Tesco's strategy, town centres and the future of the 'high street'

Tesco have announced a significant shift in their development strategy:

After two decades of aggressively buying up land and building stores, the company is understood to be keen to scale back on opening new, large, out-of-town hypermarkets in favour of using the capital to invest in its existing store portfolio and expand its Express network of convenience shops.

It also wants to grow its click-and-collect service, which allows shoppers on the Tesco website to pick up goods, especially non-food items, from their local supermarket. At the last count just 500 of its 2,800 shops were able to offer the service.

Some observers see this as something of a response by Tesco to the fact that their seeming quest for world domination has faltered a little in the last year or so:

The move by Tesco to concentrate on its smaller shops follows its disastrous profit warning that it issued in January, the first in more than 20 years, and which wiped £5bn off its share price.

I’m not so sure – indeed businesses like Tesco have a much longer time horizon than the headlines in the FT or the short-term response of the markets. What the firm is doing is shifting its emphasis away from huge out-of-town emporia, from grand hypermarkets selling everything a shopper could possibly want under one roof, to a strategy founded on the fact that everything the shopper could possibly want is there on the internet.

And what shoppers seem to like is the idea that there’s a convenient spot nearby where they can pick stuff up from. For some, that convenient spot is the front door step but for many the ‘click-and-collect’ idea works pretty well and is rather better than the ‘drive-five-miles-park-push-a-trolley-round-a-store-queue-at-a-checkout-load-car-drive-five-miles’ approach.

In business terms the supermarkets have to switch to on-line selection and shopping because that’s what customers want. And this means that the focus will shift to smaller, local convenience stores as well – great news for secondary retail locations but more bad news for the high street.

Over the short-term, this leaves the supermarkets with a headache:

Analysts, however, warned that though Tesco should initially save money by scaling back its investment in large stores, it would have a long-term problem on its hands.

Jonathan Pritchard, analyst at Oriel Securities, said: "What are they going to do with all that land? Some of it can be reverted to residential property, but it has more than £1bn-worth of property in its landbank."

Worse still, supermarkets stopping building huge hypermarkets is pretty bad news for the regeneration industry – just think how many grand schemes are predicated on the willingness of those supermarket businesses to stump up enormous off-site or mixed use investments just to get the hyper-store permission.

It seems to me that the rate of change in retail is increasing and, as the economy clambers out from the basement, we will not see the recovery in the high street that people seem to expect. The ubiquity of the smart phone and the convergence of the TV and computer will mean that only those who choose not to have access to on-line shopping won’t have access.

We need therefore to think more urgently about the “high street”, about our town centres. And to do something other than call for more “powers” or new rules – although this appears to have escaped the LGA:

Town halls in England and Wales have called for more powers to tackle High Street takeaways, strip-clubs and bookies, which they say could damage local economies.

The problem is that, right now, these are the only businesses that are prepared to take those shops – the alternative is an empty shop that generates zero footfall. And one guesses that the takeaways, strip clubs and bookies (it used to be building societies, then it was charity shops, followed by pound shops – the chain of high street opprobrium continues) do actually generate some custom or else they wouldn’t be there would they?

The problem of the high street isn’t a problem of planning, it is a consequence of changed consumer behaviour. Since we can’t change consumer behaviour, we have to find a new role for the town centre – probably a smaller high street with fewer shops. A place – I’ve said this before – focused on leisure and pleasure.

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