Friday 8 November 2013

"Mix control"

There was finally a sensible article about retail and 'The High Street' in today's City AM Forum:

The thing is worth reading in full, but it appears to boil down to this:

A lot of high streets have nothing intrinsically wrong with them. Mix problems are, however, inevitable when there is a plethora of different shop owners. Multi-ownership leads to a letting free-for-all. In the absence of mix control, there is nothing to sustain attraction. Mixes are not self-sustaining: they need continuous work...

The more modern managed shop space we have added (mostly with free parking), the more shopping centres, retail parks, superstores and outlet centres we have built, the more chain operators have migrated from small shops in small unmanaged high streets to larger, higher productivity, modern spaces serving bigger markets...

But a lot of the recent high street attrition is not due to obsolescence: it is self-inflicted. On the one hand, mixes have been undermined by multi-ownership; meanwhile, the quality of the shopping experience has been further eroded by lack of investment in the parking and access infrastructure needed to serve high street shopping.

There are a few general rules here:

1. Except for the very centre of very large towns, the ideal use of available space is about half car parking and half retail space.

2. Retailers benefit from each others' presence, so the rot sets in once there are one or two empty or very down market shops.

3. From the specific point of view of retailers on the same street, there are "public goods". They all benefit if everybody smartens up their shop fronts, or if the pavement is widened/enhanced to include trees, benches, bins and bike stands etc. They all benefit from better bus services and more attractive bus shelters.

4. Public goods are the flip side of the first mover disadvantage. Smarten up your own shop front in isolation, or get permission for a bench or bike stand and there is little or no benefit to you. And no individual retailer is going to voluntarily subsidise the bus service.

5. There is also a free rider problem, i.e. if nine out of ten shops smarten up, pay for benches and bike racks, then the one in ten refuseniks benefit as well.

As the author explains, this is because large shopping centres and out of town retail parks are owned by one large landlord, he is far more likely to get the "mix" right and speed up the process of agglomeration than if there are dozens of shops owned by dozens of landlords or leaseholders, with separate ownership of the flats and offices or wasted space above.

If one shop falls vacant, even if the large landlord refuses to drop the rent (for fear of all the other tenants demanding a reduction), he will at least do something with the empty shop front (you hardly notice the empty ones in Westfield, Stratford, it's very cleverly done). A landlord with one vacant shop doesn't care how terrible it looks.

Returning to my favourite topic, car parks.

If you are building a new shopping centre, what you do is make sure there is as much parking space as their is retail space, a 50/50 "mix". So on many high streets, it would be in the collective interest of all shop owners to demolish half the shops and have a large car park instead (Rule 1).

The sales at the remaining shops would nearly double, their net profits would more than double and the rents which can be extracted would treble.

But if each shop is small, no individual owner has a direct incentive to knock down his own shop (even if he could get planning and that were physically possible) and build a car park. He's waiting for everybody else to do it.

(And if he did make a car park, you can be quite sure that his parking charges would be just as swingeing as the local council's parking charges.)

So as ever, breaking up a monopoly into a cartel leads to an even worse outcome. Owners of large shopping centres might be rent seekers, but at least they are on the side of progress and look at the bigger picture.

If there are are lots of small landowners, each one of them acts as a drag on progress and development (as well as draining money from the productive economy). Put them all together and your high street is doomed.

As to what the solutions are - if any - you will have to work that out for yourselves (they seem blindingly obvious to me, being a combination of three or four things).


Retail Design agency said...

I like the idea of your post

Kj said...

I´m with Retail Design agency ;)

Lola said...

...and the answers are...?

Mark Wadsworth said...

Kj, ta.

L, the answers are a combination of:

1. Replacing existing taxes with proper LVT (obviously).

2. Some form of collective decision making, i.e. if 51% of the shop owners agree it would be a good idea to do X, Y or Z (like tarting up shop fronts to a uniform look) then everybody has to do it (like Business Improvement Districts).

3. More car parking. Which inevitably will involve knocking down some buildings.

4. Privatising compulsory purchase orders, like the takeowver rules.

If I make an offer for a listed company and a certain number accept, then the other shareholders have to sell as well.

Why should it be any different with land?

So when a larger, more organised landlord comes along, he just has to inch up his offer price for all the sites he needs until 51% have accepted, then the other 49% get that price as well, and nobody can hold out for ransom payments.

Bayard said...

You get an interesting case with towns like Malton, where the whole town, pretty well, is owned by one landlord. What you have in effect is a shopping centre disguised as a historic market town. As far as I could see when I went there, there were few empty shops and a good mix of shops, too.

Mark Wadsworth said...

B, thanks, the article itself said that London shopping streets were good because most of them belong to one landlord, the same rule about "mix control" applies anywhere else.