Written by Mike Gilbert, partner at Gilbert Evans and Teresa Edmund, partner at Bristows and published by Estates Gazette November 2012.
The depressed economy has had a prolonged and devastating effect on the retail sector with very few retailers left unscathed. Whilst not immune to the effects of the downturn, and even more so by the vagaries of the weather, the garden centre sub-sector however has proved comparatively resilient.
In part this has been due to the willingness of many garden centre operators to diversify and develop, changing not only the way they trade but also the range of products and their general offering to meet the expectations of their consumers. Far from being a seasonal operation the advent of the garden centre as a destination or focal point with cafés/restaurant facilities, extended opening hours and farm shops in pleasant surroundings and knowledgeable staff has provided customers with an improved and appealing retail experience.
This has also enabled garden centres to avoid some of the competition arising from online sales. Whilst the impact for retailers of customer willingness to shop from home cannot be ignored, much of the success enjoyed by garden centres over the years can be attributed to the destination experience enjoyed by all ages and both genders. Customers enjoy accessing the sheer variety of product, from books and furniture to quality plants and seeking expert advice as part of the buying process. Equally, the customer profile for many garden centres is either those in an older, and largely more affluent age group (who may be less disposed to buying online) or those consumers for whom gardening (or at least visiting garden centres) is a leisure past time. Customers in this profile (predominantly AB1) may have been less affected by the economic downturn and are equally more inclined to look for a relaxed, less pressured, shopping experience rather than the speed or convenience associated with on-line sales. However, the success of gardening websites, including Crocus, demonstrates that garden centre operators cannot afford to be complacent.
Garden centres in turn have shown a willingness to embrace technology, recognising that increasingly many consumers now research ideas for their gardens on-line and that on-line information will influence them in their choice of supplier. The increasing access to, and acceptance of, technology among customers of all ages means that garden centres have to make use of the opportunities that come with that technology rather than seeing it as an obstacle to improving in-store sales. It will be critical for them to continue to do so in order to attract and inform prospective customers in younger age brackets.
Notwithstanding the retrenched investment market and scarcity of bank funding, garden centres have provided good returns for those who have invested in the sector, in some cases proving to be the best performing sector for property funds in recent years. The increased footfall which garden centres can generate has made them attractive propositions as the focal point of retail development in many cases making them the new breed of anchor tenants.
Unlike many retailers, garden centre operators also still prefer long leases and the nature of their business and real estate use ensures a higher level of business continuity and security for the investors’ income stream. The use of indexation of rents and turnover rent provisions have also allowed investors to maintain returns whilst the nature of their real estate may leave open the prospect of long-term redevelopment opportunities.
A sector undergoing consolidation
|Wyevale (Now known as The Garden Centre Group)
|Garden & Leisure
|Sold under administration
|Blooms of Bressingham Plc
|Acquired by TGCG
|Acquired by Notcutts
The garden centre sector landscape has changed over the past five years through a mix of acquisition and organic growth. As our table shows, back in 2007 the sector was dominated by Wyevale who had acquired Blooms that year, bringing its total of centres to 114. Dobbies plc was also a major operator with a portfolio of 20 centres. Klondyke Garden Centres, Notcutts, Blooms of Bressingham plc, Hillier and Squires were the other double-digit centre operators.
Today, many of these companies remain favourite household names. Wyevale and Blooms of Bressingham were consolidated into the 129-centre Garden Centre Group and continue to trade under their own brands. In turn, The Garden Centre Group was acquired earlier this year by the private equity firm, Terra Firma. Dobbies plc was acquired by Tesco Group in 2008 and operates as an independently run company, having extended its portfolio by approximately 60%. Currently operating 32 centres, it has ambitious growth plans to be a £1bn business with 100 stores. Guernsey-based Blue Diamond has expanded by over 60% over the past five years and the family-owned Notcutts has increased its group by over 45% having acquired the six-centre NWF Group in 2008. Both Klondyke and Squires have expanded their portfolios significantly with Squire’s bolstering its operations through the acquisition of the three-centre Shoots Garden Centres.
Is the sector weathering the storm?
This year record-shattering weather conditions have had a dramatic effect on garden centres. The wettest summer in 100 years, combined paradoxically with a three-month hosepipe ban, has resulted in 2012 being the first year on record when the sector has witnessed negative growth. Although some centres are expecting turnover to be as much as 25% down year-on-year the reality has been that a drop of 9% to 15% seems more realistic. This downward turn should be tempered with the fact that garden centre retail enjoyed unprecedented growth of 20% in 2011 and statistically weather conditions are unlikely to be as appalling next year. However, some commentators are questioning whether this year’s performance can be solely attributed to the weather or whether there are underlying reasons for concern.
An appetite for expansion still exists amongst many groups and independent owners. This appetite continues to be frustrated by the banks maintaining their cautious approach towards commercial property loans but whatever the economic backdrop, there are always opportunities for some. Consolidation within the sector has been on-going for a number of years and a significant number of independent centres have changed hands, especially over the past eighteen months. The sale earlier this year of the enlarged-Garden Centre Group to the private equity firm Terra Firm for £276 million attracted significant attention to a sector which is still predominantly independents led. As the table shows a number of groups do exist although in comparison with high street and out-of-own retailers, the size of garden retail groups remains at best average, arguably small.
Supermarkets are profiting from the UK’s love of gardening with many featuring pop up plant marquees in the spring. Tesco is driving Dobbies’ aggressive expansion strategy albeit through new sites which will have a slow but inevitable impact upon the market. Waitrose has plans to develop stores alongside garden centres in both Shrewsbury and Northampton. Forward-thinking main stream retailers including Next are also recognising a market that appeals to their customers and are moving into garden centres, driving footfall and increasing dwell time. Many will not be surprised if Marks & Spencer or others follow suit.
2013 could go down as the year of the discount retailer within the sector. With most high streets having a value offer it looks like this trend may well be replicated in garden centres. QD Stores has an ambitious expansion programme, a garden centre has opened up at a factory outlet near Stoke and reports are that this value sector has coped with the wet weather better than the more traditional horticulture-based centres.
Clearly, garden centres will continue to face challenges and, although they remain popular, recognising and meeting those challenges will be a key factor in their enduring success.