For once, everyone agreed: there was no other way; with large-scale vaccination programs coming, stores would re-open. And in this “New Normal”, many stores were not going to survive without government support. It seemed obvious.
Things turned out completely differently.
Stores didn’t reopen until May, and by the end of November there were strict restrictions again, despite high rates of vaccination.
And the predictions about the number of store closures? They were completely wrong. We must admit that for the first time in 10 years our predictions were also inaccurate. In early 2021, we didn’t dare to rely solely on historical data and thus added the Corona Impact & Recovery Index. The prediction: “The current retail landscape will be disrupted by the new normal. It seems inevitable that the number of stores forced to cease operations will be higher than ever before.”
Fewer retailers quit last year than ever before in the 21st century!
We see the same pattern for both the Netherlands and Belgium: the number of store closures fell by more than 50% compared to the previous year. The number of new start-ups and relocations also fell by more than 50%. Retail entered a deceleration stage in 2021, as stores were partly kept afloat by government subsidies.
Is it at all possible to predict the future in the dynamic retail landscape? It is certainly difficult, yet the Retail Risk Index has built up a good track record over the past 10 years.
Retail Risk Index or ‘retail survival rate
The Retail Risk Index (RRI) shows risk profiles of stores within shopping areas. For over 140,000 stores in the Netherlands and over 120,000 stores in Belgium, the probability is calculated that stores will survive the coming year: the “retail survival rate:”.
The Retail Risk Index quantifies the risk profile of a retail property through 4 performance indicators:
- Premises index: all mutations of the retail premises in the last 10 years.
- Street index: recent movements of retail properties in the street surrounding the retail property.
- Sector index: recent developments within the sector that is active in the store premises.
- Supply & demand index: relationship between supply and demand in the immediate vicinity of the property in the industry it operates.
All based on data collected continuously by Locatus’ field staff. In recent years we have seen the risks steadily increase. In early 2020, the Retail Risk Index even reached its highest score in the past 10 years.
Proven predictive power
The predictions within the Retail Risk Index are made annually for all stores in shopping areas and can therefore be validated at store level. Three years later, we know how accurately the predictions have turned out.
The graphs below show the 2018 RRI predictions for the Netherlands. The higher the RRI the higher the probability of closure. We divide the normally distributed results into five groups: very low RRI, Low RRI, Normal RRI, High RRI and Very High RRI. For each group, we compare these scores to the actual number of closures after 1 year (early 2019) and 3 years (early 2021).
In the group of stores with a very low RRI, we see only about 3% of closures per year. However, in the stores with a very high RRI, as many as 27% have already closed after 1 year, rising to more than 50% in year 3.
We see a similar pattern for stores in Belgium. In the group of stores with a very low RRI, we see more than 3% of closures per year. Meanwhile, in the stores with a very high RRI, 26% have already stopped after 1 year, rising to more than 50% in year 3.
For both countries:
“Stores with a very high RRI are thus more than 5 times more likely to quit than stores with a low index.”
Retail Risk Index 2022
Are we going to see another historically low number of closing retailers in 2022?
If 2022 will be an exact duplicate of 2021 it will happen, but that seems very unlikely. Steering solely on the historical data where government support has kept a number of stores artificially alive is also unrealistic. The Corona Impact & Recovery Index has therefore been added again for 2022 as a fifth component. Our prediction remains that the retail landscape will be shaken by the new normal during 2022. The number of stores forced to close down may even be higher than in recent years prior to corona.
An interesting question is how resilient shopping areas will be. Retailers who respond well to the new reality can seize opportunities. Not everything is convenient or fun to do online, and working solely from home does not make people happy. Close to where people live (and work), new retail and services can emerge. Presumably on a smaller scale and with different rental rates than we know from the busy shopping streets. Current conditions put rental rates and conditions under pressure. This in turn creates opportunities to open a store faster and with less risk. Retailers that survive are able to adapt more quickly to the new circumstances.
Want to know more?
The Retail Risk Index is calculated annually for more than 250,000 stores within shopping areas in the Netherlands and Belgium. The strength of the index lies in the combination of key performance indicators and the depth of the analysis. Would you like to know more about which retail areas are the healthiest or weakest? We are happy to help you.