Barriers to entry, new entrants, churn and the High Street

marketby Cathy Parker*

In 1961, Jane Jacobs wrote “recent emphasis on entrepreneurs and innovation as sources of economic growth has led to the renewed recognition of city centers”, thereby positioning centres as locations for entrepreneurship and innovation. However, the structure of many retail centres would seem to be barriers to entry for new entrants whilst also not supporting retail expansion. We deal with barriers to entry first.

We have found plenty of evidence that “landlords prefer multiples” Golisinski & West (1995). “Britain has a group of national durable multiples which dominate comparison shopping to an extent unmatched elsewhere” (Schiller, 1994).

The particular barrier to entry for new entrants has been the difficulty with which they can rent retail floorspace in areas associated with the highest footfall. One of the retail experts who took part in our High Street UK2020 research told us “high rentals and associated high rateable values is certainly a real barrier to new businesses in a great many established traditionally primary and secondary High Streets”.

Clarke, Bennison, & Pal (1997) noted the difficulties associated with entering an already established area in terms of size and location. These spatial, and most times finite, structures act as barriers to further accumulation (Harvey, 1985) and affect the High Street’s competitive strength and future strategic options. The lack of new entrants may be having a detrimental effect as place management or ‘urban husbandry’ “seeks to strengthen existing assets prior to adding new elements, typically by involving many entrepreneurs”. (Robertson, 1999).

Wrigley & Dolega (2011) believe that policy proposals and instruments that aim to remove or reduce barriers are unlikely to be best achieved by attempting to reset town centres/high streets to their configurations before the partly regulatory-induced (town-centres-first) and partly consumer-lifestyle-induced (convenience culture and on-line e-retail) reconfigurations of the past decade.

Nevertheless, vacancy rates supplied by the Local Data Company suggest that availability of floorspace is no longer the barrier to entry it once was.
Higher vacancy rates can mean more opportunities for new entrants. There has been a dramatic fall in the length of leases on commercial properties over the past six years. Before the recession, the average length of a high street lease was 10 years. There’s no doubt the economic climate has meant property owners have had to offer more flexible lease arrangements – a third of high street leases are now less than 5 years. And that’s good news for independents and smaller chains.

With shorter term and pop-up leases, rent and rate relief, more independent retailers are being attracted into premises that would not have been feasible for them before. However, like other small business, their failure rate is high. A small shop has about a 40% chance of being in business 5 years after opening.

In a survey we did of 600 small retailers in the UK less than a quarter had a business plan, many of them had no previous retail experience and did not invest in training. We found a significant relationship with having a business plan the number of years the shop was in business and turnover.

Without a business plan and some grounding in retailing, new entrants may be making the wrong location decisions – based upon supply side factor considerations like the price of the unit, rather than whether there is real market demand for their offer and whether the shop is in a location that attracts enough footfall.

So, in summary, higher vacancy rates have reduced a key barrier to entry meaning an increase in new entrants – with a higher churn rate – i.e. more retail businesses open and closing.

Barriers to entry is one of 200 factors we have reviewed that influences the viability and vitality of the High Street. Our High Street UK2020 project has established a model which establishes which factors matter most.

We will be launching our findings at a free conference in Manchester on July 10th 2014.

Please click on link below for more details

High Street UK2020 Conference

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*This article was reblogged from Prof. Cathy Parker’s blog.

 

About Ares

Ares Kalandides holds a PhD in Urban and Regional Studies from the National Technical University of Athens. He is the founder and CEO of Inpolis, an international consultancy based in Berlin, Germany and has implement several projects around the world. Ares teaches Urban Economics at the Technical University in Berlin and Metropolitan Studies at NYU Berlin.
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