Via Yahoo Finance

So it seems John Lewis is contemplating doing the unthinkable, with the middle classes’s favourite retailer hinting at store closures as it too is engulfed by the high street crisis.

Department stores are in the frontline of the retail downturn: rival chains House of Fraser and Debenhams are hitting financial trouble as changing shopping habits move sales online, while the cost of running big shops, with their hefty rent bills, continues to rise. Beales, the Bournemouth-based chain, collapsed into administration last month and announced on Friday the closure of 12 of its 23 stores.

Last week Sharon White, the new chair of the John Lewis Partnership, warned it faced making “difficult decisions about stores and about jobs”. She did not state where the axe would fall – Waitrose shut 12 supermarkets in 2019 – but analysts think some of John Lewis’s 36 department stores look vulnerable in an overall picture of falling sales.

Independent retail analyst Richard Hyman worries about John Lewis’s website, which has effectively become the chain’s biggest branch in sales terms, but to the detriment of its stores: “Has the website massively increased demand for John Lewis? I don’t think it has. They are paying a heavy price for rapid expansion online, which has hit the trading economics of stores.”

In common with other bricks-and-mortar retailers, John Lewis’s business rates bill has rocketed – up 30% since the 2017 revaluation – to £57m this year, according to property advisory firm Colliers International. It has been trying to save money where it can and wrangling with landlords over rents and increases in service charges.

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Last week it was announced that the House of Fraser in Dublin’s affluent Dundrum mall was being pushed out in favour of Brown Thomas, the swanky homegrown luxury department store operator that is part of the same group as Selfridges.

The signing is a coup for the centre’s listed owner Hammerson and a blow to Mike Ashley’s purported ambition to revive House of Fraser. In a sign of the times, however, the new Brown Thomas will be about half the size of the House of Fraser, with two rather than four floors dedicated to the designer clothing and beauty brands that pull in its well-heeled shoppers.

Mark Bourgeois, the property group’s managing director for the UK and Ireland, billed it as “repurposing department store space to ensure our destinations are as attractive and engaging as possible”. In the Oracle in Reading, another Hammerson shopping centre, the company is looking to carve up the House of Fraser store, with a bowling alley, mini-golf and restaurant tipped to be among the attractions on the list of potential replacements.

But landlords with properties in less desirable locations face a big headache. Around £1 in every £5 spent at shops is online – a figure predicted to rise to 50% within a decade. The property industry’s view is that 30% of UK retail space is obsolete and would better serve communities as hotels and gyms – or, particularly within the M25, as housing. And the sooner it happens the better.

Dundrum is likely to be an exception to the rule. But the Debenhams store in Guildford, which has views of the River Wey, was recently put on the market with a £20m price tag; no one is talking about another retailer moving in and the store is considered ripe for redevelopment.

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While big deal-making has all but ground to a halt as investors wait out the retail maelstrom, others see opportunity in this huge swath of unloved retail property. One such business is Quadrant Repurpose, a new company set up by experienced property industry figures to redevelop department stores. “The UK has more than 1,000 department stores … and a substantial proportion of these stores are facing the prospect of no longer having a retailing future,” explains Quadrant Repurpose’s Mark Phillipson. With an initial budget of £50m, the business will either work with landlords or buy assets outright.

But are department stores doomed? The current shake-out could ultimately help John Lewis to emerge stronger in the long run; Debenhams, despite recent its own closure programme, still has nearly twice as much retail space on its hands.

Hyman says it is not about what you do – in this case run department stores – but “how you do it”.

“Harvey Nichols is not doing so brilliantly, Harrods is Harrods and in my opinion Selfridges is the best department store in the world,” he says. “What there isn’t room for in this market is mediocre department stores” like House of Fraser and Debenhams. “John Lewis is still a very strong brand but the market will not wait for it.”