All you need under many small rooves

Supermarket retailers are being forced away from low-cost out-of-town superstore formats to smaller urban ‘concept’ stores. Is the over-crowded high street, with its inflated overheads, a step too far? By Amanda Wilkinson

Retailers are reinventing the wheel when it comes to developing new formats, devising concepts that appeal to only part of their traditional customer base.

Sainsbury’s and Tesco, for instance, have developed convenience food offerings, while Asda is to test market a standalone high street clothing format for its George range (MW last week), and Marks & Spencer is opening a concept store dedicated to the home.

Some claim that the burst of activity from retailers is in response to changing consumer lifestyles. Because people are working longer hours, food tends to be of the convenience variety and shopping for clothes has become a leisure activity.

Rune Gustafson, managing director of 20/20 strategy and design consultancy, says: “In essence, these new formats are about customer propositions. For certain sectors legislative changes, such as planning, have forced retailers to become more innovative, but I would argue that the driving force is customers.”

Others believe it is government planning policy guidance, in particular PPG 6, which is restricting out-of-town development and encouraging town centre regeneration, acting as the main catalyst behind the new retail formats.

Asda, once associated with little else but large supermarkets with a standard 45,000 sq ft size, selling everything from fruit and vegetables to clothes and bicycles, has found that it has had to become more flexible in its development of new formats.

An Asda spokeswoman says: “Due to the current planning climate, we have had to adapt our store formats in order to develop the business.”

She claims that less than seven per cent of its stores are classed as “out of town” and adds: “Our development programme acts in the spirit of government guidelines, directing all new retail space towards the town centre.”

Last year Asda launched its first smaller (17,000 sq ft) format store located in an urban centre and dedicated to food. The high street is also the focus of a 12-month trial of a George-branded standalone format, which Asda hopes will introduce the brand to new customers and give existing customers another opportunity to buy products.

Mintel Retail Intelligence analyst Richard Perks says that although the George brand has potential for further development, he has concerns about whether the “sums will add up” as regards a high street location, which tends to cost more and needs more staff on the shop floor. He adds that George will also encounter stiff competition on the high street from the likes of New Look.

If reports that Asda is in talks to take over edge-of-town value clothing retailer Matalan are true then other formats focusing on clothing and non-food merchandise could also be on the cards.

Despite the launch of smaller food-only stores, Asda lags far behind M&S, Tesco and Sainsbury’s, all of which have made inroads into convenience food retailing.

Verdict senior retail analyst Steve Gotham says: “The grocery multiples are having to adapt to a more restrictive planning environment. In many ways their new formats play to their core strengths, certainly for Sainsbury’s and M&S, where they have a reputation built around quality food.”

However, despite the grocery giants having strong advantages on pricing and product range over existing food convenience retailers, it has taken them time to ascertain the type of goods and how many customers are required to generate sufficient sales, according to Gotham.

Although Tesco launched the urban outlet brand Metro and convenience store brand Express in the early Nineties, it was not until last year that the it decided to take a major plunge into smaller formats by buying T&S for £377m. Tesco has plans to rebrand 450 of T&S’s One Stop and Day & Night outlets as Express, adding them to its existing 109-strong portfolio, which includes stores located on Esso forecourts.

Earlier this month Sainsbury’s signed a deal with Shell to put its Local formats at 100 petrol station forecourts, adding them to its existing 58 Local stores and its 22 Central-branded town centre format.

Simon Webster, director of property planning development at Sainsbury’s Property Company, refuses to admit that planning restrictions have triggered the development of convenience formats. “It is about responding to customer demands for convenience shopping, a reflection that in the UK, more consumers are living in town centres or suburban areas.”

However, Webster admits that government policy encouraging the mixed use of sites and affordable city centre housing has led to supermarket developments that have flats and offices above.

Waitrose sales and marketing director Mark Price claims that, given the choice, the larger supermarket retailers would rather open hypermarkets or superstores, where consumers can shop for everything under one roof, than a series of convenience stores with higher overheads.

“With market saturation and planning legislation, it’s increasingly difficult to find new stores for your core offering. Because of that retailers are trying to find other ways of increasing their market share,” he adds.

With a store on almost every high street in the country, M&S is one of those retailers that has almost reached saturation point and has been forced to cultivate alternative concepts or business opportunities to develop its business so as not to cannibalise its existing market.

Food is an obvious choice given that this department remained popular during M&S’s much-publicised downturn in fortunes a couple of years ago. It now has 27 Simply Food convenience stores in high street and railway station locations, and plans to open 150 by the end of March 2006. This includes 40 stores through its franchise partnership with Compass, which is about to test market a store at a motorway service station. M&S is also rebranding its existing neighbourhood stores with parking facilities as Food.

Another area that M&S has identified as a business opportunity is furniture, and it has recruited former Selfridges chief executive Vittorio Radice to head its home division and oversee the launch of the first Home superstore in Gateshead.

A spokeswoman from M&S says: “[Home retailing] is a £20bn market with no one as a clear leader. We have a two per cent market share. It is an opportunity and one of two key growth opportunities for us.”

Availability of suitable locations will play a key role, however. Rival Ikea, which has traditionally traded from out-of-town sites, has had to rethink its format to enable it to develop. To fit in with government planning guidance, it is adapting its standard 28,000 sq m trading format, comprising a two-story building with car parking alongside, for edge-of-town locations. These new stores will take more stories, so retaining the same trading space but over less area.

Realising that out-of-town development does not appeal to all consumers, MFI has already launched a high street format.

Planning restrictions may have pushed retailers to consider new formats and refine their offerings, but the concepts will have to meet with consumer approval if they are to succeed.

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