Death of the British high street? Store closures and job cuts paint grim picture for 2018

UK retailers have suffered their worst start to any year since 2013, and headwinds are still raging

Shafi Musaddique,Josie Cox
Friday 23 March 2018 17:43 GMT
Toys R Us and Maplin collapse into administration

Shahjeem Ali, a 31-year old salesman at a souvenir shop on Oxford Street, looks wistfully at the throng of pedestrians hustling past his store and not giving it a second look on a Thursday afternoon just before rush hour.

“For up to two years now business has been poor,” he says. “People are spending less and are probably only buying keyrings. This year, particularly, has been appalling.”

Ali is one of scores of retail professionals – from Land’s End to John O’Groats – suffering the brutal effects of sluggish wage growth, a jump in inflation and the rapid rise of e-commerce giants like Amazon. The financial performance of stores like his, and that of much higher-profile peers, has been battered this year, raising questions about the survival of the traditional British high street as the UK barrels towards Brexit.

Asked what might be able to save the industry now, Ali says there’s just one thing: “A miracle.”

On the back of Toys R Us and Maplin plunging into administration in February putting thousands of jobs at risk, New Look last week announced that it was shutting 60 stores and cutting almost 1,000 jobs, while investors and shoppers are also fretting for the future of chains like Moss Bros, Carpetright and Mothercare.

On Friday, Next – broadly considered a bellwether of the UK fashion retail market – reported a punishing slump in profits, attributing the fall to a weak clothing market coinciding with “self-inflicted product ranging errors and omissions”.

“In many ways,” Next said, “2017 was the most challenging year we have faced for 25 years.”

Earlier in the week data from the Office for National Statistics showed that retail sales volumes had picked up by 0.8 per cent in February – which was significantly ahead of analyst expectations – but forecasters and economists are pessimistic. Volumes contracted in January, meaning that British retailers this year suffered their worst start to any year since 2013 and the headwinds are still raging.

Commenting on the latest data, economists Sreekala Kochugovindan and Fabrice Montagne at investment bank Barclays said that despite some relief in February, the rebound was not enough to offset the “Christmas drag”, when consumers largely shunned the high street in favour of the internet.

And HSBC economist Elizabeth Martins dubbed February’s reading “the bounce before the beast”. She warned that figures next month would likely be additionally burdened by adverse weather conditions that disrupted transport links and kept shoppers from leaving their homes during the early part of March.

“The data are better than expected, but considering they do not take into account the effects of the snow at all, they are not brilliant,” she said. “They reflect a small increase after two months of falls, and still point to underlying weakness in household spending.”

The British Retail Consortium, the trade association representing the UK retail sector, has also warned that sales are likely to remain sluggish throughout the rest of the year – a prognosis that will particularly pain shops like Ali’s on Oxford Street that sell items considered non-essential, like clothes, furniture and electronics, and those with a with a large bricks-and-mortar presence.

Sarah Garrett, a 51-year old self-employed company director who lives in Notting Hill, speaks for many when she says that she’s of the opinion that “the high street is now a thing of the past”.

“Online is definitely where it is at. Maybe I am lazy, but I just prefer home deliveries [from the likes of] Amazon,” she says. “Who wants to lug heavy bags from the supermarket anyway?”

According to analytics firm Euromonitor, the fashion industry is the retail sector facing perhaps the greatest amount of turbulence over the coming months.

What the company describes as “youth-focused online retailers”, such as Asos, Missguided and Boohoo, are increasingly seizing market share from some of the more established players, by tapping into consumers’ desire to buy via their smartphones and online.

Alongside Next, New Look is a prime example of one of the victims of this trend.

The company, owned by investment group Brait, has expanded rapidly over the last decade, opening branches globally and committing to having a physical presence through expensive real estate despite a surge in the popularity of online shopping and rising business rates here in the UK.

Last month the heavily indebted group posted a fall in sales and profits and admitted that trading “remained challenging”. It said that its priority was to “clear excess stock”. Early in March it launched a so-called company voluntary arrangement, or CVA – a tool often used by businesses to avoid going completely bust by restructuring some of its assets and liabilities.

Under the CVA, New Look sought to gain creditor approval for the widespread store closures which were announced this week.

New Look, like others, has also faced competition from discount outlets like Primark, which has enjoyed a surge in demand from cash-conscious shoppers who have been squeezed by real wage growth being outpaced by inflation for close to a year – largely as a result of the slump in the value of the pound since the UK’s vote to leave the EU.

Beyond retail, restaurants and eateries are also in many cases fighting for their survival.

Julie Palmer, partner at business recovery practice Begbies Traynor, says that the UK’s £5.9bn restaurant industry is facing a “perfect storm”.

High-street restaurant Prezzo is shutting 94 of its 300 outlets 

Jamie’s Italian and burger chain Byron have already launched CVAs. On Friday, Prezzo confirmed that it will be shutting 94 of its 300 outlets, putting around 500 jobs on the line.

Pressures have been exacerbated by the surge in popularity of home delivery services like Deliveroo and Just Eat.

“People used to eat here three times a week, pre-recession ten years ago,” says Mo Miah, 38, who works at a family-run curry house Bengal Village in Brick Lane.

“Now, we’re lucky if our loyal customers come once a week.”

Data compiled by accountancy firm UHY Hacker Young and released earlier this month shows that 35 of the UK’s top 100 restaurant groups are in the red, marking a 75 per cent surge on the equivalent number this time last year, with no sign of respite.

So is this the end of the traditional UK high street as we know it?

Philip Benton, a consultant at Euromonitor, isn’t completely convinced. He admits that there are major challenges facing both shops and restaurants, but that prospects are not as bleak as some figures suggest.

“Our data shows that, despite the rise of online shopping, the vast majority of retail sales in the UK are still done in store,” he explains. “So I’d say the high street is certainly not dead; it’s just being reinvented.”

He adds that consumer habits are certainly changing. Increasingly people want to buy experiences rather than products: go out for dinner and see some live music at the same time, or go and buy new workout gear and attend a yoga class while in store – something that’s being offered by high-end US athleisure wear brand Lululemon.

No doubt there will be more casualties, he says, but if retailers can keep their finger on the pulse of what consumers want, then they’ll likely thrive.

“A lot of it is just about offering something unique, not being generic and proving you can be agile. But saying that the high street is dead? I wouldn’t go that far.”

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