British retailers invite rival brands to fill their empty spaces

By James Davey

LONDON, March 6 (Reuters) - As online deliveries surge andshop sales fall, Britain's retailers are looking to refit theironce bustling superstores with new attractions such as rivals'fashion brands to fill empty spaces and keep shoppers comingthrough the door.

In a shift in strategy aimed at making the space profitableand avoiding store closures, retailers such as Tesco have also started experimenting with gyms and children's playareas to entertain customers.

"You've got more choice. It's a bit like a shopping mallwhere you can come and look at different things," saidhealthcare worker Margaret O'Regan, who was browsing clothesfrom the privately-held Dorothy Perkins, Burton and Evans brandsin a huge Tesco store in Woolwich, south east London.

The brands have 20,000 square feet of the store's 120,000 sqft, replacing space previously taken up by Tesco's toys,stationery and technology offer, some of which are now onlyavailable on its website.

In the four months since the brands went in, shopper numbersat the Woolwich store have risen.

A Tesco spokesman said the changes at Woolwich wereillustrative of Tesco Chief Executive Dave Lewis' strategy toturn around the business, giving shoppers more choice so theystart to see superstores as the most convenient way to shopagain.

"We are always looking at new ways our stores can meet theneeds of local customers. We're pleased with the feedback fromcustomers in Woolwich who tell us they like the store'sconvenient range of fashion options," he said.

Thousands of small shops have disappeared from British townsin recent years, unable to compete with the lower costs andprices of online outfits and bluechip retailers such as Tescoand Marks & Spencer could join the exodus.

"The UK is very advanced in terms of online shopping," saidNeil Saunders, managing director of retail research firmConlumino. "As other regions catch-up with that they willexperience similar problems and similar issues."

In the UK online sales as a percentage of total sales roseto 15.2 percent in 2015 from 13.5 percent in 2014, according tothe Centre for Retail Research, compared with 11.6 percent inGermany, 8.0 percent in France and just 2.5 percent in Italy.

UNDER ONE ROOF

Britain's supermarket sector alone added around 35 millionsquare feet between 2007 and 2014 even as online shopping roseand the digital shift looks unstoppable.

Sainsbury's, Britain's second biggest supermarket,has acknowledged that it now has around 6 percent excess space,or about 1.5 million sq ft.

A big part of the rationale for its 1.3 billion poundsproposed takeover of Argos-owner Home Retail is tobring Argos concessions into its stores to absorb this space.

"The coming together of the two organisations would allow usto optimise the space and optimise the space quickly," saidSainsbury's Chief Executive Mike Coupe.

The Argos concessions will complement other moves bySainsbury's to exploit under-utilised space through existingpartnerships with Jessops, the photographic shop, and Timpsons,the shoe repair and key cutting firm.

Tesco has also struck deals for third party outlets withfirms such as Sports Direct, Mothercare,Claire's Accessories and Sock Shop and is testing gyms and softplay areas in some stores. Similarly Wal-Mart's Asdarecently agreed a deal to give space over to Decathlon, thesports equipment and sportswear retailer.

Matthew Hopkinson director of retail property experts TheLocal Data Company expects a proliferation of retail tie-ups.

He says store groups are asking themselves: "What are theother things that you can bring in under the roof that makecustomers feel happier and therefore spend more?"

CLOSURES

If retailers can't make stores profitable the alternative isclosure.

Tesco has closed 61 stores since Lewis became CEO in 2014,while Morrisons, Britain's No. 4 grocer, has closed 21supermarkets and plans to close seven more, saying it can't seea way to make them profitable.

Analysts say Marks & Spencer, the country's biggest clothingretailer is ripe for a major store rationalisation.

In its Christmas quarter M&S grew online sales by 21 percentand although it did not break out general merchandise sales forits stores only, analysts have estimated a year-on-year declineof over 8 percent.

The firm has been tinkering with its near 900 UK stores,dedicating a little more space to the faster growing food overclothes.

There has been speculation that M&S, whose clothing offer isentirely own brand though it does sell some third-party fooditems, could bring in rival clothing brands. This has, however,been dismissed by CEO Marc Bolland, who will be replaced bySteve Rowe in April. A spokeswoman for M&S declined to comment. (Editing by Kate Holton and Anna Willard)