Scottish Government

Development Department Research Programme Research Findings No. 91Future Patterns of Retailing in Scotland

John Dawson
The University of Edinburgh

The Scottish Executive Development Department commissioned John Dawson of The University of Edinburgh to undertake a study to review recent changes in the retail sector and how the sector may develop over the next 10 to 15 years. The study results are presented in four main sections: first is a review of the changes in retailing through the 1990s; secondly there is elaboration of the competitiveness framework that allows explanation of these changes; thirdly this framework is used to suggest the pattern of development that may take place over the next ten to fifteen years; finally some specific implications for land-use planning are identified.

Main Findings

The main conclusions from the study are:

• Through the 1990s there were major changes in the structure of retailing in Scotland with these changes being part of a wide ranging European-wide restructuring of retailing. This restructuring is continuing and major changes in retailing in Scotland can be expected over the next decade.
• Although the number of shops are estimated to have fallen by over 7,000 during the 1990s, substantial amounts of new floorspace have been added in shopping centres, with in the late 1990s many large retailers sustaining reductions in sales per sq. m.
• The increase in market concentration has been strong during the 1990s and this seems likely to continue over the next decade with large firms growing at a faster rate than the market as a whole and more of the large firms having head offices outside the UK.
• It is estimated that before 2015 60% of retail sales in Scotland will be passing through 10 retail firms and that in food retailing 80% of sales will be accounted for by a combination of 200 stores and e-retailing, operated by three or four firms.
• Extensive innovation in e-retailing is forecast. This channel is expected to account for 8% of all retail sales by 2010, with the percentage being higher in the food sector. It is forecast that, in comparison with 2000, there will be need for less floorspace in fixed shops and that the reduction will be in low productivity floorspace.
• It is expected that town and city centres will remain important but that the differentials will increase between core cities and the peripheral areas around the city centres. The problems already faced by villages with the closure of shops are likely to be extended to small towns.

The key conclusions of the study are outlined in the following sections.

Retailing in 2000

• From a broadly stable number of shops in the late 1970s and 1980s at about 30,000 the number has fallen through the 1990s to an estimated 22,500 in 2000.
• The increase in numbers of superstores was strong in the early 1990s but the rate of opening has slowed in the late 1990s. Incipient 'Power-nodes', defined as groups of power centres can now be identified.
• Large shopping centres opened in the 1990s have added to the stock of retail floorspace and there has been a significant redistribution of retail sales from traditional shopping street based areas to shopping centres.
• Estimates of retail sales in Scotland suggest an increase from £13bn in 1994, to £17.4bn in 1998 and a forecast figure of £19bn in 2000. The late 1990s have seen low rates of inflation and in some cases deflation of retail sales.
• Growth in floorspace has outstripped growth of sales such that sales per sq. m. have fallen.
• Large retail organisations have built up very extensive chains of small shops often trading under several different fascia names.
• Market concentration has increased steadily during the 1990s such that by 2000 it is estimated that 40% of sales are accounted for by 10 firms. In the grocery sector the 5 largest organisations accounted for 75% of sales in 1999.
• The number of head offices of retailers in Scotland has decreased. More retailers from outside the UK are entering the Scottish market.
• In the operation of superstores a consistent trend has been the extension of product ranges into new product categories.
• Retailers have taken a higher level of control over the supply chain, but this is often achieved without direct ownership of the supplying organisations.
• Contrasts remain in consumer accessibility to shops resulting from different income levels and different degrees of personal mobility.
• The variety of locations for retailing has increased during the 1990s in order to match the behavioural patterns of consumers. Experiments with e-retailing have begun.
• Consumers understand better the activities of retailers and so have become more critical of retailers' activities, particularly promises of low prices and superior service.

Competitiveness factors in retailing

• The search for competitiveness is a major driver of retail change. There are four main areas of operation of retailing where changes in competitiveness are obtainable:
  • Improvements in the external operating environment
  • Increased innovation
  • Increased knowledge
  • Increased trust
• Improvement of the operating environment includes infrastructure changes, changes in public policy and social changes affecting household and personal consumption.
• Planning policy has been an important factor encouraging food retailers to create multiple formats and to make investments in town centre formats.
• The fragmentation of personal and household shopping patterns has provided opportunities for new store development.
• Increased innovation is evident in format innovation, technological innovation, process innovation and product innovation. Retail changes in Scotland have resulted from all these forms of innovation.
• Increased knowledge is a third route to improved competitiveness in retailing. This is evident in the moves towards large business units in retailing, better understanding of international retail operations, increased productivity of asset use, and the ability of retail organisations to evolve and respond to changing operational conditions.
• Trust is seen as affecting competitiveness through higher levels of trust in retail relationships with suppliers, employees and consumers.

Changes in retailing in Scotland 2000-2015

• The retail market, as presently viewed, is likely to be in excess of £26bn by 2010 and £30bn by 2015.
• The market is likely to be increasingly dominated by a few large firms with an estimated 40% of sales accounted for by 5 firms and 55% by 10 firms before 2015.
• With the increases in market concentration so issues of competition policy will increasingly interact with land-use policy.
• These large retailers will be offering consumer and household services outside what is presently considered retailing.
• Independent retailing is likely to decline but will still account for a substantial number of shops.
• Infrastructure changes will improve the attractiveness of bus and railway stations as locations for shopping centre development.
• Consumer behaviour is likely to become strongly influenced by a search for simplification, reduction of 'hassle', and ways to reduce the difficulties of shopping.
• Innovative new store formats will reflect the search for simplification of shopping activity.
• Considerable development of e-retailing will take place over the next 15 years.
• By 2010 it is likely that e-retailing in Scotland will be accounting for about 8% of total retail sales. In the food and grocery sector this is more likely to be 10%.
• No single e-retail format will be dominant with several different approaches to this form of retailing.
• It is anticipated that it will be the large retail firms that will gradually establish a dominant position in the e-retail sector and be operating several fixed store and e-retail formats.
• Innovations in technology will make easier the identification of shoppers and personal shopping behaviours.
• Key topics in the changing knowledge of retailers will be their managerial ability to respond rapidly to unexpected events in the market, a greater use of branding methods, extensive development of micro-marketing practices and a premium being placed on knowledge within management decision making.
• These trends are likely to result in 80% of food and grocery retailing being accounted for by three or four firms operating, in total, a combination of 200 stores and e-retailing.
• The amount of retail floorspace, in terms of today's view of retailing, will be less than today despite a small increase in sales through fixed shops.
• City centre core shopping areas are likely to become stronger but the fringes of city centres are likely to become weaker retail locations.

Planning issues associated with the retail changes

• Although there will be an increase in retail sales much of the growth will be accounted for by e-retailing and the increase in productivity of existing floorspace. Redistribution of floorspace, both spatially and structurally, will become more important than increases in total capacity.
• Preferred locations for new space will be in city centres and adjacent to existing edge/out-of-town schemes with reductions in floorspace occurring in the edges of city and town centres, in traditional suburban shopping areas, and in small towns.
• Retailing ideas will extend into new types of personal and leisure services.
• Less space will be needed in large food and non-food superstores with the use of some existing units being changed.
• City centre cores are likely to have higher intensity of retail uses as retailers seek higher productivity from floorspace and shorter life cycles for specialist formats. Consumers will seek improved access to these city centre core shopping areas.
• e-retailing will require distribution centres at locations that optimise household access.
• Shopping centre development and design will change to accommodate e-retail activity.
• Problems of inadequate retail provision may begin to affect small towns.

The Report

The report examines the present position of retailing in Scotland and suggests ways in which it is likely to develop over the next ten to fifteen years. In producing a report of this type the lack of sound official information of retailing is strikingly evident. Given the size and importance of the sector, the lack of official data on retailing in Scotland is a significant gap of statistical provision in Scotland. The approach used for this study has been to review the academic, policy and trade literature and to utilise data from market research agencies, investment analysts, government, and retail consultants. In addition discussions have been undertaken with retailers and commentators on the sector. The report was written early in 2000.

The report is to an extent speculative and like any forecasting exercise the conclusions may be affected by unexpected economic and social events. Retailing is also influenced by policy decisions across a range of government departments and agencies and thus any forecasting exercise of this type makes the assumption that government policies affecting the sector will remain broadly similar to those presently operative. Policy intervention could change the speed at which change takes place and also it can adjust the direction of change. It is difficult, however, for public policy to alter radically the direction of change in retailing. The other assumptions underpinning the views in the report are that the changes in retailing in Scotland are part of a wider and European-wide restructuring of retailing that is presently taking place, that retail change is primarily the result of retailers' moves to improve their competitiveness, and that the economic conditions of low rates of retail price inflation present in the late 1990s will continue for several years.

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