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By Paul Windmill
Director
Posted on: 14 November 2018

Six Reasons Behind the Decline Of The UK High Street

The British High Street is continuing to diminish, and as the crisis persists, the high street as we know it may soon become obsolete, with both independent and chain stores feeling the effects. Restaurant chains Jamie’s Italian and Prezzo announced closures earlier this year, whilst the longest running retail chain WH Smith announced closures of some of its 610 High Street shops.

Expert observations have warned that retailers are battling a storm of pressures, with more closures expected through 2018 and into 2019, so here are just some of the reasons why the UK High Street is continuing to fall.

Squeezed Incomes

Rising shop prices and weak wage growth has led to a decline in discretionary spending. With a near 15% fall in the pound since the Brexit vote, inflation was pushed to over 3%, sitting largely above the Bank of England’s 2% target. The effect of this has meant imported goods are more expensive, and as a result, these costs have been transferred to consumers. Furthermore, although retail sales have continued to grow by volume, this has been at much slower rate, falling from 4.7% in 2016 to 1.9% in 2017.

UK economists at Pantheon Macroeconomics stated that the retail sector has already been suffering from structural problems, such as the rise in online shopping and high business rates, but the increase in inflation since the EU referendum has pinched consumer incomes in real terms, resulting in weaker growth in sales than retailers had planned for.

 

The Shift to Online Shopping

Online retailers such as Amazon have had a vast impact on the UK high street, as more and more consumer’s view online shopping as a cheaper and more convenient option than visiting the shops.

Head of UK Retail at KPMG revealed that with the overall market not growing, it is all about market share, and 20% of that market is held by online players. If retailers do not have the right online offering, and they fail to implement either value, convenience or experience, they will struggle.

Changing Tastes

According to Toys R US’s administrator, the toy chain fell short in all three areas of value, convenience and experience. They knew the retailer couldn’t be saved because its business model didn’t replicate what consumers want. This is because of the retailer’s online problem. Consumers can enter a shop and look at a product, and then look at an alternative and buy it at a cheaper price.

Rising Overheads

Inflation is not the only cost pressure retailers face. The National Minimum Wage and National Living Wage for over 25’s rises each year, increasing payroll costs. Trade Body the British Retail Consortium estimates the National Living Wage costs the retail industry between £1.5bn and £3bn.

Further to this, Business Rates, which increased again in April are a problem for retailers. It is estimated retailers could pay an additional £2bn over the next three years compared to the last three years. This is likely to deter investment in local communities, causing shop closures and job losses, and preventing retailers from delivering what their consumers what in an efficient and cost effective way.

There has been continued discussion within the small business sector to reduce business rates to enable traditional retailers to compete with online traders. This has now been actioned, with the Chancellor announcing in his Budget that business rates with will be reduced by one third for small businesses with premises with a rateable value up £51,000.

Too Many Shops

With trading conditions tightening, retailers cannot afford to have underperforming outlets. Yet many over expanded during high performing years, leaving them exposed.

Retailers are now taking the approach of closing down underperforming stores, and focusing on a smaller number of profitable stores. 

Too Much Debt

As a consequence of overexpansion, many retailers are shouldering high debt burdens. Just before its collapse, Toys R Us UK faced a looming VAT debt payment deadline of £15m. It would have been unable to pay it without a cash injection from an outside investor.

All of these points highlight the similar difficulty small and local independent retailers are experiencing during the decline of the UK High Street. Contact us and we can assist you with your all your accounting needs and requirements.

Paul Windmill
Director

Paul has over 25 years’ experience working with a wide portfolio of clients, both very large and small across the South East. Paul advises on corporation tax planning and remuneration planning for company directors and senior management, as well