Shopping around: Is the Scottish retail sector reacting to changing behaviours?

With rising costs and falling footfall, you’d be forgiven for thinking that the Scottish high street is a pretty bleak place as battle-hardened retailers wrestle with the cost of living which is hitting discretionary spending, higher interest rates, and the ease of online shopping. If you factor in the big city trend of introducing low emission zones, you might well be wondering what future our high streets really have.

However, if you look beyond the headlines, you’ll see local, national and international retailers responding to changing customer demands, and thinking differently about how they cater for the changes which have happened since the pandemic.

Looking at the economic climate in which retailers are operating, the big story is one of discretionary spending, or perhaps lack of it. Retailers are only too well aware of the challenges their customers are facing, and as a result, we are seeing retailers working hard to deliver value for their customers by offering something different, but there is still more work to do. Where there is volatility, there is opportunity.

Retail performance is often seen as a barometer for the wider economic position; how much money do people have in their pockets; what is occupier and investor appetite, or just simply, is there confidence in the economy? The detail will perhaps tell you more of a nuanced story, with a wide variety of interrelated factors at play.

There is a feeling that online retail’s growth may have reached a plateau, perhaps driven by the overall position of personal finances, but also shoppers post-Covid seeking the social experience that comes from touching and feeling a product before handing over their hard-earned cash. The latest Office for National Statistics release on the UK’s retail sector shows modest growth overall, at best, but with online taking a slight dip at the start of the year.

On that note, is cash making a resurgence? Despite the proliferation of digital transactions in everyday life, there are suggestions that the cost-of-living issue has led people to be more focused on their spending which is leading them to use cash for everyday spending. The use of cash has grown for the first time in a decade, as households take a tighter grip on their budgets There is also a theory that people spend more when using cards, so have reverted to cash transactions to rein in spending.

Does that then present an opportunity for our independent retailers? When you consider that around a third of the working population do so from home for some of the week, what opportunity is there in our towns and villages, and what does it mean for city centre retail?

Looking at the smaller neighbourhoods first, the rise of the independent retailer has been strong. Take, for example, the town of Broughty Ferry just outside of Dundee. Long seen as a seaside commuter town serving its larger neighbour, its retail offering is now predominantly independent. It’s also illustrative of retailers thinking and acting differently in response to changing consumer habits; the recent closure of a unit by M&Co in the town has led to a gap which potentially will be taken not by a retailer, but by a national coffee chain (Pret a Manger).

Retailers might also benefit from reconsidering their core trading hours; the traditional 9-5 is not necessarily dead, but people are working differently, so retailers and landlords might benefit from looking at how they use their spaces at different times of the day. We’re seeing cafe and restaurant operators in city centres closing on Mondays and Tuesdays, not opening for business until Wednesday when footfall seems to rise; others might choose to open briefly in the middle of the day for hospitality or leisure experiences before closing in the afternoon, then opening again in the evenings which is more akin to the Mediterranean lifestyle but one which suits a growing number of consumers.

One might also look at the actual locations of trading units – is there an opportunity for developers to create eateries on the ground floor with stairs on either side to the first or second floors with smaller retail units above for people to eat then shop? This might, in turn, make rents more attractive for the independent. Lifestyles are changing and retailers/operators may well need to change too.

The power of the 20-minute neighbourhood should not be overlooked. We recently hosted a series of events examining urban regeneration. The leader of Glasgow City Council, Councillor Susan Aitken, spoke of how the city centre regeneration plan will be a catalyst for community connections as transport links and connectivity are improved. We also heard from Sat Patel, the programme director charged with the delivery of the Granton Waterfront regeneration. As well as strong transport links to, and around Granton, car parking provision will be limited to only 25% of households, meaning the community takes on a completely different feel to its neighbours. You can read more in our Blueprint report here.

From a city centre perspective, perhaps there are more questions than answers as national retailers and developers look at the opportunity to offer experiences alongside shopping such as eating, entertainment and leisure. As we spoke about earlier in this article, opening hours could also be looked at to meet those changing habits. As more city authorities look at introducing LEZs, what impact will these have on people who prefer to drive into the city centre? What does this also mean for the traditional mixed-use development? Presumably, it will lead to an increased focus from national retailers on the out-of-town retail park. Will our cities become areas with more of a residential and neighbourhood feel, dominated by smaller and independent retailers, while the national players instead turn their attention on the out-of-town opportunity?

From an investor point of view, retail is still very much in their eyeline. A number of recent standout deals involved the sale of large retail sites – The Centre in Livingston, Kingsway in Dundee and Princes Square in Glasgow.

The latest statistics from the Scottish Retail Consortium point to a degree of fragility in the sector, mostly as a result of poor consumer confidence and stilted wage growth, but with some signs of optimism. In the short term, the weather and major sporting events have a huge part to play in people’s spending habits, and retailers will be alive to those, but it’s the longer term trends which developers and occupiers need to be thinking about. Online spending will always have a part to play, but as consumers seek value and an experience to fit in with their changing working week, will we see independents come to the fore, and national operators change their offering to meet those demands and changing dynamics?

As we, and other Harper Macleod colleagues attend UKREiiF in Leeds this week, it will be interesting to see whether retailers in other parts of the UK are changing their models to fit this new future.