Massive social and economic change will continue to affect UK town centres for some time – but is this as much of a crisis as the media would have it, or just a part of natural change? Either way, IPs and rescue professionals should be aware of how they are likely to be involved in the changes to come, writes Fred Crawley
With insolvency practitioners remaining under intense public scrutiny with every big brand that goes down, and restructuring and turnaround specialists putting long hours into those under threat, it’s worth trying to see through the media circus and identify which trends are worth keeping an eye on.
So, what can we say for sure about the future of the high street?
1. There’s such a thing as too much data
Whether you want to paint a gloomy picture for town centres or justify unbridled optimism, there are statistics out there to prove your point.
Ten minutes spent Googling “death of the high street” reveals that 9,000 high street shops will close by 2014 compared with 25,000 since 2000, that high street vacancy rates are at 14%, that one third of retailers are at risk of insolvency in the next 12 months, and that in 500 town centres over the past six months, 3,366 stores closed compared with 3,157 opening – a net decrease of 209.
Then again, the search results will also tell you that consumer confidence is at its highest level since November 2007, that retail sales are growing at their fastest rate for 15 months, that the British Retail Consortium claimed its best July since 2006 this year, and that net reduction in store numbers fell 78% year-on-year, from 953 closures in the first half of 2012.
2. ‘Retail’ and ‘the high street’ are not the same thing
More than trying to give a prognosis for “the high street” as a whole, or consider store closures and openings in absolute terms, it’s worth looking at the specific fortunes of different types of business.
The rising occupancy of pawnbrokers, charity shops and short-term lenders in town centres is well documented, but this is only a particularly attention-grabbing symptom of a general move from goods retail to service provision.
While non-chain clothes retailers, shoe shops and newsagents are shutting at a record rate (200 in the first half of the year), cafes, beauty salons, restaurants, bookmakers, pawnbrokers and phone-related service businesses are springing up more than quickly enough to replace them.
Reviews into the health of British town centres by Mary Portas and Bill Grimsey have been criticised for concentrating on finding ways to prop up retail without acknowledging the changing habits of shoppers, with a growing consensus that what can move online (or out of town), will do so, leaving a much bigger emphasis on service provision for those businesses that stay central.
3. It’s not just distressed businesses that will restructure
While there will be more big names falling into severe distress or becoming insolvent in the lead up to Christmas – or perhaps its aftermath when tills are full – even those that continue to survive in town centres will need help in changing their models to accommodate the changing needs of high street visitors. It wasn’t long ago that Tesco was thought of as a quintessentially healthy UK-based retail group, but even that giant is now curtailing its global expansion plans in order to focus on the home front – which will include providing more service-, leisure- and community-based offerings at high street premises to entice more physical shoppers.
4. There will always be room for “touch and try”
As much as most have accepted that the trend towards online retail is not going anywhere, this shift shouldn’t be seen as absolute. While many retailers have been reconfigured into online sellers as a result of insolvency, many have retained flagship outlets, either for the benefit of being able to claim a physical presence or – especially in the case of those selling higher-ticket items – as a place for customers to make a purchase decision after online research.
In the automotive retail industry much of the sales cycle has now moved from the forecourt to the web, with many customers deciding on exactly the make and model of vehicle they want online before visiting a dealership. Nevertheless, those customers are still reluctant to make a large order before conducting a physical inspection of goods, and the same is often true for those buying high-end furniture or luxury items.
5. Nostalgia may be your greatest asset
A cynic might say the media and political campaigns to “save the high street” have more to do with the fear of change and the loss of comforting visual furniture such as Woolworths and Blockbuster than real concern for the economy.
As suggested already, the changes affecting town centres more reflect economic activity being displaced to different channels and locations, than disappearing altogether. But the nostalgic value which consumers attach to familiar brands may be of value to those charged with realising the assets of a troubled business. Nat Baldwin of Metis Partners, a firm specialising in the valuation and sale of intellectual property assets, says this whimsical capital can be all too easy to underestimate.
According to Baldwin, the value locked up in brand sentiment is often put to one side by IPs concerned more with the “hard assets” of a business, when it may actually represent a major part of the proposition to a buyer.
“Purchasers really understand the premium that can be attached to a brand, and that can make a difference to the bottom line when it comes to realisation,” says Baldwin.
“I have seen situations where a purchasing director has asked for intellectual property to be included with the purchase of hard assets at no extra cost, where in fact this ‘optional extra’ was a saleable asset in itself.”
6. Business rates aren’t helping
While it’s abundantly clear that many businesses are struggling to compete against online retailers, the current business rates system is only stacking the situation further against those companies which choose to occupy physical premises. The system has been criticised by many – not least the British Property Federation – as being inflexible in the extreme, and it’s not uncommon to hear of businesses paying more in rates than in rent.
Yet while property investor Andrew Perloff recently proposed a two year exemption from rates for new businesses moving into empty shops, claiming 150,000 jobs could be created in the process, there has been little action by the government in response.