Media hype about carnage on the high street may be overplayed, but at GA Europe we do believe that the UK retail sector is near the start of an extended period of fundamental rebalancing. We think that we’ll see the withdrawal of approximately 10% - 12% of non-food capacity over the next three to five years – a mix of healthy retailer store portfolio rationalisation and distressed retail shake-out. So far this year, we estimate some 3.5% of UK non-food retail capacity has been withdrawn from the market although the DIY sector accounts for over 50% of this figure with the demise of Focus DIY.
Whilst the pace and shape of restructuring will vary considerably by sector, it’s pretty clear that the most exposed segments of the market are: other housing related sectors, discretionary purchases, particularly the fragmented clothing space (value and middle-market), and what we call ‘structural’ ie those sectors where the internet has permanently changed the rules of engagement, such as entertainment and electricals. The sustained weak macro-economic climate, coupled with ongoing changes in the way consumers shop, demands this ‘once in a generation’ clean-up, followed by an uncompromising focus on turnaround and repositioning. Although the next few years will be a white-knuckle ride for many retailers, those left standing should be well placed to capitalise on tomorrow’s growth.