Wednesday, 14 June 2017

Embedded rents

Continuing my occasional series, from The Daily Mail:

Retailer WH Smith has reported a two per cent sales increase in the first quarter of this year due to the success of its shops in airports, train stations and motorway services.

Sales across the newsagent's 750 outlets at transport hubs rose eight percent, including a two per cent boost from the weak pound on revenues at overseas stores.

This offset falling sales on the high street as same-store sales fell four per cent from March 1 to June 10, leaving like-for-like sales flat.

Which is the general trend - at airports, stations and so on you have a captive audience and can charge higher prices. The more mobile people are, the more potential customers you have. The selling price of consumer goods generally is fairly flat wherever you buy them, and the mail order internet companies are gently pushing down the base line price of normal consumer goods.

This applies to consumer goods that can be transported but not for services/goods consumed on the spot...

The wife and I watched Supershoppers on the telly yesterday.

It started with a good sequence on cinema ticket pricing, which illustrated all this. Cinemas charge more for films when they are first released than when they are near the end of their run; they charge more in the evening and at weekends and less during the week; they charge more in higher income areas than in low income areas (there's even a measurable difference between Richmond and Putney!); and finally, they charge more in the centre of large cities, so in London Leicester Square was nearly twice as much as in the Manchester Trafford Centre, which in turn was nearly twice as much as in Bristol.

The knock-on of this is that rents are correspondingly higher in areas where cinemas can charge large premiums. The higher rents don't lead to higher ticket prices; it's the other way round.


Bayard said...

"The higher rents don't lead to higher ticket prices; it's the other way round."
Or even neither way round: the same locations that enabale the cinemas to charge higher ticket prices enable landlords to charge higher rents.

Ben F said...

Agreed Bayard. Isn't this just the marginal utility of the land allowing larger rents.

Mark Wadsworth said...

B, that is also true, all these things depend on each other, so it's difficult to say which came first.

BF, you could say that and it would be true but a bit jargon-y.