Only a year ago Retail Rocks 2013 Stairway to Heaven or Road to - - PowerPoint PPT Presentation

Only a year ago…

Retail Rocks – 2013 – “Stairway to Heaven or Road to Hell?”

Great scepticism about secondary assets and especially retail Panellists and speakers concluded:

• Markets always over-correct.
• Timing is absolutely right
• “We certainly see buy-side opportunities… in conjunction with greater market stability / rebased rents and yields.”

James Watson, BCL June 24th – Ellandi & Tristan acquired Folkestone 9% NIY

A lot can happen in a year at Ellandi…

New Team Members

A lot can happen in a year at Ellandi…

New Partners

A lot can happen in a year at Ellandi…

Powerful Partnerships

A lot can happen in a year at Ellandi…

New Schemes

Ell llandi Portf tfolio

Current Portfolio Community SC’s 11 GAV £285m NOI £25.3m IRR 22% RoE 1.9 x

• Av. Cash on Cash

14.5% Av LTV 57%

A lot can happen in a year at Ellandi…

New Schemes New Ideas

A lot can happen in a year at Ellandi…

Same Old Fashioned Values

• Polarisation of retail – winners are the top destinations and local convenience shopping
• UK consumer confidence at its highest in seven years. 75% of the growth over the last 11 years expected in the next 4

years

• Significant population growth and income growth forecast for the UK. Translates to increased retail spending
• Ageing population are affluent, shop closer to home and are better connected to local community
• Fastest growing retailers are positioned towards the local and discount sectors
• Click and collect likely to evolve as dominant internet fulfilment route – relies on local store presence

2,600 5,793 6,536 944 2,469 3,951 2,500 204 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2007 2008 2009 2010 2011 2012 2013 2014 (to March)

Stores Affected by Administration

What do does th the fu futu ture hold?

COMMUNITY SHOPPING CENTRES ARE HOME TO THE SUCCESSFUL RETAILERS

Return to a Traditional Investment Hypothesis

• UK retail sector has reached the bottom. Stabilisation is evident in both investment and occupational markets
• Sector poised to benefit from improving UK economy and consumer sentiment
• Yet, not all assets have the same prospects - Ellandi view Community rather than Comparison
• Community Shopping Centres play to the strengths of the discount & convenience sectors, the growth segment of UK

retail

• With good portfolio construction and expert asset management Investors stand to benefit from rental growth, asset

management gains and cyclical yield tightening

Why Now?

1.25% 0.75% 0.60% 0.90% 1.25% 2.40% 2.50% 2.00% 3.50% 4.25% 3.50% 1.89% (3.45) (2.54) (5.27) (6.27) (28.54) (22.45) (20.09) (28.72) (28.72) (19.09) (5.50) (30.00) (25.00) (20.00) (15.00) (10.00) (5.00)

• 0.00%

0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Yield Gap Long Run Average Consumer Confidence

Mark Robinson – Investment Director

The future of shopping?

The In Inte ternet t

“Can the Internet Save the High Street”

Panellists

For us it is:

• Preferably the only shopping centre in the town
• Is the prime retail pitch
• Contains 30% of the retail footprint
• Dominates the 10/15 minute drive time catchment
• Must have a centre management team
• The potential to re-invigorate wider town with complementary uses

What is is a Community Shopping Centre

Sta tat t of f th the Day – The Futures Bett tter Valu lue

Shopping Centres

At the heart of their communities

Market Plac lace Kett ttering

Meet and drink

Council Off ffices St t Austell

Council offices, one stop shop and library

Town centres, a place to do business

Regus Express

The future of retail 3D Printing?

Micro Manufatcuring

Our people are the key

Communities are re Made Up p of f People

“Shopping Centres at the Heart of Communities”

Panellists

ELLANDI’S 3RD ANNUAL RETAIL CONFERENCE

THE INTERNET: A SIDE SHOW OF A SIDE SHOW?

19th June 2014

2

ONLINE EATS BRICKS & MORTAR SHOPPING…

[Marc] ‘Andreessen predicts the death of traditional retail. Yes: absolute death’, [by 2020]

Pando Daily January 30, 2013

3

• 1872 Aaron Montgomery Ward, the first mass market mail order
• perator, predicts the end of store shopping
• 1900 John Elfrith Watkins predicts that shopping in the future will

be delivered by pneumatic tube

• 1966 Time Magazine predicts that ‘remote shopping will flop’
• 1977 Bob Circosta presents first TV shopping programme; end of

store retailing predicted

• 1998 Webvan predicted ‘to dominate grocery retailing’
• 1999 Thomas Friedman predicts the demise of Amazon
• 2007 Steve Balmer, Microsoft: ‘iPhone has no chance’
• 2013 Marc ‘Andreessen predicts the death of traditional retail.

Yes: absolute death’ by 2020 (Pando Daily January 30, 2013)

BEFORE DUMPING YOUR GROCERY SHARES…

We are spectacularly bad at predicting technology impact

4

A very strong proclivity to grossly exaggerate…

ALSO USELESS AT PREDICTING ONLINE SALES…

10.37

City analysts, retail consultants, property consultants, academics, data publishers, trade bodies, internet promoters…

LOW-HANGING FRUIT – THE EASY INTERNET WINS

Where the internet is the fulfilment channel

• 1. Electronically transferable services

(finance, travel agency, etc.)

• 2. Electronically transferable goods

(music, video, software, etc.)

LOW-HANGING FRUIT – THE EASY INTERNET WINS

Where the internet is the fulfilment channel

• 1. Electronically transferable services

(finance, travel agency, etc.)

• 2. Electronically transferable goods

(music, video, software, etc.)

Where home delivery and click & collect is the fulfilment channel

• 1. Non-store sales

(mail order, TV shopping, store orders etc.)

• 2. Branded commodities

(electricals mostly) – price comparison led

• 3. Groceries

WHERE INTERNET SALES HAVE COME FROM

15.29 37.32 47.39 Grocery Non-Food Traditional Non-Store Channels

Source: ONS (2013)

Transfer of transaction point…sometimes fulfilment point as well

Logistical Cost Barrier Low Hanging Fruit Downturn 18.0 28.5 25.4 30.9 32.5 33.5 25.4 16.0 16.4 15.0 14.5 13.1 10.8 9.2 8.2 7.3 4.1 2.5 3.3 0.8 2.7 4.0 2.4 1.3 1.2 1.6 1.3 1.5 2.4 2.9 2.5 2.9 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total Online Growth Total Retail Growth

Source: Conlumino

Tangible goods markets are a more difficult nut to crack

RATE OF INTERNET SALES GROWTH DECLINING

Initial easy-win Electronically transferable and mail order transfer growth phase Tangible goods growth phase Heavy logistics cost investment Margin diluting

• What is the internet doing to space demand?
• What proportion of online sales will be diverted from stores?

THE QUESTION

% of consumers ever used (online respondents)

MULTI-CHANNEL FULFILMENT 2009-2014 CHANGE

• 5

5 10 15 20 25

Deliver to home Deliver to neighbours Deliver to work Click and collect (delivery point) Click and collect (store)

Source: Cunlumino Per Cent

Current split

ONLINE SALES 2013

87.83%

10.37% 1.80%

Retail Sales 2013

Direct store sales Online Traditional Non-Store

Source: ONS

Because of home delivery logistical costs…

STORE DEPENDENCY

83.30%

5.25% 5.10% 6.35%

Retail Sales 2020

Direct store sales Click & Collect Showrooming Non-Store

Source: ONS, Conlumino

Store dependent Non-store Mail order, TV shopping, store ordering pure-play online (ASOS, OCADO etc), non-store click and collect etc

Store sales; mobiles in-store; click and collect; in-store orders

Rate of growth determined by rate of investment…

TOP 50 GLOBAL CHAINS: INVESTMENT INTENTIONS

Source: CBRE

• What is the internet doing to space demand?
• What proportion of online sales will be diverted from stores?
• So why is click and collect winning out over home delivery?

THE QUESTION

Difficult to claw back home delivery costs from consumers

THE FLY IN THE OINTMENT

Normal shop Single trip Customer pays for trip and pick costs Home delivery Multiple trips and multiple ‘pick-costs’

Currently heavily subsidised by store retailers

‘Many retailers believe online is still not making money for a lot of

• companies. The executive director of one retail group remarks: “I believe that

very few retailers are making serious money from online no matter what they say.” A home products retailer agrees: “I think most of them are losing money and at the end of the day that is not a good thing. But retailers are paranoid about losing sales to competitors online and they feel they have to have an

• nline offer to compete even if it is not profitable. But reality will kick in
• eventually. I think a lot of those companies will crash. The bubble will burst.”

...other retailers share the view that online is not making money for many retailers...(but) they still believe that it can serve as a business function – and now a prerequisite one – and not a profit centre. The chief executive of a supermarket group still defines online channels as “investment engines not

profit generators in themselves”.

WITH INVESTMENT COMES COST…

Internet-related margin dilution is now an industry-wide problem

Source: Retail Week Supplement 2013

Not as easy as it looks…

AND JLP

“Convenience in particular is becoming more important to customers because they don’t want to use their cars. But delivery has to be paid for. The reality is that retailers will find it increasingly expensive to deliver that experience, whether that is because demand is not sustained at the same level or because of the continued low growth of the UK economy”.

JLP Commercial Director, Andrea O’Donnell

IN_retail Spring 2012

Somebody has to pay for service enhancement costs…

THE MARGIN DILUTION PROBLEM

Tesco 22nd April 2014

• ‘Multi-channel’ does not increase the size of the retail cake

THE MARGIN DILUTION PROBLEM

• ‘Multi-channel’ does not increase the size of the retail cake
• It is a service enhancement, a cost: somebody – retailer or

consumer – has to pay

THE MARGIN DILUTION PROBLEM

• ‘Multi-channel’ does not increase the size of the retail cake
• It is a service enhancement, a cost: somebody – retailer or

consumer – has to pay

• Many store retailers are currently subsidising multi-channel to

maintain/increase market share

THE MARGIN DILUTION PROBLEM

• ‘Multi-channel’ does not increase the size of the retail cake
• It is a service enhancement, a cost: somebody – retailer or

consumer – has to pay

• Many store retailers are currently subsidising multi-channel to

maintain/increase market share

• The potential sector-wide logistical and marketing investment

requirement going forward is huge; it is also unavoidable

THE MARGIN DILUTION PROBLEM

• ‘Multi-channel’ does not increase the size of the retail cake
• It is a service enhancement, a cost: somebody – retailer or

consumer – has to pay

• Many store retailers are currently subsidising multi-channel to

maintain/increase market share

• The potential sector-wide logistical and marketing investment

requirement going forward is huge; it is also unavoidable

• Except for discounters, mass-market store retailers that do not

invest in multi-channel risk losing market share

THE MARGIN DILUTION PROBLEM

• ‘Multi-channel’ does not increase the size of the retail cake
• It is a service enhancement, a cost: somebody – retailer or

consumer – has to pay

• Many store retailers are currently subsidising multi-channel to

maintain/increase market share

• The potential sector-wide logistical and marketing investment

requirement going forward is huge; it is also unavoidable

• Except for discounters, mass-market store retailers that do not

invest in multi-channel risk losing market share

• The hope is that, over the longer term, savings from logistical

advances will dilute multi-channel costs, reducing margin dilution

THE MARGIN DILUTION PROBLEM

• ‘Multi-channel’ does not increase the size of the retail cake
• It is a service enhancement, a cost: somebody – retailer or

consumer – has to pay

• Many store retailers are currently subsidising multi-channel to

maintain/increase market share

• The potential sector-wide logistical and marketing investment

requirement going forward is huge; it is also unavoidable

• Except for discounters, mass-market store retailers that do not

invest in multi-channel risk losing market share

• The hope is that, over the longer term, savings from logistical

advances will dilute multi-channel costs, reducing margin dilution

• But it is price comparison that is the real game-changer because it

is heavily deflationary: great for consumers, less so for retailers

THE MARGIN DILUTION PROBLEM

• What is the internet doing to space demand?
• What proportion of online sales will be diverted from stores?
• So why is click and collect winning out over home delivery?
• But what about ‘dark stores’ and logistical investment?

THE QUESTION

TESCO BRANCH NETWORK – DARK STORES

Enfield Croydon Aylesford Greenford Erith Crawley TESCO DARK STORES

Source: Retail Locations

Tesco currently achieves 47% online market share

• Network maintenance
• Acquisition/disposal
• An aging portfolio
• Merchandising
• Different formats/sizes
• New technology

BACK TO THE FUTURE…

1900s grocery stores walk-in shopping; butchers, bakers, fishmongers etc 1950s home delivery about food basics 1960s supermarkets all about the car; range broadening 1970s to-date superstores/ hypermarkets; more range broadening;

• ne-stop

shopping; have not cracked hypermarket

• ffers yet

still evolving 1990s to date strengthening convenience store offers; mopping-up remaining market share 2000s home delivery about convenience and market share protection

29

Town Centre vs Out-of-Town

GROCERY DEVELOPMENT PIPELINE

5 10 15 20 25 30 35 40 45 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 million sq ft Town Centre Out-of-Town

Source: CBRE; PMA

Discounting on a roll?

MAIN GROCERY MARKET SHARES

58.7 81.4 78.6 21.2 0.0 2.1 8.3 18.0 10.1 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Tesco, Asda, Morrisons, Sainsburys, Waitrose Somerfield, Kwik Save, Safeway, Netto Aldi, Lidl Co-op, Iceland, Independents Per Cent

Source: Kantar Worldpanel

31

Six years of squeezed household incomes, are consumers switching?

ENFORCED FRUGALITY AND BEHAVIOUR CHANGE

61 64 42 89 91 74 78 78 55

10 20 30 40 50 60 70 80 90 100 Seek Discounts Buy Own-Brand Accept Living with Less Per Cent

Pre-Credit Crisis Now In the Future

Source: Booz & Company

To switch you have to have a shop to switch too…

MAIN GROCERY MARKET SHARES

10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Tesco, Asda, Morrisons, Sainsburys, Waitrose Somerfield, Kwik Save, Safeway, Netto Aldi, Lidl Co-op, Iceland, Independents Per Cent 356 Source: Kantar Worldpanel, Retail Locations, Conlumino 1,135 219% 1,709 5,556 225% 1,941

10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Tesco, Asda, Morrisons, Sainsburys, Waitrose Somerfield, Kwik Save, Safeway, Netto Aldi, Lidl Co-op, Iceland, Independents Per Cent

MAIN GROCERY MARKET SHARES

Source: Kantar Worldpanel; Conlumino

5,556 branches; 97.5m sq ft; average size 17,500 sq ft; sales density c £1,150 sq ft 1,135 branches; 9.1m sq ft; average size 8,000 sq ft; sales density c £580 sq ft

Are shoppers demanding less range?

10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Tesco, Asda, Morrisons, Sainsburys, Waitrose Somerfield, Kwik Save, Safeway, Netto Aldi, Lidl Co-op, Iceland, Independents Per Cent

MAIN GROCERY MARKET SHARES

Source: Kantar Worldpanel; Conlumino

FULL RANGE, ONLINE INVESTORS NO FRILLS GROCERY/LIMITED RANGE

CONVENIENCE STORE OFFER IMPROVING

Investing in a low spending growth economy is painful…

Aldi/Lidl 9/12k Sq Ft net + 4/6k Sq Ft net High Street Bigger than Symbol Group units CONVENIENCE STORE PUSH TO INFILL BASIC RANGE GROCERY STORE EXPANSION SUPERSTORE EXPANSION CONTINUES

• What is the internet doing to space demand?
• What proportion of online sales will be diverted from stores?
• So why is click and collect winning out over home delivery?
• But what about ‘dark stores’ and logistical investment?
• So what is happening to property?

THE QUESTION

36

The great services shakeout…

WHAT DOES ALL THIS MEAN FOR PROPERTY

Source: Retail Locations and CBRE 20,000 40,000 60,000 80,000 100,000 120,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Branches

Catering Leisure Retail Services

BRANCH LOSSES SINCE 1998

• 9,000
• 8,000
• 7,000
• 6,000
• 5,000
• 4,000
• 3,000
• 2,000
• 1,000

Department Stores Tea & Coffee Merchants Motor Accessories Cash & Carry Dry Cleaners CTN Off-Licences Camera Shops Bookshops Brown Goods Records/Tapes & Cds Stationery Video Hire Photo-Processing Travel Agents Post Offices Financial

Source: Retail locations; CBRE

Internet Impact – Electronically Transferable/Technology Supermarket Impact Other

Long run trends…

CAUSES OF CHAIN BRANCH CHANGE

Source: Retail Locations; CBRE

Predominantly electronically transferable/supermarket impact

• 20,000
• 10,000

10,000 20,000 30,000 40,000 Tangible Retail Leisure Food Bulky Deliverables Niche Food Old Service Branded Electronics Supermarket Impact Electronically Transferable

Migration to larger markets/larger units remains key space driver

MARKET SHARE CONCENTRATION

10 20 30 40 50 60 70 80 90 20 40 60 80 100 120 140 160 180 200 % Distribution Trading Locations

Market Share 2013 Market Share 1971

Source: NSLSP

40

It is recession not internet that has weakened space demand…

RETAIL RENTS

100 110 120 130 140 150 160 170 180 190 200

All Shops Central London Suburban London

DEVELOPMENT IMPACT

Westwood Cross

• Damage to period stock obstructing expansion of leisure retailing
• Chronic maintenance backlog: public realm and individual

buildings

• Hundreds of £millions in rates taken out, very little put back in
• Absence of mix control because of multi-ownership
• Use controls obstructing the transfer of obsolete shopping into
• ther use including, critically, residential
• Accessibility problems because of long-run failure to invest in

parking; conflicting planning goals

• Huge surplus of obsolete small scale high street stock no longer

viable for shopping

• Chronic shortage of high productivity modern stock: hence the

UK’s eye-watering occupational costs

BIGGEST PROBLEM – POOR ASSET MANAGEMENT

ANOTHER WAY OF LOOKING AT OBSOLESCENCE

‘I don’t think that we’re overbuilt; we’re under-demolished’

Jeff Jordan, The Atlantic City Lab, December 2012

Jeff Jordan commenting on US malls…

T +44 2071 823 611 mark.teale@cbre.com

For more information regarding this presentation please contact: Mark Teale, Head of Retail Research