Chris Daniel and Mark Phillipson, the pair behind new joint venture Quadrant Repurpose, reveal how they plan to breathe new life into Britain’s department stores to Emanuele Midolo.
Over the past few years, the UK’s retail landscape has changed beyond recognition. Nowhere are the challenges faced by retailers more stark than in the department store sector, which has seen the likes of BHS, Beales and Debenhams go under or shut stores.
The question is what to do with all the huge vacant units that have hit the market, seen by many as the antithesis of what a modern omni-channel retailer needs. That’s where Chris Daniel and Mark Phillipson, founders of Quadrant Repurpose, come in.
As Property Week revealed a fortnight ago, the pair have launched a new joint venture promising to breathe new life into the department store market.
In their first media interview, they reveal why they launched the joint venture, which is the first of its kind, and how they intend to revitalise the sector.
Phillipson and Daniel, who have known each other for around 25 years, but never worked together until now, have complementary backgrounds. The former had been in retail, both on the agency and investment side, for more than 30 years, latterly as head of retail at Colliers.
Daniel, meanwhile, spent five years in the early 1990s as an investment agent and a retail warehouse development agent at Matthews & Goodman, which is when he first met Phillipson, before launching Quadrant Estates in 1997 to focus on retail and central London offices.
Fast-forward more than two decades to six months ago, when the two of them find themselves in a coffee shop discussing what to do with the UK’s growing number of vacant department stores.
“We were on the same wavelength,” recalls Daniel. “It struck us that, with our combined experience, we could do something about it.”
Phillipson notes that, although lots of people had been looking at town centre regeneration or shopping centre transformation opportunities, no one really seemed to be looking at what to do with these old department stores, which often sit empty for years.
He cites the example of BHS: three years on from the chain’s collapse, more than 50 of its former stores remain vacant. “We find they are the most interesting ones; they were often the original anchor of the town centre before shopping centres came along,” he elaborates. “We think that’s the future and that their role might be coming back.”
One of the things that attracted Phillipson to forge a joint venture with Daniel was the sheer scale of opportunity. “It’s a sector of the market that has a pressing need for advice and I couldn’t see development managers out there that really focused on department stores and their issues.”
Quadrant’s willingness to deploy capital is another “point of difference”, he says. As well as working on behalf of landlords and retailers that own or lease department stores, Quadrant Repurpose also intends to acquire assets outright and has set aside initial funds of £50m to do so.
“We can have access to greater funds for the right opportunities,” adds Daniels. Although many retail ‘experts’ have written off the department store business model, Daniel believes it still has legs. “We don’t think that the department store concept is well and truly buried,” he says. “it’s definitely still relevant in the long run and in certain locations – and if they are good retailers.”
Quadrant Repurpose’s modus operandi is to pick up big chunks of real estate in prominent locations and modernise them “to make them more relevant”.
In many instances, this might entail downsizing existing retail units rather than dealing with a completely vacant building.
“We have to be very flexible in terms of out approach,” says Daniel. “We have the knowledge and the skillset to be able to do both; either acquiring existing vacant or soon-to-be-vacant buildings or working with owners of assets who don’t want to sell, but would want to capture value and also working with owner-occupiers to downsize and create income.”
Each asset is assessed on a case-by-case basis. “You can’t have a cookie-cutter approach,” says Daniel. “Every project is different and every solution must be bespoke.” He compares it to conducting an orchestra. “You have to decide: will you bring in the brass section or the violin?” he says.
All options will be considered, but the duo are not convinced that residential conversion will necessarily be viable. They point out that department stores typically have very deep floorplans and that creating atriums for residential schemes would have an impact on floor space.
What’s more, many assets are listed, internally as well as externally, and many have imposing staircases or very old lifts. “That’s why residential is an option, but isn’t the slam dunk by any strategy,” says Daniel.
Given a choice between acquiring assets outright and funding the capital expenditure required to take a development forward, Daniel says he has a “mild preference” for the former.
“If it sounds too rapacious, I’d like to see an equity return and a profit, rather than just taking a fee,” he says.
The duo are already working on two projects. They will not be drawn on the details, but Daniel says that the schemes will be very different to each other. One will be predominately a residential conversion while the second will be a commercially led, mixed-use scheme.
Daniel and Phillipson say Quadrant Repurpose’s primary objective in the long run is to become the leading player in the department store sector. “It would be foolish to give you a number [of department stores to reposition],” says Daniel. “What we want to achieve is to become the number one specialist firm of this kind.”
“I’d much rather be judged by the success we achieve than the number of stores because you could do lots of them, but do them badly.”
Phillipson says “the biggest threat” is the prospect of a poor economic backdrop. However, this threat seems to have a dissipated slightly following the general election in December. “I think the economy has taken a step forward in terms of business confidence,” he argues.
Another potential challenge is the long leases some occupiers of department stores are on – which in some cases stretch to decades.
However, Daniel ad Phillipson think their proposition is flexible enough to be attractive to most people. “Ultimately, the challenge is: will the economic viability support anything like the current existing book value?” says Daniel.
If a department store producing £500,000 in rent in its glory days, the residual value after the repurposing would not match those figures. “But that original income stream won’t be there either, so you have to reflect reality. Trying to solve that conundrum will be our biggest challenge.”
As to why no one has thought about doing anything like this before, Phillipson thinks attention is largely been focused on the shopping centre sector.
“That’s a very important subsector that’s got so many people and knowledge and money, so it has taken priority,” he says. “There are fewer specialists for department stores and [the sector] hasn’t attracted quite the same attention until the recent string of headlines.”
Repositioning some of the UK’s old department stores is a daunting prospect, but Daniel and Phillipson are clearly ready to meet this challenge head on. They’ve clearly got a strong sense of Repurpose when it comes to the UK’s ailing department stores.