Focus on the United Kingdom: what is driving the change in the U.K. retail market?

This reduction in demand and changing consumer buying habits could lead to an increased percentage of stores being left behind after the future restructuring of struggling retailers, causing more misery for the freehold owners of the units, which may remain unlet in the short- and mid-term. This will harm their cash-flow and indeed their own ability to service the loans that they used for their initial shop investment.

The longer term prospect for retail store owners, investors, lenders and other stakeholders looks more challenging right now than it has been over the past few years.

ENDNOTES

Note: This article is a variant of a piece previously printed in Estates Gazette and includes comments from a recent interview with Retail Week.

(1) With thanks to The British Retail Consortium www.brc.org.uk

(2) With thanks to Jones Lang LaSalle, Experian and Goad

BY BARRY GILBERTSON, CRE, PPRICS

About the Author

Barry Gilbertson, CRE, PPRICS, a partner at PricewaterhouseCoopers, is past chair of the United Nations Real Estate Advisory Group's International Valuation Forum, a member of the Bank of England's Properly Committee and visiting professor of the Built Environment at the University of Northumbria, located in Newcastle, U.K. He earned the CRE designation in 2000. Gilbertson is also a past president of the Royal Institution of Chartered Surveyors (RICS), a standards and membership organization for property professionals with whom The Counselors of Real Estate has a formal alliance to promote information exchange and foster an international network of like-minded professionals. Read more about RICS at www.rics.org.

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RELATED ARTICLE: The Corporate Demise Curve[c]

The Corporate Demise Curve demonstrates why it is so important to consider early what to do when things go wrong. All companies start from an enthusiastic base, and some become truly profitable over time. However, it is equally true to say that most companies' profitability and cash receipts will plateau at some point in their development. The successful company leaders will recognize this truism and be preparing for the plateau on their way up towards the crest. When their plans are implemented, it becomes possible to push on up again, towards the summit of success.

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Company leadership that is blind to the approaching plateau may not even recognize it when they get there. They may think that their flat line trading is a blip, or that they are still profitable, so what does it matter? Cash is why it matters. Without consistently strong cash flow, no company can survive for long, and it certainly cannot grow. Instead of climbing onwards and upwards, these companies slip down the Corporate Demise Curve, sometimes at an alarming pace, as the vortex of cash deficiency spins ever faster. Comfort becomes Concern and Concern becomes Crisis. At this point, The Control Watershed, the company usually loses control of its affairs into the grips of their lenders, creditors, shareholders and other stakeholders.

Once a company's destiny is no longer in the hands of its own leadership, the end may be near. So, the lesson is to recognize the plateau before you can see it, then plan on how to get safely across it. If you find yourself slipping out of control down the demise curve, seek help sooner than you think you need to do so. With the right ropes, karabiners and winching gear, you might just be able to haul yourself back onto the plateau, and be helped to navigate your way to the foothills of Success Mountain.

[c]PricewaterhouseCoopers