Future of the High Street

The British High Street has been in difficulty for some time with large numbers of empty shops and a recent history of big name failures including House of Fraser and BHS, this can only be made worse by the Covid-19 pandemic which has shut all ‘non-essential’ retail operations, although garden centres have recently been allowed to re-open – they’re obviously essential to the British psyche!

Although shops can apply for rent and rate holidays and other government support including for furloughing their staff, lockdown has exacerbated existing problems at many retailers. In the last few weeks, BrightHouse, Laura Ashley, Carluccio’s Restaurants and the Casual Dining Group (Bella Italia, Café Rouge & Las Iguanas) have all applied for administration – not that this means that they will necessarily close – though many branches inevitably will. Other retailers including Debenhams have run into trouble and such former stars as John Lewis, Next and M&S have reported decreased profits even before the lockdown. It is becoming clear that the face of the British high street in many towns and cities will change.

The UK is unusual in Europe for its concentration of multiples with their buying and advertising power having generally driven the independents into ever-smaller niche markets often away from prime retail sites in shopping centres and retail parks.

Exacerbating these problems for physical bricks and mortar retailers is the rise of online retailers, delivering items next day at very competitive prices, often from large out of town fulfilment centres, paying low rents, rates and taxes. Many retailers complain about the unfair advantage these companies appear to have.

During the lockdown, online shopping has been the only option for most items and has been increasingly popular even for food. Outside of the big name online retailers, I have been impressed by how many retailers have risen to the challenge, supermarkets have increased their capacity often stock picking at night and delivering over an extended day and local shops and suppliers have started deliveries, often working off very simple, low cost, online presences such as facebook.

High Fixed Costs on the High Street

One of the problems that retailers, particularly small retailers have long complained about is the cost of rent and rates for prime retail sites, these represent a large fixed cost to their businesses making it difficult for specialist or service based shops to survive. Charity shops in general don’t pay business rates partially explaining their ubiquity.

Several troubled large multiple retailers have recently managed to negotiate reduced rents or rent holidays with landlords who have accepted these to prevent large empty spaces appearing in their shopping centres. This is not usually an option for smaller independent shops.

This though is really transferring the problem to landlords who are often highly leveraged themselves, having paid high prices to buy or develop prime retail estate and have to maintain shopping centres to the required standard to attract shoppers and tenants. So far in the UK there have not been many failures of property owners, however the pandemic and the rent reductions negotiated by some retailers may be about to change this, Intu for example has been reported to be aggressively chasing tenants for rent and trying to arrange refinancing. Falling retail rents generally would have a knock on effect on commercial property prices probably not just for retail, this could be exacerbated by a move away from large city centre offices.

Business rates are a significant source of income for local authorities, particularly since their central government support has been cut significantly over the last decade so unless their funding arrangements are changed, they are dependent on business rates of which retailers are large contributors.

Coming out of lockdown

As we come out of lockdown, will we be flocking back to the shops, saving our retailers, cafes and pubs? There are several conflicting pressures.

  • We will probably all be glad to get out and have somewhere to go and have something to look at and shopping was a favourite leisure activity.
  • We may be cautious about mixing closely with others in confined spaces and therefore suppressing trade, irrespective of social distancing regulations and guidelines. This appears to be the case in other countries as they come out of lockdown.
  • Those who have been able to continue working, collecting their full salaries with little to spend their money on, may be in a position to have a spending spree. 
  • Many who have lost income, even if they have been on temporary support, have seen a big reduction in their spending power.

Overall the combination of lost income and uncertainty are likely to depress spending and trade, making the recovery perhaps more dangerous than the lockdown, particularly as extra borrowing starts to have to be repaid.

What then is the future?

Crystal ball gazing is always dangerous but here goes:

The high street will always be able to deliver an experience in a way online cannot. This experience will be the key to the future.

Outlets selling ‘me too’ stuff will find life increasingly hard, if not impossible, so boring multiples that offer no particular shopping experience will disappear.

Businesses that behaved badly at the start of lockdown, such as Weatherspoons and Sports Direct may take a long time to live down their reputational damage.

Low cost traders Lidl, Aldi, Primark, Poundland etc. who came to prominence in the last financial crisis will continue to attract people for whom cost is the main driver. With large numbers of people losing some or all their income there will be many of these, these retailers will continue to thrive as long as they can keep their cost advantage.

People who have the money to choose, and there will be many of these, will look for brands that match their personal values, whether these be environmental, style, durability, performance or some combination. Expect to see more shops giving that ‘authentic’ brand experience where the product can be seen, touched and if appropriate, tried on, Think Apple Stores, Fat Face, etc. This will only work however for brands that have clear identity and stick with it, once that identity becomes diluted then the strength of the brand fades away, think Gap and Jack Wills.

Local retailers, particularly independents that can offer expert personal service and flexibility should also see resurgence. My local butcher is busier than ever and several local pubs, restaurants and even a local cake maker are offering deliveries. Not only will people remember this but many will find this a valuable additional income for their businesses. I find it interesting that shops large and small are now delivering to my door – something we haven’t really seen since my parents and grandparents days.

Online retailing will continue to be strong, particularly for items that don’t need to be seen, touched or tried on, including groceries. There is though a warning for our largest online retailer, I find their site increasingly hard to use with too many similar products, too many suppliers, potentially dodgy product ratings and some fake products. The strength of any brand depends on customer trust, once lost, hard to regain.

Out of town shopping centres and retail parks have been a popular feature of UK shopping but as these are often made up of large units occupied by multiples, these may be in for a difficult future.

The reversion to weekly shopping has boosted large out of town supermarkets with their reliable stock levels and easy parking. It will be interesting to see if this trend continues as lockdown eases or whether we will revert to more local shopping.

Finally

It would be nice to think that we will see more interesting if smaller high streets with more interesting independent shops offering a much better shopping experience than we get at present. This though will depend on shoppers wanting to use this rather than just browsing online  and more realistic rents and rates.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: