What consolidation means for the High Street
One of the more interesting side effects of the pandemic is the consolidation taking place in both the retail and leisure sectors. The movement has so far been relatively subtle, which might explain why it hasn’t been widely reported. But the signs are that the process might be speeding up in 2022, particularly in the leisure arena, in part spurred on by innovation in the sector (link to Predictions 2022 blog here).
So, what effect is this consolidation (which is, we should bear in mind, a regular feature of economic cycles) likely to have on its respective sectors?
The recent purchase of London-based triyoga by United Fitness Brands (which already owns successful ventures Kobox, Boom Cycle and Barrecore) and Boom Battle Bar’s purchase by Escape Hunt are just a couple of examples and I see plenty more in the pipeline.
Boutique health and fitness operators are particularly likely to be snapped up by larger players this year, as those with deeper pockets rescue those who have got into financial difficulty over the last couple of years, as successive lockdowns have affected their ability to trade.
We’re seeing similar moves in retail. Mark and Spencer’s and Next’s interest in the UK arm of Victoria’s Secret when that retailer collapsed in 2020, and M&S’ more recent reported interest in taking on Gieves & Hawkes, suggests that major players are in the market to take over smaller brands if the ‘fit’ is right. Next’s purchase of a 25% in REISS last year (with an option on to double its shareholding by July this year) shows that the process is happening slowly, but perhaps surely.
So, what effect is this consolidation (which is, we should bear in mind, a regular feature of economic cycles) likely to have on its respective sectors?
For leisure, and health and beauty in particular, I think it will help identify which concepts work best – those that are underperforming are likely to be ditched by their new owners.
For retail, we are reaching an interesting point where larger retailers are promoting a number of sub-brands within a single store. To the shopper this might look uncannily like the department store/concession model that has largely disintegrated over the past few years, but in reality the new model means the major retailers have much more control over their sub-brands.
Any consolidation has the potential to impact on bricks and mortar but given the cutbacks in floorspace that had already taken place pre-pandemic, the P-THREE view is that the impact of this cycle on physical properties will not be major.
However, that doesn’t mean that investors have nothing to worry about and there is certainly no room for complacency. On the contrary, I believe investors will need to think much more carefully when signing deals with new occupiers and consider what may happen to their prospective tenant a bit further down line.
Consolidation will ultimately lead to stronger brands, but in the meantime, it’s certainly a case of caveat investor!
Article by Justin Taylor
Photo credits: TriYoga
