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Garden centre

Saplings no more

23 June 2017

Orchard Street believes that today’s garden centres, unlike the dowdy nurseries of the past, should appeal to commercial property investors.

Not so long ago, nursery businesses were a quiet affair. Visitors wandered through ageing greenhouses, often with the place to themselves. Price labels were not assured, attendants vanishingly rare. If you were lucky, you might find a wheelbarrow to transport your purchases to your car door.

Many of yesterday’s nursery businesses still potter on, but in commercial terms they have long been upstaged by their more sophisticated successor, the garden centre. While the retail element was almost incidental to the former, garden centres increasingly feel like something between a supermarket and a mall.

The shift can be traced back to US influence. Garden centres in the UK were pioneered by James Dobbie of Dobbies and Harry Williamson of Wyevale. Each company has been around for some decades – Dobbies was founded in 1865 – but their shift in approach is far more recent. Among the various concepts they brought across the Atlantic was a very simple one with enormous retail implications: selling plants in tins small enough to carry in your hand.

Nevertheless, their initial success still came up against a less tractable problem – the weather. Even as they targeted their retail customers far more effectively, their garden centres still faced that perennial problem of seasons. How could they increase their footfall in autumn and winter, not just spring and summer?

“Garden centres latched onto the idea of being a pleasant leisure destination for their core shoppers in the 50-plus age group, and so the development of departments to browse, concessions from other retailers and restaurants and coffee shops was created,” says Philip Gadsden of Orchard Street Investment Management, which oversees the St. James’s Place Property fund. “Having more attractions allowed visitors to stay at the garden centres for longer. Coupled with substantial onsite parking facilities, the development led to footfall becoming less seasonal.”

National pastime

A study published last year found that gardening was the nation’s fourth most-popular pursuit – beaten only by reading, cooking and running.1 There are 22.8 million gardens in the UK2 and 42% of UK citizens consider gardening a good hobby – 39% see it as good exercise.3 Inevitably, the fact of an ageing population also plays into the hands of garden centres.

Yet there are signs of life at the other end of the age spectrum too. The government now actively encourages schools to teach children how to plant and grow their own fruit and vegetables, while research conducted by Ipsos-Mori showed that more than 36% of people with children under the age of 10 would visit garden centres more often if more child-friendly activities were laid on.

Garden centres are increasingly heeding that call. Dobbies has introduced ‘Dobbies Little Seedlings’, gardening clubs for 4-10 year olds that meet once a month to learn about plants, wildlife and the environment.

“Taking this a step further, garden centres could have permanent play stations where children could be encouraged to plant seeds, think of which plants are best for attracting bees, or learn about designing a garden,” says Gadsden. “Adults could be encouraged to be more adventurous with their gardening through hands-on activities as well as talks, YouTube and live demonstrations.”

But Gadsden believes they are on the right track – and have already made enormous commercial progress. Individual garden centres have significantly increased their scale, and the addition of coffee shops, restaurants and third party retail outlets has made garden centres more attractive for customers – and for investors.

Orchard Street holds a portfolio of eight garden centres in the St. James’s Place Property fund, all of them run by Wyevale, the largest garden centre operator in the UK. The fund’s properties are located in Leicester, Altrincham, Nantwich, Huntingdon, Woking, Gosforth, Osterley and Braintree – a small proportion of Wyevale’s 151 centres nationwide. The financials look attractive too.

“The portfolio is valued in excess of £90 million and has rent roll of over £5 million per annum linked to inflation on lease lengths of 25 years,” says Gadsden. “The stable income is supported by 22 concessions including Edinburgh Woollen Mills, WH Smith, Pet’s Corner and Lakeland, whose rental income has increased by 3% in the last 12 months. Given that over 60% of British adults visit a specialist garden centre every year, revenues look set to increase further.”

Moreover, while Wyevale's cashflow figures offer him plenty of comfort, Gadsden also feels confident about the prospects for both the industry more broadly.

“The garden centre has been transformed over the past 50 years,” says Gadsden. “Today it is almost unrecognisable when compared with its predecessor in both the variety of the offering and the sheer scale of the outlets.”

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.
 
The opinions expressed are those of Philip Gadsden of Orchard Street as of June 2017 and are subject to change at any time due to changes in market or economic conditions.  This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy.  The views are not necessarily shared by other investment managers or St. James's Place Wealth Management.

Orchard Street is a fund manager for St. James’s Place.

http://www.axa.co.uk/newsroom/media-releases/2016/The-national-great-love-for-hobbies-continues-to-flourish/

2 Mintel, 2014

3 Garden Centre Update, 2016

 

Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.

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