What residential internet sales could teach the high street

By David Alexander, Managing Director

From time to time a tenant will petition his or her landlord for a rental reduction or “holiday” to help overcome an unexpected financial problem. And if the person has been a model occupant and the situation is likely to be temporary, the landlord will often agree to some sort of arrangement, preferring to retain this tenant than embark on a search for an unknown replacement.

Imagine, however, if so many tenants across the residential sector were in some degree of financial trouble that landlords had no alternative but to take a rental “hit” on the basis that replacements were few and far between. That would border on a crisis.

While this situation is purely supposition for the residential market, it has started to mirror reality in the commercial sector where retailers, hit by a significant reduction in footfall, are seeking a “renegotiation” of their leases to help them survive. Last week was a particular harbinger of bad news – non-food retail sales in Scotland in April fell by 5.5 per cent on the same month last year and across the UK, Mothercare announced the closure of 50 stores. Just this week Marks & Spencer announced it would close 100 stores over the next few years, two early casualties being those in East Kilbride and Falkirk.

Of the reasons for this, clearly there simply seems to be less disposable income around than was the case a few years ago but the problem goes deeper than that. Even before the financial crisis, Scotland – like the rest of the UK – was “over-shopped”, with high streets and edge-of-town malls competing for an unsustainable customer base. This has had an obvious rippling effect on demand, rental income and, ultimately, capital values. In March a shopping centre in the high-density West Midlands, which 13 years ago fetched £17 million, was sold for £4.3m.

The elephant in the room is, of course, the internet, which by last December had accounted for almost 25 per cent of non-food sales. The attractions are obvious – convenience and the fact that many internet-related products seem to be so much cheaper than equivalents found in-store. However, as the saying goes, “there is no such thing as a free lunch” – compare the corporation tax, pro rata, paid by John Lewis and Amazon. More abstractly – but still important in community terms – is the social effect of internet sales. Make no mistake, the High Street is a money-making machine, just like the internet.

Having said that, property developers have worked closely with planners to keep town and city centres alive and life would be poorer without them. In the US, where market forces determined shopping patterns, downtown areas were abandoned in favour of suburban malls. Then the authorities realised that a town without a heart was one without a soul and billions of dollars have been poured into regeneration, albeit with mixed results.

Convenience shopping (for non-perishable items) on the internet is here to stay but let’s hope that “destination shopping” (from which our high streets benefited so much during the 1980s and 1990s) will revive, one major reason being that humans are social animals and spending so much leisure time glued to a screen is not the natural order of things.

 The residential market could provide an example of the way ahead. Sales and letting agents were slow to catch on to the advantages of the internet but now they are ahead of the game and the web has overtaken the showroom as the main driver of business. However, the internet is the key to the door and not the door itself. While some property investors will happily secure a flat on the strength of an internet search, few owner-occupiers or tenants are prepared to buy or rent a property without having viewed it first.

So if we can make the internet a platform, rather than a substitute, then our high streets will have a future.

This article originally appeared in The Scotsman on 24 May 2018 titled “David Alexander comment: Residential internet sales could teach high street”.