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High Street Sees Largest Half-Year Net Decline in Stores for Five Years

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A combination of growth in online shopping, shift to in-home leisure, heightened restructuring activity and ongoing digitisation of services has seen the half-year net reduction in stores on Britain’s high streets reach record levels, according to research compiled for PwC by the Local Data Company (LDC).

A net 1,123 stores disappeared from Great Britain’s top 500 high streets in the first half of this year as only 1,569 shops opened, compared to 2,692 closures (H1 2017 net loss: -222 stores).

The rate of store closures in H1 2018 remained at 14 stores a day. However, store openings were down by a third year on year (H1 2018: 1,569 openings; H1 2017: 2342 openings. See Figure 1).

Figure 1. Opening and closures of multiple retailer units, 2013-2018 

(Source: Local Data Company)

Closures were most marked in categories affected by online shopping (eg fashion stores and electricals outlets) and increasing consumer preference for in-home leisure - eating drinking and entertaining at home. This shift has particularly impacted pubs and a restaurant sector dealing with cost inflation and oversupply after rapid expansion in 2016/2017.

Lisa Hooker, consumer markets leader at PwC, said: “Our latest research highlights the challenges facing the retail and leisure sectors on Britain’s high streets. The continued rate of store closures reflects the new reality that many of us prefer to shop online and increasingly eat, drink and entertain at home. The high street is adapting to an overcapacity in retail and leisure space resulting from these channel shifts.

“Openings simply aren’t replacing the closures at a fast enough rate. Specifically, the openings across ‘experiential’ chains, such as ice cream parlours, beauty salons and vape shops, haven’t been enough to offset closures in the more traditional categories.

“Looking ahead, the turmoil facing the sector is unlikely to abate. Store closures already announced in the second half of the year due to administrations and CVAs already will further intensify the situation.

“The British high street is in urgent need of new ways of thinking and new forms of retail. Encouraging this should be a priority, and it remains to be seen if recent packages of support for the high street and reductions in business rates for smaller retailers will be sufficient to stimulate this.”

Zelf Hussain, retail restructuring partner at PwC, said: “The transformation of the UK high street – both physical and virtual – raises questions about how legacy retailers and leisure operators should restructure and what new investment is needed. However, the intensity of the current climate means those questions often require immediate answers. 

“The number of distressed businesses in 2018 has led to a spike in company voluntary arrangements. We believe that CVAs can be helpful restructuring tools, but alone are insufficient. Our own research of more than 101,710 companies listed on Company House shows that of the 65 retailers entering into a CVA between 1987 and 2017 more than half (51%) failed, leading to another insolvency process.

“With the impact of some recently announced CVAs yet to feed through, alongside the peak time period for new CVA announcements being the first quarter of the New Year, we should brace for more high street closures in the coming months.”  

In addition to the closures in the retail and leisure sectors, many traditionally store-based service businesses, such as banks, estate agents, recruitment agencies and travel agents, have continued to move online, albeit their rate of closure has slowed as fewer of these types of businesses remain on the high street. These four categories accounted for a net 130 store reduction in presence on the UK’s 500 largest high streets in the first half of the year.

Comment from Steve Beckett, client services director at full-service e-commerce agency PushON: “There’s no question that our high streets are currently going through a period of great change. The rise of online shopping has permanently altered our shopping habits, and many stores are struggling to find their place in the rapidly evolving retail landscape.

“Even high street stalwarts aren’t safe from the upheaval, as evidenced by the recent financial losses and store closures announced by House of Fraser and Debenhams. However, for forward-thinking retailers this period of change also presents an exciting opportunity to find innovative ways to attract people in-store.

“In this new era of one-click ordering and next day deliveries, in-store shopping can no longer compete with e-commerce on a purely transactional basis. Instead, retailers should be looking to implement new technologies, such as augmented and virtual reality, to help them transition from a transactional offering to one that is more experiential.

“In a bricks-and-mortar store, AR can be used to allow customers to overlay products onto real world images, for example placing products on pictures of themselves or their homes, offering them new ways of viewing products. While VR can transport customers to a virtual world, so they could view a holiday destination or test drive a car without leaving the showroom. A dedicated customer support representive could aid with using the technology, creating a more personal and unique experience.

"Through building this type of interaction, brands can expect increased customer loyalty, and in turn, increased sales. With high-street rents at such a premium, there's also an opportunity here to downscale by replacing display racks with AR/VR mirrors or booths, to reduce overheads while also providing a better service.

“Some retailers, such as Argos and Screwfix, are already bridging the gap between in-store and online, by delivering frictionless purchasing via click and collect within an hour. Interestingly, there are also a growing number of bricks-and-mortar stores, such as Pud, who deliberately do not have a transactional website at all. Instead, they pride themselves on providing a stellar customer experience, and hosting events, with a focus on restoring a real community feel back into the high-street.

“It’s not all in the hands of the retailers themselves; councils must make it attractive and easy for customers to travel to their high streets, and park if required. But the question still begs: do the traditional retailers have the compunction and leadership to make the change required to give customers what they want?”

Source : PWC

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09 November 2018

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