High Street Revival? Ikea purchases ex-Topshop flagship
On 26th October it was confirmed that Ikea have taken over the lease for Topshop’s former flagship UK store on Oxford Street for £378 million.
Arcadia Group, which owns Topshop, had been forced to put up their physical stores for sale after their new owner ASOS decided to absorb Sir Phillip Green’s failed clothing brand into their fully online business, without purchasing any of the remaining real estate. This purchase follows a continuing change in direction for Ikea as they move from having only large, out of town stores to having smaller format urban stores; they opened their first city centre store in Paris in 2019. This also comes as a signal of intent from the company’s UK division as they seek to increase their 9% market share. The store, which will only take up around a third of the total 100,000 square feet within the building, will open in 2023 and will contain areas for accessories, furniture, and also a planning space within.
The news has been welcomed by those within the commercial real estate sector within central London as it signifies a boost to confidence that there is post pandemic potential for physical urban retail spaces. Krister Mattesson, the head of Ikea’s property acquisition arm, stated that Ikea ‘firmly believes in the long-term value of the real estate market in London’. The acquisition also follows in the footsteps of a previous announcement of a Hammersmith Ikea store which is due to be opened later this year. The announcement comes in sharp contrast with the recent commercial real estate exodus in the same area with Gap, Next and even Ikea’s main UK competitor John Lewis all looking to get rid of previously prime real estate within central London.
This deal continues a trend in which larger, out of city retailers have seen value in creating new sub-stores with more accessible layouts and locations. This began in the US with companies such as Target seeing potential in creating more city centre shops to entice customers who would otherwise have ordered online and potentially from another retailer. Seemingly there is now a belief that the best way for physical retailers to create extra sales outside of further expanding their online presence is to open stores accessible to those who live in city centres and may not be willing to travel out of their local area to collect purchases.
Ikea has recently seen their profits decrease from €12.4 billion in 2019 to €11.73 billion in 2020 and only marginal sales increases during the same period. This has been blamed on the lack of customers at larger stores alongside supply chain issues due to the COVID-19 pandemic. The purchase of this Oxford Street property therefore signifies that the retailer still plans to continue its transformation towards customers clicking, collecting, and having their furniture pre-constructed before buying in an aim to further grow profits. To help accelerate this approach the company has made several acquisitions of companies that pre-build furniture this year and is aiming through this to lessen reliance on their hallmark model of selling flatpack furniture that customers construct themselves. During the pandemic the firm has even converted many of its large retail sites into fulfilment sites to hit their target of having click and collect within all their UK stores and creating a more time efficient experience for the customer.
The deal will come as good news to the administrators of Arcadia, Interpath Advisory, who had been shopping the central London lease to various suitors since February 2021. They can now use the cash received to secure outstanding loans to creditors, many of whom are still out of pocket after Arcadia’s collapse in November 2020. The sell-off completes the wrapping up of assets by the administrator with £312 million of the acquisition being used to pay off hedge fund Apollo Capital who are the mortgage creditors for the property. There will also potentially be some benefit for previous employees of the failed retail conglomerate who have been left in limbo regarding the liquidity of their pensions after Arcadia’s collapse. Approximately £40 million from the sale is being put towards the pension deficit, which is estimated to be around £300 million, so in terms of fully bridging this deficit there is still a long way to go.
While the completion of this deal does signify positive signs that such a historically shrewd operator such as Ikea has belief in the importance of maintaining physical retail stores, only time will tell if Britain’s high streets will ever fully recover from the damage of the double blow of the ever continuing rise of online shopping and the devastation of the COVID-19 pandemic.