After a yoga class or a coffee? Pop into Tesco

Supermarket chain meets the online shopping challenge as it unveils its 21st century blueprint for future stores - and James Thompson reports on the new space race

It will house a restaurant, an  artisan café, an upmarket  bakery, a clothing department and a yoga class. No, this is not a country club in a well-heeled part of the Home Counties.

This is Tesco’s blueprint in Watford for its huge hyper- markets in the 21st century, of which it will provide a sneak preview on Thursday. In a rare display of hype, the website of the Tesco Watford Extra – dubbed a “brand new shopping and leisure destination” - has a clock counting down to the official opening of the huge 80,000sq ft store in Hertfordshire on 12 August.

The grocery giant is taking the radical action to combat the rapid growth in online shopping, which has contributed to weak demand for big-ticket items such as TVs in its biggest shops and required a radical rethink in how to attract shoppers into them.

But Tesco is not alone in having too much space and changing its strategy. Other supermarkets have declared that the “space race” of carpeting over the UK with large stores is over, as most shift their focus to opening smaller stores in high footfall areas.

Indeed, some of the UK’s biggest non-food retailers are also slashing their space to address the fact that shopping online now accounts for more than £1 in every £10 spent. Kingfisher-owned B&Q has sublet space to Asda and other retailers, as the DIY market leader reckons it can take the same amount of money with 20 per cent less space.  Marks & Spencer, with 700 UK stores, also said in May that it does not plan to add any more space for clothing and homewares from 2016, as more of its sales move online. By then it reckons it will have reached “saturation” point and will instead only open new general merchandise space when it wants to relocate or extend existing stores.

David Harper, the co-founder of Harper Dennis Hobbs, the retail property firm, said: “Previously a retailer might have needed 250 shops to cover the UK population but nowadays there is a growing view that you only need about 50 stores in the so-called mega shopping centres – and a great website - to do the same job.” Indeed, many  retail chief executives would secretly love to hand back the keys on at least a quarter of their worst-performing stores to landlords at a time when one in seven town centre shops is vacant, saysthe Local Data Company. 

Of course, the challenge for Tesco – which remains Britain’s biggest and most profitable retailer – is far different to other troubled chains. Furthermore, it has already started replacing much of the space previously allocated for consumer electronics in up to 850 of its biggest shops, including its core superstores and 250-plus hypermarkets, with more food, stationery, homewares and clothing.

But it realises it has to go much further, which is why Watford is so crucial for turning around the lacklustre performance of its British business.

To help attract more shoppers it acquired the restaurant chain Giraffe for £48m this year, following major investments in the coffee chain Harris+Hoole and posh bakery chain Euphorium last year. In addition to the latter two brands, already introduced into some Tesco stores, Watford will be the first to house a Giraffe. The Hertfordshire store will also display its F&F clothing brand in a layout more befitting a department store than a supermarket.

The Watford shop’s so-called “community room” will be made available for people to book yoga, or other, classes, complete with tea- and coffee-making facilities.

Bryan Robertsfrom Kantar Retail said: “Watford is a statement of intent of what can be possible for Tesco. It is going to be a compelling combination of retail, food service and community, which will benefit Tesco by driving footfall to this type of location.”

He added: “The challenge will be for Tesco to create a similar buzz around its hypermarkets in Scotland, the north and Cornwall - and not just in the South East and London.”

Philip Clarke, Tesco’s chief executive, spoke to trade paper Retail Week about the refurbished Watford store: “What is new is the approach we have taken to the use of space. That use reflects the profound changes we are seeing in retailing...technology is transforming the way we shop.”

In other forms of downsizing, Tesco has already sublet space in its Stockton-on-Tees supermarket to gym operator Xercise4Less and has held talks with other retailers, like Sports Direct, about similar deals. Big no longer seems to be beautiful...

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