WHAT IS A STORE ACTUALLY WORTH?

Monday Briefing

Britain is making physical retail more expensive at exactly the moment stores are being asked to do more.

For years, the retail industry has debated the future of the store. But perhaps we have been asking the wrong question. The more interesting question now is: what is a store actually worth?

It sounds simple. It isn't. Today's store is no longer just a place where a customer buys something. It can be a showroom, a brand experience, a customer-acquisition channel, a content platform, a community, a personal-shopping environment, a fulfilment point and a gateway into ecommerce. At the same time, the cost of operating one continues to come under pressure.

New British Retail Consortium analysis puts retail's effective tax rate at 71.5% in 2025/26, equivalent to around 72p in business taxes for every £1 of pre-tax profit. September's discretionary retail sales were also the weakest for that month in seven years, excluding the pandemic period.

And yet Selfridges has just reported UK store footfall up 7%. So what is actually happening? The store is not becoming less relevant. Its economics are becoming more complicated.

THE COST OF THE STORE

The BRC's 71.5% figure is striking, but it needs to be understood properly. It is BRC analysis, not an official government retail tax rate. The analysis, conducted by Flint Global, combines business rates, employer National Insurance contributions, VAT and other government taxes. The BRC says retailers paid £39.1bn in business taxes during 2025/26.

The bigger issue is what is happening underneath the number. Retailers are carrying higher employment, property, energy, logistics and other operating costs while consumers remain highly focused on value. The BRC says retail employment has fallen by 122,000 between Q2 2024 and Q2 2026.

And retailers cannot simply pass every additional cost through to the customer. September's BDO High Street Sales Tracker showed total like-for-like discretionary sales down 0.3%, with the month representing the weakest September performance since 2019 when the pandemic years are excluded. Online discretionary sales were down 1.1%.

That matters because the physical store carries costs that an online-only business does not: rent, business rates, people, energy, security, maintenance, technology, stock and logistics. All of those costs exist before we start asking what the store contributes to the wider brand.

Which leads to the first big question: are we still measuring stores like they only have one job?

THE STORE DOES MORE THAN SELL

Look at Selfridges. The department store has just reported a 7% increase in footfall across its UK stores, alongside a return to pre-tax profitability. It is also continuing to invest in the physical proposition through beauty, experiences, personal shopping, membership and cultural programming.

Its 40 Duke Street destination is a useful example of where physical retail is heading: combining personal shopping, social space and cultural programming rather than simply adding another conventional sales floor.

That is a very different definition of a store. A modern store can be a showroom, a brand experience, a customer-acquisition channel, a community, a content platform, a discovery environment, a personal-shopping destination, a click-and-collect and returns hub, and a physical gateway into the digital relationship.

The transaction may happen in the store. But it may also happen three days later online, through social commerce, or after a customer has seen the product, experienced the brand and then gone home to buy it. The store may have created the customer without receiving the final transaction. That is where traditional store economics start to look increasingly incomplete.

THE CUSTOMER JOURNEY HAS CHANGED

The old retail model was relatively simple: store → customer → transaction. The new model is much closer to store → discovery → experience → relationship → ecommerce → loyalty → repeat purchase.

The physical location can influence every stage, yet much of the cost remains allocated to the store itself. That creates an important commercial problem.

If a store helps acquire a customer who subsequently spends £1,000 online, whose P&L gets the benefit? If the store creates content that reaches millions of people digitally, where is that value recorded? If an international visitor comes into a flagship, buys fashion, books a personal-shopping appointment, visits a beauty counter and then returns online, what part of that customer journey belongs to the store? These are not academic questions. They go directly to whether retailers make the right decisions about their estates.

THE INTERNATIONAL CUSTOMER CHANGES THE EQUATION

This becomes even more interesting in London. Selfridges has renewed its call for the return of tax-free shopping for international visitors following its latest results.

The former VAT Retail Export Scheme was withdrawn in Great Britain from 1 January 2021. Under the current rules, tax-free goods in Great Britain can generally be supplied where they are delivered directly to an address outside the UK.

Selfridges and other industry voices argue that restoring tax-free shopping would strengthen Britain's position as an international shopping destination. That is their position. The government's current policy is different. But the commercial question underneath the debate is bigger than VAT: how competitive is Britain as a global shopping destination?

An international visitor does not simply spend money in one shop. They stay in hotels, use transport, eat in restaurants, visit attractions, spend on beauty, buy fashion, shop for luxury and experience the city. The retail transaction is therefore only one part of a much bigger economic ecosystem.

And London is competing with other global destinations for that customer. The BRC has specifically noted that international visitors have provided a buffer for London-focused retail when domestic demand has been weaker. That makes the physical store even more interesting. For some businesses, its value is not simply the amount sold inside its four walls. It is the customers it attracts and the wider ecosystem it helps activate.

LONDON IS DIFFERENT

This raises another question for the UK retail market: could London's retail economy increasingly behave differently from the wider UK?

London has an unusual combination of international tourism, luxury, culture, hospitality, transport and global brands. A flagship in central London can therefore perform a role that is difficult to replicate in a regional town or city.

That does not mean every London store works. It means the reason for having a store can be different. For one retailer, the store may exist primarily to generate transactions. For another, it may be a flagship designed to build global brand equity. For another, it may acquire customers who subsequently buy online. For another, it may be a destination for international visitors. For another, it may do all of those things simultaneously.

That is why the next generation of retail strategy cannot simply be about stores versus ecommerce. It has to be about the role each channel plays in creating profitable customers.

THE REAL RETAIL EQUATION

This is where the debate around the British high street becomes much more interesting. The issue isn't simply that stores are expensive. It is that stores are being asked to create more value while the cost of operating them is increasing.

At the same time, the consumer is becoming harder to convert. September's discretionary sales figures are a reminder of that pressure. Retailers have limited room to increase prices. Promotions can protect volume but damage margin. Reducing costs can affect service. Reducing store numbers can reduce physical reach. And investing in better experiences requires more capital.

There is no simple answer. Which is why the next generation of successful physical retail is unlikely to come from simply having more stores. It will come from having better reasons for each store to exist.

That might mean fewer stores, smaller stores, larger experiential flagships, concessions, hospitality, services, or much tighter integration between physical retail, ecommerce, social commerce and customer data. The answer will be different for every brand. But the question should be the same: what is this store actually worth to our entire business?

SIGNALS TO WATCH

1. The economics of physical retail. Watch how retailers respond to employment costs, business rates and other operating pressures. The key question is whether they absorb those costs, pass them into prices, reduce investment or redesign their store estates.

2. The consumer heading into Christmas. September's weak discretionary sales performance makes the Golden Quarter particularly important. Watch the balance between price, promotion, volume and margin as retailers enter the most important trading period of the year.

3. What the next generation of stores looks like. Watch for smaller formats, new concepts, shared space, concessions, hospitality, services, experiences and increasingly integrated physical-digital models.

4. London versus the rest of the UK. If international visitors continue to provide a buffer for London-focused retail, watch whether the performance of major visitor destinations increasingly diverges from the wider domestic market.

5. Britain's international shopping proposition. The tax-free shopping debate is now part of a wider question around Britain's competitiveness as a global retail destination. Watch the policy discussion, while separating the commercial arguments being made by retailers from the government's current position.

THE TFTT INSIDER VIEW

The retail industry has spent years asking whether the store can survive. We think the more important question is what the store is becoming.

The evidence is increasingly difficult to fit into the old online-versus-offline narrative. Customers are still visiting stores. Selfridges has reported a 7% increase in UK store footfall. Retailers are still investing in physical experiences. International visitors remain an important source of demand for London retail. But at the same time, the cost of operating physical retail is under pressure and the domestic consumer remains focused on value.

That means the future of physical retail will not simply be determined by how much a store sells. It will be determined by how much value the store creates.

The retailers that understand that distinction will be better placed to decide which stores to open, which to change, which to close and, most importantly, what each location is actually there to achieve. Because perhaps the biggest mistake a retailer can make is to judge a modern store by an old definition of success.

So ask yourself:

If your store is doing five jobs for your business, are you measuring all five?

That is the question we're asking at TFTT this week.

What is a store actually worth?

TFTT Inside Fashion. Not Observing It.