With a seemingly never-ending list of household names announcing store closures, it may not come as a huge surprise to learn that we are losing high street businesses at an unprecedented rate. Latest research by Red Flag Alert shows that over 180,000 limited companies operating in the retail sector ceased trading in the years between 2010 and 2017. What is perhaps more shocking, however, is that in the first 5 months of 2018 alone, over 20,000 retail companies have closed their doors for good.
So what is behind these closures and is there anything we can do to stop the demise of the high street?
It is impossible to ignore the role the internet has had on our shopping habits and the knock-on effect this has had on how we use our high streets. However, there are other factors at play here. Increases to the National Minimum Wage and National Living Wage, and the level of auto-enrolment pension contributions employers must make on behalf of their staff, added to the recent hike in many retail units’ business rates, are all adding to the financial burden on high street outlets. HMRC’s plans to introduce Making Tax Digital (MTD) in the near future is set to add further anxiety to business owners who already feel overwhelmed by government red tape.
A further financial burden on some of the larger brands is the pressure placed upon them by debt finance taken out by their private equity owners will have used. The level of repayments and the onerous management fees these arrangements charge can quickly turn a profitable store into one battling to keep up with its financial obligations. These issues are widely believed to have directly contributed to the collapse of BHS, Maplin, and Jaeger to name but three.
It is not just the retail sector feeling the pinch.
The disappearance of pubs and clubs in towns and city centres has been occurring for years, but more recently the closures of well-established restaurant chains such as Prezzo, Jamie’s Italian, Byron Burger, and Carluccio’s is seeing the traditional high street changing beyond recognition.
The high street has also lost over 2,000 bank branches between 2011 and 2017. Banks traditionally occupy larger units which are notoriously difficult to fill. In a climate where stores are looking to cut costs wherever they can, retailers are looking to shrink their units by sub-letting to coffee outlets, restaurant chains and patisseries, rather than taking on additional floor space. With BHS going under last year, and House of Fraser recently announcing swathes of store closures, large empty units are becoming an increasingly familiar sight up and down the country.
While 2018 is looking like being a year retailers would like to forget, which establishments could be next to join this unwelcome club?
Some have predicted that estate agents and property letting companies could have a tough time in stores as the Tenant Fees Bill is implemented which will cap and limit deposits and fees letting agents can charge. Fines of up to £5,000 can be issued for abuse and non-compliance of these rules. By the government’s own estimates, the industry stands to lose between £1 billion to £4 billion over the next 10 years, and with further regulatory burden in the form of Anti Money Laundering and GDPR, many businesses will be questioning whether they can survive.
Although the last 10 years have been kind to bookmakers, signs are there that the tide may be turning. The explosion of betting shops has been driven in part by the popularity of fixed odds betting terminals (FOBTs). The ability for customers to stake up to £100 per spin makes them extremely profitable for bookmakers, yet they understandably garnered a huge amount of bad press. The government recently passed a bill which will limit the maximum stake to just £2 in an effort to protect vulnerable customers. Prior to the legislation being approved, both William Hill and Ladbrokes predicted closures should the £2 limits be imposed; only time will tell whether this comes to fruition.
And finally, what does this mean for landlords?
Landlords have enjoyed many years of rising rent reviews, and increasing profits, but all the signs are there that this culture is coming to an end. Landlords will be required to adjust their expectations knowing that smaller retailers will typically be unlikely to fill the property vacated by large national companies and pay the rentals prices achieved in the past.
Landlords must learn to manage estates better, and commercial managers will have to be flexible and proactive in looking for growing successful brands to fill rentals. While many things are up in the air, one thing is certain: the future of our high street is going to be an increasingly challenging place to survive.