Investors’ stage directions turn shopping into costly retail theatre

Three months ago, shopping centre owner Hammerson proudly unveiled an agreed £3.4 billion takeover of its smaller rival Intu, a move that would create Britain's largest property company.

Now Hammerson is fighting to keep that deal alive – and may soon be battling to retain its own independence in the face of an unexpected £5 billion approach from the French firm Klepierre.

David Tyler, chairman of Hammerson, has rejected the French suitor in no uncertain terms, complaining that its move is opportunistic and that the proposed terms of 615p a share are significantly below asset value. Instead, he wants to press ahead with the Intu deal.

But Hammerson shareholders are not so sure. Indeed, it was their lukewarm reaction to the Intu move that effectively provided Klepierre with its opportunity to pounce. Since Hammerson unveiled the Intu deal last December, its shares have slid by almost 20 per cent, resulting in its relegation from the prestigious FTSE 100 index last month.

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Klepierre has not launched a formal takeover offer, but has made it clear it is keen to talk. News of the approach sent Hammerson shares soaring on Monday.

It's the Hammerson business Klepierre is after, rather than Intu. Hammerson owns or has stakes in some of the biggest shopping centres in Britain, including the Bullring in Birmingham, Brent Cross in London and Bicester Village near Oxford. In Ireland its portfolio includes Dundrum Town Centre, Swords Pavilions, the Ilac centre and Kildare Village.

Klepierre was swiftly styled a "wedding crasher" by analysts after its unexpected intervention, as its arrival on the scene has made "the marriage of convenience" between the two British firms far less likely to succeed, according to Peel Hunt's Matthew Saperia.

Hammerson is now “in play”, he says, and shareholders are expected to be far more willing to hear what the French firm has to say than its board clearly were – according to the French firm, they took less than 24 hours to dismiss the approach.

Valued at around €10 billion, Klepierre has more than 100 shopping centres spread throughout 16 countries, but lacks any presence in Britain and Ireland.

Investors’ attention

For such an unloved sector, bricks and mortar shopping malls are certainly attracting their fair share of attention from investors. As well as the Intu and Klepierre moves, the French company

Unibail-Rodamco

is in the process of taking over the Australian owned

Westfield

mall group in deal worth £19 billion.

The step-up in takeover activity reflects increasingly tough trading conditions for retailers as online rivals carve out a growing share of the market. With far too much retail space having been opened in recent years, and with consumer spending hit by the wage squeeze, operators are now concentrating their efforts on the larger and more prestigious malls.

These so-called “supermalls” are expected to take an increasing share of the physical retail spend, attracting shoppers away from town centres and smaller, less glitzy malls.

Retailers are prepared to make large investments to ensure their places in the supermalls. This trend is reflected in the £600 million expansion of the large Westfield mall in White City, west London, which will take it to 2.6 million sq ft and make it Europe’s largest shopping centre.

The first phase of the extension opened last Tuesday, with John Lewis as anchor tenant. Unveiling the new £33 million department store, the group's 50th, John Lewis managing director Paula Nickolds insisted that reports of the death of bricks and mortar retail have been exaggerated.

“We believe in the future of shops,” she said. “Customers still want to go out and have a day out with friends and family and connect with people on a human level.”

In other words, the exact opposite to the experience offered by the likes of Amazon with its instant, interaction-free, one-click online ordering.

The new John Lewis shop is offering its shoppers a huge variety of different services, from spa treatments to personal styling for men and women, cookery demonstrations and home-design tutorials. All 500 staff have been put through training courses by actors at the National Theatre to improve how they interact with customers.

Nickolds accepts that turning shopping into retail theatre is a costly business. Success of the new Westfield store will not be judged solely in terms of its sales, she says.

As retailers adapt to survive in the new environment, judging the performance of an individual channel has to be far “much more sophisticated” than it has been in the past, she says.

Fiona Walsh is business editor of theguardian.com