sq ft of new space has either been delayed or cancelled, with the East of England affected the worst as 36 per cent of new space is now deemed to be delayed or lost. The least affected is the East Midlands and London as these areas have had the most new developments completed recently.

Worryingly, according to Harrap, is the fact that 45 per cent of delayed or lost space comes from "average or lower-than-average" centres whose shoppers are maybe the most affected by the recession. "But these centres are crying out for new space or upgrades...and leaving towns that are desperate for space will leave tumbleweed town centres," says Harrap.

Forecasting into the future, Harrap highlighted how CACI has been able to predict those areas that will be most affected and those least affected by the shrinking economy. This is based on the view that a five per cent drop in consumer spending is forecast.

Using income elasticity analysis, CACI initially looked at the percentage increase in spending on goods, based on an increase in income - or a decrease in this case. The least affected product categories were found to be food, household appliances, household textiles and clothing, while the most effected are audio visual equipment, personal care and other durables.

CACI was able to use this and combine it with the mix of retailers that are located in each of the UK's 4,200 retail centres to work out the susceptibility of each one to the downturn. But since consumers are affected in different ways - with the affluent able to trade down while the less well off might have to cease buying certain products altogether - the mix of shoppers that frequent each of the centres must also be overlaid on the analysis to give the full picture.

This comes up with a list of the most-recession proof markets headed by Richmond in London, Epsom, Kingston-upon-Thames, Woking and Guildford. In contrast, it finds the least recession-proof markets are Stoke-on-Trent, Scarborough, Hull, Grimsby and Bradford.

The conclusion is that London and the South East is "weathering the storm" but if consumer spending drops more than the forecast five per cent then Harrap says these areas will then be more affected.

"Being able to understand the market and respond is vital. There are opportunities to ride out the recession and gains can be made by understanding shopper behaviour and by using this critical time to look at location strategy," he suggests.