September 7, 2011 / 11:34 PM / 6 years ago

Analysis: UK Olympics mall may have to settle for silver

LONDON (Reuters) - A less-affluent catchment area, stronger competition and more congested roads mean Europe's biggest urban shopping center, which opens in east London next week, may struggle to match the success of its sister mall in the west of the city.

Few analysts doubt Westfield Stratford will pull in millions of Britons over the coming weeks, despite a gloomy economic backdrop, as shoppers flock to explore its 300 retail outlets and 50 cafes and restaurants in the run-up to Christmas.

The 1.45-billion pound ($2.32 billion) project should also get a big boost next summer from the neighboring Olympic Games.

Australian developer Westfield reckons about 70 percent of the Games' estimated 10 million visitors will pass through its 1.9-million-square-foot (177,000 square meter) temple of shopping.

Over the longer term, Westfield Stratford should also benefit from the global trend toward "destination" malls, which offer dining and leisure facilities alongside shops, allowing families to spend the day in one location.

With restrictive planning laws, Britain has fewer such malls per capita than the United States and Australia, and retailers' enthusiasm for them is shown by the fact Westfield Stratford has about 95 percent of tenants in place, including top chains such as John Lewis, Waitrose and Marks & Spencer.

Yet some analysts think Westfield's east London project could have a tougher time than its White City mall in the west, which also launched during a turbulent economic environment in 2008 but sailed through the recession.

Sales at that mall leapt 20 percent in the first half in a stagnant retail market, and are tipped to smash 1 billion pounds this year.

"Westfield Stratford has a more challenging set of circumstances, so it will have to work harder to succeed." said Neil Saunders, research director at retail consultants Verdict.

Firstly, while White City is fed by several major roads, such as the M4, M40 and A40, Stratford relies more on the congestion-prone A11 and A12 carriageways.

"My biggest concern was always infrastructure, getting out there. The railway links are very, very good but the roads are not," the chief executive of a UK retailer that decided not to take a store in Westfield Stratford told Reuters.

Secondly, Stratford -- once known as Stinky Stratford due to its noxious industries and slaughterhouse -- is one of Britain's most economically deprived areas.

MORE COMPETITION, TOUGHER TIMES

Westfield argues there are plenty of affluent shoppers in surrounding areas, estimating there are about 4 million people within a 45-minute drive of the mall, spending an average 15,000 pounds a year per household.

Mall director John Burton also told Reuters he expects the project will act as a catalyst to improve demographics in the local area over the next five to 10 years.

"If anything, personally I have become more confident about Westfield, Stratford, not less," added John Lewis retail director Andrew Murphy in a separate interview.

But not everyone is so optimistic.

"Do you think that demographic is really going to change? I am not convinced it will," said the CEO who decided not to join the project, speaking on condition of anonymity.

"What do you reckon the shrinkage (product theft) is going to be like in Stratford? Every store I have had in Stratford it has been huge," he said.

Westfield Stratford is also launching into a tougher consumer environment than its counterpart in White City.

While Britain was sliding into recession when the White City mall opened its doors in 2008, consumer spending was supported during the downturn by big cuts in interest rates.

It is only recently that household incomes have started to fall, and they show little sign of improving any time soon amid rising prices, subdued wages growth and austerity measures.

A survey on Tuesday showed like-for-like UK retail sales fell 0.6 percent in August from a year ago.

Westfield Stratford also faces more competition than White City from rival shopping centers, such as Lakeside further to the east and Bluewater to the south-east.

"White City has the West End (shopping district as competition), but that is not really the same as having other malls," said Greg Hodge, global retail director at consumer research firm Iconoculture.

Nonetheless, he thought Westfield Stratford was likely to emerge in better shape than rival malls from the competition, thanks to its superior leisure facilities, including a 17-screen cinema, 14-lane bowling alley and Britain's largest casino.

The biggest losers, analysts said, were likely to be shopping streets in nearby towns, where shop vacancy rates are rising because of the economic downturn and competition from grocers and internet retailers, as well as malls.

"It is impossible to arrest the decline of centers that retailers just do not want to be in," said Jonathan de Mello, head of the retail consultancy at property specialists CBRE, referring to a government probe by retail consultant and TV presenter Mary Portas into the decline of town centers.

"My view is that with these smaller centers, you just have to accept that, and maybe think about turning them into residential (property areas)."

Editing by David Hulmes

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