As we start 2020, the ongoing debate about the future prospect for the high street continues apace.
I have discussed this topic in previous blogs and one consistent pattern emerges from a review of the evidence: that there is no real future for the high street, with one or two exceptions.
As we enter 2020, I thought it would be timely to generate further discussion on this “well-worn” thread.
Experts predict that over 7,000 stores will close in 2020, leading to job losses of around 125,000 positions in the retail sector. The bulk of these closures will come from retailers that operate ten stores or more. Such observations are based on the following trends. A proposed increased in the minimum wage, business rates and the infrastructure surrounding many of the locations in the typical high street.
The period leading into the Christmas season usually provides a sound indicator of what is likely to emerge in the New Year. Footfall figures would appear to indicate a four per cent decline on the same period for 2018. Major retailers such as Debenhams, a high-profile casualty of 2019 announced in early January that it intended to close nineteen of its intended fifty stores divestment. Around the same time as this pronouncement, the UK government indicated that it intended to raise the minimum wage six per cent; to £8.72 per hour.
The business rates that retailers pay for the right to operate on the high street are predicted to rise by 1.7 per cent. This will generate an extra £95 million from the larger retailers.
By contrast, Amazon UK Services (responsible for handling fulfilment centres and customers) paid £1 million on a £2.3 billion turnover.
The issue of business rates engenders much heated discussion. Its critics argue forcefully that it places a high strain on the cost to retailers of doing business on the high street. This is particularly annoying, they argue, because it create an uneven playing field: online, pure-play retailers are not subject to this form of tax. This leaves them in a stronger position to compete, given the relenting pressures on managing costs and margins.
In response, the government states that it has addressed the problem by helping smaller stores. In particular, they argue that retailers with a rateable valuation of less than £51,000 had their business rates reduced by over one-third, with the discount rate increasing to 50 per cent by April 2020. Cynics claim that many small retailers do not pay business rated anyway and this distracted people from the key problems.
Local councils (who are responsible for generating revenue to run their respective cities and regions) have taken a pounding as the high street continues to stagnate. Many of them invested heavily over the years in attracting retail property developers to establish shopping centres. If we continue to see stores closing on the high street, this valuable source of revenue will dry up, leaving large deficits to address on the part of the local authorities and councils.
Retail experts have undertaken government-sponsored evaluations of what can be done to improve the lot of the high streets. One in particular, Mary Portas, generated a number of recommendations to address this problem. They included the following initiatives.
- A designated sum of money to be allocated to specific towns and cities in order to develop and improve the infrastructure
- Investment in public transport to attract shoppers into the high street
- Reductions in the cost of parking in such areas, in order to make it easier to access shops
- More creative design of the high street e.g. innovative and unusual shops
- Reduction of business rates
- Themed events in the high street such as Christmas markets, live music, festivals and so on.
Many of these recommendations were not taken up by the respective stakeholders, leading many commentators to conclude that there was a lack of willingness to focus on the key obstacles to rejuvenating the high street.
In my view, the evidence of stagnation and decline is visual. Please walk around any major high street in your town or city and assess what you witness. I suggest the following will “jump out” at you. A preponderance of charity shops (who receive very cheap rent agreements in order to make the high street look “busy). Betting shops (indicating the popularity of gambling), derelict spaces that appear to be falling down in many cases. Parking wardens pursuing the hapless car-owner with the zeal of religious zealots. Badly lit up spaces, particularly when darkness falls. Beggars and chuggers harassing pedestrians as they pass through. A preponderance also of payday lenders and pawnshops exists on the high street. Furtive activities (such as drug dealing) taking place down back alleys. Need I go on? It leads to the inevitable question. Why would anyone in their right mind go to the bother of visiting the high street when everything is available to them online?
However, I need to be more realistic and objective in my assessment. There are always two sides to an argument.
Proponents for rejuvenating the high street argue that online retailing does not provide an engaging and positive experience for shoppers. In many cases, the design and layout of the website makes it difficult for shoppers to navigate their way to their ultimate destination (i.e. what they are looking for).
Others argue that online shopping is not tactile: it struggles to make use of atmospherics (a common feature of “bricks and mortar” stores). This results in a “sanitised and clinical” shopping experience.
The academic literature and research suggests that the best response from the high street should be grounded in the customer experience. Specifically retailers should capitalise on the ability to invest in “shoppertainment” and accept that they will never compete directly with pure play online retailers on issues such as price. Instead, by focusing on the merging of the online and offline experience, combined with technology, they can continue to attract shoppers to their respective physical premises.
In this situation, I refer you to John Lewis. This retailer revamped one of its major stores (Southampton) with the focus on providing what it labelled “experience playgrounds”. Specifically it created spaces in the store to offer customers cookery classes, gardening talks, beauty makeovers and advice on technology. Senior management see this as a precursor to future developments across its portfolio of physical stores.
Therefore, if we are to follow the examples of John Lewis and other retailers such as IKEA, we will increasingly see physical retail outlets and the high street becoming entertainment centres. This may provide the opportunity to reduce the increasing gulf between online and offline shopping.
The UK government recently announced yet another initiative by making money available to rejuvenate fourteen designated towns in England. Is this a case of “more of the same”?
In my view, governments, retail property developers and retailers will also need to “step up to the plate” and fully embrace the concept of “shoppertainment” if this strategy is to generate dividends going forward. Creating such entertainment venues in badly designed, shabby and expensive physical spaces such as the high street will not necessarily bring shoppers back to the high street. A recent report by the Centre for Retail Research indicates that an average of 2,750 jobs per week in the retail sector will disappear in 2020. Whether the concept of “shoppertainment” will work in the long run is problematic. Let us see.