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Retail Futures 2018:

Shop Numbers, Online and The High Street

A Guide to Retailing in 2018

Report from The Centre for Retail Research

Prepared by

Prof Joshua A. N. Bamfield, Director,

Centre for Retail Research May 2013

Report: Retail Futures 2018

Professor Joshua Bamfield is Director of the Centre for Retail Research. The Centre researches trends in retail performance, business structure, technology and crime. Its reports have been widely quoted by the BBC, the Today Programme, PM, CNN, Sky News, ABC, and ITV, as well as by The Economist, The Times, Wall Street Journal, Financial Times, Daily Mail, The Sun, Frankfurter Allgemeine, the Times of India, the Washington Times, and International Herald Tribune.

This report should be cited as Bamfield, J.A.N. (2013) Retail Futures 2018: Shop Numbers, Online and The High Street, Nottingham: Centre for Retail Research.

Centre for Retail Research Limited Blackburn House Brake Lane Boughton, Nr Newark, Nottinghamshire NG22 9HQ Tel: 01623 867559 Int: +44 16 23 86 75 59 Email: [email protected] www.retailresearch.org twitter: cristobel75


1 Centre for Retail Research

RETAIL FUTURES 2018: SHOP NUMBERS, ONLINE AND THE HIGH STREET

by

Prof Joshua Bamfield Centre for Retail Research.

Executive Brief

This report, Retail Futures 2018: Shop Numbers, Online and The High Street, argues that retailing faces a crisis comprising weak consumer spending, low profitability and too many shops. The crisis is accentuated by continued low growth plus the rapid rise in online spending.

The report forecasts that the online share of retail sales will reach 21.5% by 2018, compared to 12.7% today. As recently as 2006, the online share was only 6.6%. This will have major implications for the number and locations of retail stores and the pattern of employment in retailing.

Britain now has too many stores. The report estimates that store numbers will have fallen by 22% by 2018 (or soon thereafter) a total of 61,930 shops, from 281,930 stores today to 220,000 (2018).

The number of employees affected by these store closures is expected to be slightly more than 316,000 people, equivalent to an increase in the unemployment rate of almost 1%.

Retail Futures 2018 concludes that both retail multiples and independent stores are stuck in a cycle of high rents and high operating costs, which have to be passed on to customers. Retailers will inevitably cut the number of their stores as the costs of rent, rates and operating costs make more and more stores unprofitable. Before online retail became widespread, a retailer would need at least 250 stores to create a national presence, but now the minimum efficient number is only 70 stores, backed by a strong web offer.

Retail stores will remain an important, although smaller, part of retailing in high streets, malls and retail parks as online continues to grow. The ‘normal’ retail model needs revisiting, under the combined pressures of high costs, consumer reluctance to spend, and rapid growth of online retailing.

Customers now ‘shop’ in multiple ways, checking a store’s website, visiting one or more stores, looking at product reviews, viewing the prices of competitors on a smartphone whilst standing outside a store, and choosing finally whether to buy the goods in-store or online and collect it in-store or have it delivered to a nominated address. Retailers have to make clear strategic responses to the changing patterns of how consumers shop, including: deciding the proper number, type and location of stores (and the speed of any necessary disinvestment from stores); and how to integrate fully their physical stores, the online sites and other channels such as social media coherently.

High streets are an essential part of town centres, creating employment and vitality; the best of them bring tourists and shoppers in - developing services, leisure and entertainment markets as

well as retailing. Retail Futures 2018 argues that high streets are threatened by the current changes in retail structures and shows that the town centres of 153 UK towns (41% of the total) will experience a rapid decline as a result of changing retail patterns and need to shrink to survive. Some smaller and less successful secondary and tertiary sites may disappear almost completely.

Retail Futures 2018 recommends that a pump-priming fund of £320 million is required to start redeveloping these problem town centres to turn failing and empty shops into good residential accommodation, create more service/entertainment/leisure outlets, and/or provide offices, doctor’s surgeries, classrooms/meeting rooms or other facilities for which there may be a local demand. As a result of this policy perhaps 15,000 – 20,000 new homes could be created over four years.



1. Definition: Retailing. ‘Retailing’ is the sale of goods to final consumers through stores, e-commerce, and mail order. Digital ‘goods’ such as downloads are included. Services like travel, tickets, and restaurants are not included as retailing.

2. The crisis. Retailing is in trouble because the longest recession for decade has coincided with the rapid growth in online retail sales at the expense of sales through bricks and mortar shops. Consumer household spending is still below that achieved in 2008, whilst the online share of retail sales has risen from 5.3% in 2005 to 12.7% in 2012. Retailers’ operating costs have risen by £20 billion (+20%) since 2006, although retail sales have only risen by 12%. The retail industry and commentators are divided between those who believe that most shops will close as online takes over the majority of retail sales (thesis: we’re all doomed) and those who believe that online will soon peak, making the crisis simply a shakeout in the industry (thesis: business as usual), whose survivors will emerge smaller and fitter. The report argues that neither view is accurate, the most effective approach being somewhere between the two.

3. UK as experimental test bed for online retailing. Retailers in the UK have a higher online share of total retail sales than any other country, including the US. The current transformation of UK retailing is therefore an experimental test bed for the world’s retailers and policy makers.

4. Store closures, voids and business failures. Since 2006, almost one-tenth (9.2%) of all retail stores

have closed (-28,412). The average store vacancy rate (voids) in town centres, malls and retail parks has risen from 5.4% in December 2008 to 14.2% in December 2012. Business failures in retailing have tripled since the mid-2000s: since 2008, 148 large and medium-scale retailers employing 110,000 staff have gone into administration. Major firms affected include Woolworths, Borders, JD Sports, Habitat, Game, Comet and MFI. The number of retail business failures in 2013 is likely to make this year the worst for retail failures and store closures since 2008.

5. Changing consumer habits. Driven by the rise in online spending and the recession, consumer habits

are changing. This is shown by the changed frequency of shopping, the increased importance of price, and the astonishing growth in online retailing. Changing habits since the recession started have led to significant falls in sales (2008-12) of retail specialists selling: alcohol and tobacco (sales have fallen 2008-12 by -37%); music and video (sales have fallen -33%); computer equipment/telecoms (-24%); dispensing chemists (-20%); and textiles (-12%). The effects on specialist stores including those owned by independents have been dramatic.

6. Store closures are a ‘normal’ element of retailing. Store numbers have been falling since at least the

1920s. Competition, poor strategies, high operational costs and new products have seen many large retailers disappear. Formerly well-known names, such as International Stores, Liptons, Radio Rentals, John Collier, Dillons and Virgin Megastores, now exist, if at all, as online websites. The difference this time is the speed of the change and the fact that the transformation of retailing is making obsolete a very large proportion of the existing stock of retail stores.

7. Don’t make a transformation into a crisis. Although retail change might seem to concern only retail

employees and change-averse retail businesses, the transformation will have unintended consequences for the many hundreds of £billions tied up in retail property by pension funds, investment companies, shopping centre owners and retailers themselves. The current business model is intimately involved with real estate: a significant fall in property prices caused by major falls in the demand for stores (and store profitability) will affect all property assets for many years to come. One response will be to reduce rents (and therefore the profitability of developments). It is already having a significant negative effect on many UK high streets and a detrimental impact on town centres. Action now will prevent the transformation of retailing from becoming a long-term crisis for property markets and town centres.



8. Online retail growth to 2018. We estimate that online retailing will take 21.5% of the total retail market by 2018 and 25.4% by 2020 (assuming annual online growth reduces to ‘only’ around 10% pa). Online food sales are expected to grow quickly by 2018 to a 9.5% market share and the non-food market share will be 32.1%. The reputation of online retailers is high: UK shoppers now believe that their orders will arrive on time, that the likelihood of fraud is low, and that online retailers have low-quibble returns. However the rate of online growth is expected to slow in the next few years, affected by a shortage of warehouse space, difficulties with handling the high level of returns, and the logistical problems of actually delivering double the current volume of parcels to customers.

9. The effect of online growth. The speed at which the market for books, music, DVDs, mobile phones,

consumer electronics and second hand items is moving online has been dramatic. Online growth means that a smaller number of physical stores is required to meet the retail needs of the public. Online growth has enabled significant new retailers, like ASOS and Amazon, to be created and there are a large number of smaller-scale retailers that would not have existed without the internet, including of course the ‘eBay millionaires’.

10. Store numbers by 2018. Store numbers are expected to fall by 61,930 (-22.0%) from 281,930 in 2012

to 220,000 by 2018. The main impact will be upon non-food stores: numbers are forecast to fall by 27.7% or 43,000 stores. The number of food stores is expected to fall by 17.2% (-17,891), the brunt of the fall affecting food specialists (bakers, butchers etc) (-60.0%). Other large falls will occur amongst pharmacy and health & beauty (-35.2%), and electricals, durables and DIY (-29.1%).

11. Employees affected. The report estimates that 316,000 people will become unemployed

permanently or temporarily as a result of the store closures (above).

12. Store falls by location and region. The largest fall is expected to be in the number of neighbourhood stores, which will reduce by 26.2% (-34,587 stores). Town centres will lose 27,638 stores (-19.9%). Regionally, the largest falls will occur in Wales (-28.6%), North West (-28.4%), East Midlands (-27.0%), and Yorkshire and Humberside (-24.8%). The lowest falls will be in London (-9.3%) and the South East (-13.1%). Many areas are thriving or stable and the retail centres most vulnerable are those near low-income populations located on secondary or tertiary shopping areas.

13. High streets. UK high streets have suffered a fall in their share of customer spending from 50.0% in

2000 to an estimated 40.2% in 2014. By 2010, customer footfall was on average 10.4% lower than 2007, particularly in the weeks before Christmas which is usually the busiest period for retailers. The

Portas Review has generated excitement and a range of initiatives are being piloted. But Retail Futures 2018 finds that the schemes have been poorly managed and underfunded. There are too many small-scale separate programmes established by government and a large part of the money is being spent on events rather than long-term high street improvements. The preoccupation with pop-up stores is evidence of a lack of ambition.

14. Car parking. The high cost or undersupply of convenient car parking is one of the main problems that

high-street retailers face. Many local authorities, antagonistic to private transport, have used parking charges as a cash cow, which has driven shoppers to supermarkets and retail parks which usually have convenient parking and no or low parking charges. Car-parking issues should have been one of the first priorities of attempts to revive problem high streets.

15. Saving the high street. High streets need to combine the enthusiasm generated by Portas with

realistic and well-managed plans to shrink many high streets, particularly many declining secondary and tertiary sites in lower income areas, and convert shops into housing, services, restaurants, and other uses by converting or redeveloping town centres. Around 153 towns (or 41% of all towns in Britain) will need support of this kind for their high streets, consisting of 78 towns (21% of the total) which are declining in retail terms and 75 of the towns that are ‘stable’ but under pressure. Wholesale redevelopment of town centres is not required, but a £320 million fund to support the



conversion or development of problem sites could eliminate voids and unwanted retail buildings, improve the look of many high streets, return families to central areas and help create perhaps 15,000 – 20,000 new homes over four years.

16. Retail strategy. Retailers themselves have to decide whether and how their stores and their online

offer can co-exist (and both grow organically) or whether they need to scale down their store portfolio rapidly, focusing on a small number of sites, or close stores over the next few years as they become unprofitable. Not every retailer is able to run a successful online business, and stores such as discounters face significant problems because their offer is difficult to transfer online. Retailers with an indifferent store offer and a mundane online offer will face particular difficulties and are likely to disinvest and quit or be forced into administration.

17. Multichannel and Omnichannel retailing. Retailers are increasingly emphasising their multichannel approaches, allowing a customer to buy (click and collect) or reserve goods online but collect it from the store, linking bricks and mortar stores to the website. Non-standard items or out-of-stocks in a store can be delivered to a customer the same day via an online website. This approach requires a constant stream of innovation and considerable investment in IT, operating systems, and in marketing. Repeat orders, or modified rebuys, may be very suitable for online shoppers: the hazard of ‘will it be the right product?’ has been overcome and it should be easy to order the same thing again using ‘past orders review’ and even to place an order for fulfilment before birthdays or even in a year’s time. ‘Omnichannel’ retailing goes one better by integrating each channel (store, online, social media, television, or catalogue) to give the consumer the same experience, range of goods and price, allowing shoppers to review goods online, visit a store and buy the item later. As well as (optionally) visiting the store they may use a variety of online technologies, apps, and QR codes. Mobile technology, whether smartphones or tablets, are an increasingly important element in multichannel/omnichannel thinking because they can be used at virtually any time and location. In reality however omnichannel is currently a direction of travel rather than an approach which is either fully understood or which exists somewhere. It may be more that today’s jargon however.

18. Retail positioning. More than one-half of Britain’s towns are stable or thriving. Success for a retailer with physical stores depends not only on the online offer, but the type of store and the location, including whether the retailer is prepared to relocate to better locations. The problem areas tend to be secondary or tertiary retail locations: these are often smaller lower-income areas whose previous employment base is declining or has vanished, typically in Wales, Scotland and the Midlands and North of England. These local towns are in decline and, with some exceptions, many multiple retailers have closed and withdrawn in favour of charity stores, bookmakers, and money shops. However value and frugal stores can succeed by keeping tight control over their operating costs. The more successful areas have a large middle class contingent and a mix of stores. Both multiples and independents can thrive because of high customer footfall. Artisan or customised shopping, from bread to customised vehicles, can also be attractive by bringing in customers from a wide area. Strong independents with a specific offer compared to multiples and reasonable price points can also succeed, but in some locations may suffer because of poor consumer footfall.

19. Experiental and Modern Enhanced shopping. The most successful stores are likely to draw on two new models of shopping, experiential and modern enhanced. ‘Experiential’ stores are ways of engaging customers by getting them to interact with products, to gain in-depth advice from staff and recommendations or suggestions about the use of products. The conceptual model is the Apple store. ‘Modern enhanced’ shopping makes wide use of online product information, reviews and price comparisons thorough computer screens and free wi-fi or staff-operated tablets, they use new interactive technology such as tablets rather than EPOS for transactions, and they may use a variety of technologies to enable customers to view products, try out different styles without wearing the items, exchange pictures and 3D views with family or friends away from the store, and have the option of making their transaction in the store, on their smartphones or through some other channel. They are true multichannel stores. Experiential and modern enhanced shopping are ‘works in progress’ but are expected to underpin major changes in the nature of retail provision.




by

Prof Joshua A. N. Bamfield, Centre for Retail Research

List of Contents Executive brief 1

List of Contents 5

Parts Introduction: Is Retail in Crisis? 6 1 Change if Normal: Falling Store Numbers 7 2 The Crisis: Recession 12 3 The Growth of Online Retailing 14 4 The New Consumer 19 5 The Crisis: Business Failures and Retail’s Failing Business Model 22 6 The Forecast for 2018 25 Supplement: Online Retailing in Europe 30 7 Portas and the High Street 31 8 Business Strategy I: Online versus Stores 41 9 Business Strategy II: Positioning Options for Retailers 45 10 Conclusions 51 Appendices

1 Terminology 53 2 Forecast Change in Store Numbers by Type of Store 54 3 Summary of the Portas Proposals 55




Prof Joshua A. N. Bamfield, Centre for Retail Research

Introduction: Is Retail In Crisis? Until recently retailing was our most stable industry. Second only to banking it employed almost 3 million people (plus another 1 million in ancillary services such as warehousing and transport) and accounted for more than 21% of GDP. Many large British retailers and department stores were world renowned, whilst London’s West End and the shops and stores of Britain’s most popular town centres were important contributors to UK tourist earnings. Now UK retailing is in crisis. Few people may have tears for the problems facing large retail multiples, who only a few years ago were being roundly condemned for their supposed part in ‘rip-off Britain’1, but the retail sector is an essential part of the British economy. Retail shares and retail property are widely held directly and indirectly by companies, individuals and pension funds as long-term appreciating assets to provide a return on their savings and to pay their retirement needs. The future of retailing is intertwined with the future of commercial property, and groups such as AXA Real Estate2 are already warning investors of the storms that lie ahead if changes in retail structure significantly reduce demand for retail property in Britain and Europe. The retail industry and commentators are divided between those who believe that most shops will close as online takes over the majority of retail sales (thesis: we’re all doomed) and those who believe that online will soon peak and the crisis will become a shakeout in the industry (thesis: business as usual), whose survivors will emerge smaller and fitter. This report argues that neither view is accurate, but the answer lies somewhere between the two extremes. Physical stores will remain an important feature of the retail industry, but there will be fewer of them, they will be closely integrated with online and other channels including social media, and the reduction in stores will fall particularly heavily in lower socio-economic areas involving secondary and tertiary sites and failing town centres. The Report: Retail Futures 2018: Shop Numbers, Online and The High Street This report from the Centre for Retail Research discusses how retail’s problems have occurred and the implications for shop numbers, shopping and the high street by 2018. The year 2018 has been chosen because it is longer term – but it is near enough to 2013 to be able to make credible forecasts. Layout of report The report discusses:

the operational and economic reasons why store numbers have been falling and the problems caused to the retail sector (Parts One and Two);

the growth of online, changes in consumer behaviour and the disruption of retailing’s traditional business model (Parts Three to Five);

Part Six gives the forecast for retail in 2018, consisting of expected online sales, and reductions in store numbers by business category, location and region;

Part Seven gives and evaluation of Portas and the problems of the high street;

Finally, in view of the above, the report considers the main strategic options and positional strategies available in 2018-20 (Parts Eight and Nine).

1 Hall, J. (2000) ‘BRC Report Puts Paid to the “Rip-off Britain” Myth’, Retail Week, 28 January, p.8 2 AXA Retail Estate (2013) Market Edge: Retail Will Never Be the Same Again, London: AXA Real Estate.



Part One

Change is Normal: Falling Store Numbers

Retailing: the sale of goods to final consumers through stores, e-commerce and mail

order, excluding petrol, travel agents, tickets, and catering, but including virtual

goods such as software and e-books.

Voids The number of voids, or unlet shops and vacancies, in high streets, shopping malls and retail parks has risen rapidly in recent years from 3.5% in December 2007 (Figure 1) to 12.4% in December 2009 and 14.5% in December 2010.3 By the end of 2012, the store vacancy rate had fallen slightly to 14.2%.

Figure 1

[source: derived from Local Data Company figures]

There have been considerable differences in vacancy rates both regionally and between specific locations. The average rate in England in the second half of 2012 was 13.9%, 15.5% in Scotland, and 18.0% in Wales.3 Retail parks and out-of-town stores with vacancy rates of 8.5% and 10.2% (respectively) performed much better than shopping centres and high streets (15.6% and 14.2% vacancies, respectively), suggesting that these were more popular shopping areas than town centres and central malls.3 Declining industrial towns like Stockport (vacancy rate 28.3%), Walsall (28.0%) and Grimsby (26.8%) were the worst affected whilst prosperous towns like Cambridge (6.0%), Kingston on Thames (6.8%) and St Albans (8.3%) were the least affected. A vacancy rate of 14.2% implies than an average of one-in-seven stores is vacant, clearly a large increase compared to the pre-recession years. Understanding High Street Performance (2011),4 published by the Department for Business, Innovation and Skills to coincide with the Portas Review (2011),5 pointed out that even in the most prosperous times the vacancy rates were comparatively high, caused perhaps by ‘churn’ (retailers leaving one store to go to another), legal delays and store refitting periods. There has been no continuous monitoring of high street voids over long periods. Experian data showed that in 2000 void rates for outlets and floorspace were 8.7% and 6.6% respectively (reported by Genecon4). The one-in-seven figure, serious as it is, has to be seen in the context of the normal store vacancy rate: it is probably now approximately double the normal rate. 3 LDC (2013) More Clicks, Less Bricks, London: Local Data Company. 4 Genecon (2011) Understanding High Street Performance, London: Department for Business, Innovation and Skills 5 Portas, M. (2011) The Portas Review An Independent Review Into The Future Of Our High Streets, URN 11/1434, London: Department for Business, Innovation and Skills.

0.0%

5.0%

10.0%

15.0%

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

Vacancy Rates of Main Shopping Areas 2007-2012



Rebalancing Retailing The high number of voids is caused at least three processes: business failure; the reduction of stores by multiple store chains; and the unwillingness of new entrepreneurs to start a business or to take on new stores.

Just in the last six months, 35 major retailers have gone into administration, involving 2,481 stores and 29,644 employees. Companies like Comet, United Carpets, Jessops, HMV, Blockbuster and Republic were the largest victims.

Many multiples have also closed some or all of their worst-performing units and this also creates further voids. Examples include: Thorntons, which has announced that at least 40 stores are to close, Stead and Simpson 90 stores, Arcadia (closed 60 stores in 2012), Dixons is to close around 99 stores, EE (formerly Orange and T-Mobile) is to close 78 units and 70 Crown GPOs are to be closed and located within retail stores. Many more are likely to follow. The closure of small stores and independents is no doubt of only local significance, but Experian has reported that the number of bookshops has already fallen from 4,000 in 2005 to 1,875 by 2012. Nationally, 88% of all stores (including neighbourhoods, high streets, malls and retail parks) are operated by independent traders. A large fall in independent shop numbers can occur gradually without anyone realising it as shop owners, after years of low or negative profits, finally give up their livelihoods. ‘Rightsizing’ physical stores Some retailers with larger stores are also attempting to ‘rightsize’ as market changes reduce the optimum scale of superstores and big box stores.6 Wickes, for example, is to partition off part of the space in its largest stores and lease these as separate shops to other retailers, thus reducing 1.4 million of its 5 million square feet by shrinking 100 stores to the new DIY optimum of around 25,000-30,000 square feet7. The larger grocery superstores (>100,000 sq feet) of companies like Tesco, Sainsbury’s and ASDA are now thought to be too large8: the food offer occupies around 35,000 square feet and the remainder is therefore non-food items, which have increasingly been supplied by online retailers rather than large superstores. In Sainsbury’s,9 non-food is growing at three times the rate of food growth, general merchandise sales exceed £1 billion, and important categories are cards and stationery (fifth largest by volume), cookware (sixth largest), and childrenswear (sixth) and womenswear (10th). ASDA is to allow other retailers to take up concessions in its largest stores, Tesco is expected to expand its restaurants following its acquisition of Giraffe, sharing its excess space with other traders, and Morrisons has bought the childrenswear retailer, Nutmeg, with a view to using some of its excess space for Nutmeg-branded concessions.10 11 Tesco declared a £804 million property markdown in its 2013 Annual Report, announcing a major cutback in 120 sites that will no longer be developed. The grocers are likely to reduce the size of their largest stores, focus on those with less punitive leases, and concentrate rather more on large convenience stores as well as mid-range stores that are convenient for large populations both to shop and to use click and collect.8 New entrants New retailers are coming to the UK all the time. Companies like Forever 21, Hollister, the Chinese multiple Bosideng, Victoria’s Secret and Uniqlo will occupy some of those empty shops. However 6 Deale, S. (2011) ‘Big Box Retailers Shrink to Grow’, In-store Trends, http://www.instoretrends.com/index.php/2011/11/16/big-box-retailers-shrink-to-grow/ 7 Harrison, N. (2011) ‘Wickes to Shrink Stores as Web Transforms Retail’ Retail Week, 30 Sept, p1. 8 Witherell, J. Keen, C. and Macmillan, H. (2012) ‘The Boom That Never Was’, In_Retail_Winter 2012, Winter, London: CBRE, pp. 16-19. 9 Creevy, J. (2013) ‘Quality and Design Drive Sainsbury’s Non-food Growth’, Retail Week, 1 March, p. 16-18. 10 Retail Week (2013) ‘Asda To Release Store Space To Other Retailers’ Retail Week, 15 March, p. 4. 11 Lawson, A. (2013) ‘Morrisons Unveils Drive In Clothing and Convenience, Retail Week, 1 March, p. 2.



they are almost certain to concentrate on the best 30 or so locations rather than coming to the rescue of those beleaguered high streets or shopping areas with 23%+ vacancy rates. Will online retailers open more shops? If online retailers find that they can develop their businesses faster by having a physical bricks and mortar store as well as online websites then this should lead to a greater mix of stores. Multichannel retailers have found that customers that use both online and physical stores spent more per annum than those customers that use only a single channel. Similarly John Lewis has found that its online sales increase locally by 10% when they open a new store in a town. This explains why bricks and mortar retailers like to have their own websites, but does it mean that online retailers will want, or need, to open physical stores? Only to a limited extent. Amazon set up collection lockers in a small number of shopping centres in 2011, but has rejected any suggestion that this was the first stage of an Amazon offline chain of stores. A comparatively small number of online retailers have opened stores. These include Hotel Chocolate (strictly speaking it started as mail order not online), Kiddicare with six superstores (now owned by Morrisons), Pixmania with 17 stores across Europe, Screwfix with more than 250 stores, and plus-size fashion retailer, Simply Be, with seven stores including one in the Arndale Centre. Pixmania has proved to be a problem acquisition for Dixons and its stores are to be closed. Oak Furnitureland started as an eBay seller and now has 41 stores (because shoppers wanted to see the merchandise) providing 65% of its £85 mn sales. In the US, Piperlime, the Gap online retailer, opened a store in SoHo last Autumn, and the online fashion chain Bonobos, once a fanatically anti-store online seller, has opened five ‘guideshops’ where customers can try on items and receive guidance and advice on what to wear (yet they still can only buy online).12 Online pure play retailers want to avoid the occupancy costs and problems of physical stores and, so far, most of them have not tried to stretch their brands to include physical stores. Store offerings by online retailers, where they exist, tend to be small scale and either temporary or restricted in their intentions. These include pop-up stores (particularly when new ranges are announced or before a season starts) and shopping events. Net-a-porter has opened a pop-up store and the online grocer, Ocado, has virtual shopping walls in London, Birmingham and Bristol to enable customers to buy online using mobile phone apps and QR codes. The evidence so far is that only a small proportion of online retailers feel that their online offer would be improved by having a number of bricks and mortar stores and, amongst these, the average number of stores each one will open is expected to be small. Store closures: An Historical Perspective 1950 to 2012 The total number of stores has been falling in the UK since the 1920s, when there were around 950,000 stores,13 and by 1950 store numbers were down to 583,132.14 Since then store numbers have fallen by 51.7% (-301,102 stores) to 281,930 retail outlets in 2012 (Figure 2). The closure of stores, town centre redevelopment, the demolition or restructuring of Edwardian or Victorian retail units, and the disappearance of once-important but now mostly-forgotten names like

12 Clifford, S. (2012) ‘Once Proudly Web Only, Shopping Sites Hang Out Real Shingles’, New York Times, 18 December, found at http://www.nytimes.com/2012/12/19/business/shopping-sites-open-brick-and-mortar-stores.html?_r=0 13 Jefferys, J. B. (1954) Retail Trading In Britain 1985-1950, Cambridge: CUP. 14 Board of Trade (1970) Report on the Census of Distribution and Other Services 1966, London: HMSO.



Wrensons, Timothy Whites, International Stores, Home & Colonial, MacFisheries, Radio Rentals, John Collier, Dillons, and Laws Stores, although regretted are now simply the archaeology of retailing. Many have a long heritage, whilst companies like Habitat, Pentos, JJB Sports, Do-It-All, MFI, Virgin Megastores, Tower Records, Borders, Best Buy and The Pier were set up, burned brightly for a time and then died, although some may continue as brand names or online sites. Figure 2

Store closures 1992-2012 Since 1992 the number of stores has fallen by 36,821 stores or 11.6% of the 1992 total. Between 1992 and 2006, store numbers declined by only 2.6% (-8,409 stores) and this was not seen at the time as evidence that anything was wrong, but the result of continued change in the industry, greater efficiency, and the decline of independent retailers. However more than three-quarters of the post-1992 fall happened after 2006: this time, the scale and speed of the fall in store numbers was taken as evidence that something unusual and painful was occurring. Since 2006 the narrative of the performance of the retail sector has completely changed - the increase in voids, the fall in shop numbers and the rise in retail business failures are all taken as evidence of serious problems. The Efficiency of Stores Comparisons with 1950 or 1982 are always problematic, because retailing then was very different from what stores are like today. If there had been no increase in efficiency we would have expected there to be more stores in 2012 than in 1950. After all, the UK population has risen by 25.9% since 1950 and consumer spending has risen by 920% in those 62 years. Consumer spending is a determinant of retail spending, but naturally people can spend their cash on a range of other non-retail categories such as holidays, transport and meals out. Shops today are more productive (and we need fewer) for three main reasons: Fewer services. Stores now generally provide fewer services than previously; goods are normally

pre-packed; retail staff do less to process goods; self-service and self-selection transfers work

100,000

200,000

300,000

400,000

500,000

600,000

The Number of Retail Stores 1950-2012



formerly done by employees at individual counters to the customer. Whether this is actually a reduction in service is a question that has excited economists for years.15 16 17

Longer trading hours. In the past stores would trade for fewer hours in the week and would be closed on Sunday as well as closing for an extra one-half day each week.

Larger and more efficient stores. Figure 3 shows the average sales per store in real terms (with inflation subtracted) between 1950 and 2012. This has resulted from retailers closing smaller and more remote stores in peripheral trading areas and opening larger ones, using improved technology and better layout to increase efficiency, and also opening longer hours.

Figure 3

Based on the average sales per shop in 1982 (the central date for calculating sales per store in real terms), Britain in 1950 could have carried out of its retail sales transactions with only 187,417 stores of 1982 levels of efficiency (ie 32% of the actual number of stores that were in use in 1950). But in 2012 we would have needed 530,921 of the 1982-style stores to sell the 2012 volume of goods (allowing for online sales), or 88% more stores than we currently have. Change is normal in retailing and affects the number of stores, their locations, type and layout. Competitive pressures and threats produce efficiency and change, even if they sometimes alienate a proportion of the shopping public. The changes, whether the replacement of smaller supermarkets by large superstores or the rapid growth of online retailing, are not inevitable but are difficult to resist because they are driven by shoppers. The task for retailers, whether multiple giants or small one-store independents, is to work out how to deliver value in a multichannel world where customers have far more options about what to buy and where to obtain it than ever before.

15 Hall, M. and Knapp, J. (1958) ‘Gross Margins and Efficiency Measurement in Retail Trade’, Oxford Economic Papers, 7, pp. 312-36. 16 Hughes, J.D. and Pollard, S. (1957) ‘Gross Margins in Retail Distribution’, Oxford Economic Papers, 9, pp. 75-87. 17 OxIRM (2004) Assessing the Productivity of the UK Retail Sector, April, Oxford: Oxford Institute of Retail Management, Templeton College, Oxford.

£5,000

£15,000

£25,000

£35,000

£45,000

19

50

19

57

19

61

19

66

19

71

19

76

19

78

19

82

19

87

19

92

19

97

20

01

20

06

20

09

20

12

Average Sales per Store, All Types of Business 1950-2012

(in real terms, 1982 prices)



Part Two

The Crisis: Recession Declining consumer confidence and incomes The Gfk-NOP consumer confidence index18 for 1998-2012 (Figure 4) shows that confidence varied within fairly tight limits of +9.5 and -10.0 index points in the early part of this period but collapsed quickly in 2007-08 to -39.0 points by July 2008. ‘Consumer confidence’ measures household perceptions of improvement in living standards in the past, now or in the future and its willingness to spend. Consumer confidence revived as the economy apparently came out of recession in 2009, but relapsed to an average of -28 once it became clear how long it would take before economic growth returned.

Figure 4

[source: Gfk-NOP]

Consumer shopping behaviour and household spending has changed radically since the 2008 recession (Figure 5). Consumers are spending less and have become more careful even about small purchases. The economic picture has mostly been gloomy and it is not helped by understanding that every year the original government deficit and debt targets for 2015 always seem to retreat another year: the new target date is 2018. 19 It is not difficult to understand why retail consumers have become so cautious. UK employment, now 29.7 million, is higher than it has ever been,20 but wage increases since 2008 have been small, the number of persons working only part-time is increasing, and the opportunities for overtime are low. Higher than expected levels of employment have not therefore boosted consumer confidence or enhanced household spending.21 Public sector employees, workers who are dependent on public contracts or receive significant transfers from the state are more affected than private sector workers by government austerity. There is still considerable uncertainty in many households about future employment and their prospects, and this high level of uncertainty 18 Gfk-NOP (2013) Gfk-NOP consumer confidence index, London: Gfk-NOP. 19 OBR (2013) Economic and Fiscal Outlook, March 2013, Cm 8573, London: Office for Budget Responsibility. 20 ONS (2013) Labour Market Statistics, February, London: ONS. 21 ONS (2013) Family Spending 2011, Edition, London: Office for National Statistics.



(mirrored perhaps in the confidence ratings from Gfk-NOP) has led to a reduction in the amount they spend. This has particularly been so in the Midlands and North of England, Wales, Scotland and Northern Ireland, which are more dependent on the public sector than London and the South East.22

23 24

Figure 5

Instead of spending, households have also been paying off debts and increasing their savings since the recession started (Figure 6), whilst previously they would often borrow in order to spend in shops.22 Since 2008, households have repaid £137.5 bn of mortgage debt and have been reducing their use of credit cards and paying off loans.26 Compared to the mid-2000s, this process has helped to produce a considerable deceleration in consumer spending.

Figure 6

22 ONS (2013) Labour Market Statistics, February, London: ONS. 23 ONS (2013) Family Spending 2011, Edition, London: Office for National Statistics. 24 LDC (2013) More Clicks, Less Bricks, London: Local Data Company. 25

Warwick-Ching, L. (2005) ‘Debt Loses Stigma as a Four-letter Word’, Financial Times, 14/5 May, p. M28.

26 Aldrick, P. (2012) ‘Households Pay Off £9.8 bn of Mortgage Debt’, Daily Telegraph, 3 October.

http://www.telegraph.co.uk/finance/economics/9584083/Households-pay-off-9.8bn-of-mortgage-debt.html



Part Three

The Growth of Online retailing The share of online retailing as a percentage of all retail sales has grown quickly in the UK to reach an estimated market share of 12.7% in 2012 (see Figure 7). The ONS26 estimate for 2012 is 10.1%. Figure 7

The UK share of retail sales is higher than any European country (Figure 8), whilst U.S. online retail sales are not expected to exceed 9% until 2016. 27

Figure 8

[source: CRR28, Online Trends, 2012; OECD,29 Internet Economy Outlook, Paris]

26 ONS (2013b) Statistical Bulletin: Retail Sales January 2013, February, London: ONS, table 3. 27 Forrester (2012) US Online Retail Forecast, 2011 To 2016, Cambridge, Mass: Forrester Research, Inc. 28 Bamfield, J. (2012) Online Trends, 2012, Nottingham: Centre for Retail Research. 29 OECD (2012), OECD Internet Economy Outlook 2012, Paris: OECD Publishing

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0.0% 0.3% 0.5% 0.8% 1.4%

2.1% 3.1%

4.2% 5.3%

6.6% 7.6%

8.3% 9.5%

10.5% 11.3%

12.7%

Online Retail Sales as Percentage of Total Retail Sales



Why online is more successful in the UK There are a number of reasons why the takeup of online retailing in the UK has been so fast, but none explain exactly why online has been more successful here than anywhere else. Structural factors include: widespread availability of PSTN telephones and now, broadband of an acceptable standard; high personal and business computer use; good delivery services by post and carrier; and a population mostly concentrated in a small number of areas. Marketing factors include: shared language with the US (so that successful US websites soon came to the UK); widespread ownership and use of payment cards (facilitating online payments); a legal right to get reimbursement for a credit card payment if the goods are not what was ordered or other non-compliance by the supplier; and previous experience with mail order. The UK retail market is dominated by large companies, with the funds, experience and trusted brand names to launch successful websites. Online brands are widely trusted in the UK. The financial pressures caused by the recession (longer lasting in the UK than countries like Germany, France and the US) have made consumers more price conscious and this may have driven larger number to buy online. Lastly, online has also grown because some shoppers dislike the retail offer made by stores and preferred to buy online because it is less ‘hassle’. Internet and mobile sales Ofcom30 consumer research estimated that UK households spent £1,083 per head online in 2011 compared to online spending by US households of only £620 per head. Eighty per cent of UK homes now have internet access, although penetration is lower among the over-65s (46% in Q1 2012). The fastest rise in internet access has occurred amongst the so-called baby boomers, where 65 to 74 year olds increased access by 9% to 64% between 2001-12. 30 ‘Mobile’ retailing, meaning sales using smartphones or tablet devices, is seen as the ‘next big thing’ in retail marketing. Online sales made through smartphones or tablets grew by 304% in 2012 compared to 2011. In 2012, mobile sales accounted for 12% of all online sales with £7.5 billion spent via mobile devices, compared to 4% in 2011 (IMRG).31 Estimates for the mobile share of 2013 online retailing range between 20% and 30%. Smartphone ownership rose from 39% of UK adults in Q1 201230 to 53% in 2013 (Ipsos MORI), 32 with 25% of adults owning a tablet32 and 10% owning an e-reader30. Forty-eight per cent of internet users connect by mobile occasionally or regularly and only 12% of the population have no access in any way to the internet.32 Mobile retailing requires specialist websites (though this is less true of tablet computers) because of the small size of smartphone screens. Retailers wanting to benefit from mobile retailing therefore have to develop websites that are optimised for smartphones and the main websites have to recognise smartphones and direct mobile users to retailers’ specialist websites. All this involves considerable ingenuity and expense. The danger of a retailer not doing so is that it will lose an important and growing segment of online shoppers. Pure play and multichannel retailers In the early years of web-based retailing, the main online companies were specialist online sellers (or ‘pure play’ etailers) like Amazon. Many of the large bricks and mortar retailers were slow to recognise the danger posed by online retailing, but companies like John Lewis, Argos, Dixons, and Tesco have now created large online businesses. IMRG33, the trade association of UK online retailers, has reported that the average sales growth of multi-channel retailers (selling through both bricks-and-mortar stores and online) was greater than pure play retailers. Many online shoppers buy online 30 Ofcom (2012) The Communications Market 2012, London: Ofcom. 31 IMRG (2013) IMRG Capgemini Quarter Benchmarking Index, Q3 2012, 27 February, London: IMRG. 32 Ipsos MORI (2013) Ipsos MORI Tech Tracker, Quarterly Release Q1, 2013, London: Ipsos MORI 33 IMRG (2012) IMRG Capgemini Quarter Benchmarking Index: Q3 2012, London: IMRG



to get the lowest price, but the evidence is that they may be happier dealing with Waterstones, JLP, W H Smith and Tesco than an unknown online company operating out of China. Aggregators like eBay and Amazon reduce shoppers’ risks when dealing with unknown retailers, because of their own reputation and willing refund policies. Pure play etailers like Net-a-porter, ASOS, Amazon, Shopdirect/very.co.uk and Lovefilm have created superb reputations as online retailers and are successful because they link innovative technology with a combination of low prices and/or difficult-to-obtain merchandise. eBay is another highly-trusted etailer, but one that has been highly innovative in its use of technology to create a distinct type of market. As well as making a lot of money for eBay, the company has helped create new entrepreneurs, has had a dynamic effect upon the antiques, books, clothing and entertainment markets, and helped hundreds of thousands of individuals to sell unwanted items or source new merchandise. Amazon seems to be in a class of its own, scoring 96% (better than any other corporation) for ‘emotional engagement’ in the 2013 Brand Keys survey of consumers’ engagement with 375 brands as well as overtaking Apple to become the highest rated company in the Harris poll of corporate reputations.34 The transfer of many mail order and catalogue companies to online sales has boosted the apparent growth of online retailing. In addition to conventional ordering by post and by telephone, many mail order companies have added new channels such as their own websites, TV channels and social media. The shift towards ordering through special websites reflects the changed emphasis of traditional mail order, although it is a slightly artificial addition to online retailing. There is still widespread use of printed catalogues and specialogues (dedicated specialist catalogues) even though one might have thought that these would have been replaced by now with websites or PDFs. Although most discussion about the growth of online shopping tends to be set in terms of existing store-based retailers, online growth has enabled significant new pure play online retailers, like ASOS and Amazon, to be created and the Internet has also helped to create a large number of smaller-scale online retailers that would not otherwise have existed, including of course the ‘eBay millionaires’.

Online Market Shares: Food and Non-food The Centre for Retail Research estimates that online sellers were responsible for 12.7% of total retail sales in 2012. The implication of this statistic for relative market shares of food and non-food are as follows:

Food online share 3.7% Non-food online share 19.2% All retail online share 12.7%

The ONS35 figure for online food sales of 3.7% has been used, although the Institute of Grocery Distribution (IGD) estimate36 is 3.4%. Food sales mostly supermarkets, convenience stores, alcohol, bakers and other food specialists) represent 46.9% of total retail sales.35 Almost 20% of non-food sales (19.2%) therefore is now made online. Non-food includes merchandise sold through department stores, clothing, electronics, toys, watches and jewellery, shoes, health & beauty, sports, DIY and other categories. Even in stores which use click and collect, 34 Wohlsen, M. (2013) ‘Haters Don’t Hate Amazon (Facebook On the Other Hand …)’, Wired, 121 February,

found at http://www.wired.com/business/2013/02/why-dont-people-hate-amazon/ 35 ONS (2013b) Statistical Bulletin: Retail Sales January 2013, February, London: ONS, table 3. 36 IGD (2012) ‘IGD Shoppervista, Retail Week, 20 April, p. 4.



these figures mean that in only 12 years since 2000 more than one-fifth of retail non-food spending has shifted away from bricks and mortar stores to the web. As a result, non-food customer footfall and in-store purchases have fallen dramatically. Multichannel and Omnichannel In the early days of online retailing, an online presence for a bricks and mortar retailer would often be quite distinct (in prices and product range) from what was available in-store. Now most retailers attempt to integrate their online activities with their bricks and mortar stores so that either channel (physical stores and online websites) supports the other. The best example of this multichannel approach is probably ‘click and collect’: consumers buy merchandise online, or reserve it for collection, and then collect it from a nominated outlet. Argos has reported that more than 30% of its sales are made using ‘click and collect’. The aim of multichannel is that the customer will have the same experience (and prices) buying online and buying in-store. They may review products and prices online, visit the store and either make their transaction then or buy it online later. The website and the stores support each other and help build sales. That is the theory anyway. The reality for many multichannel retailers may be what is termed ‘showrooming’ where customers visit the store to inspect items but then purchase what they want online from a lowest-cost seller. Mobile retailing is growing quickly and is more than simply a change of device on which goods may be reviewed or purchased. Because most people keep a mobile with them at all times, the consumer response to a mobile communication may be faster than from a laptop. Consumers will carry their mobiles with them when out shopping and can make an online purchase standing in the store or in a competitor store. They can use their mobiles or tablets to access product reviews and compare prices. Proximity marketing is the ability to send promotional messages and offers to nearby mobiles (pre-agreed with the customer) which are tempting enough to cause them to visit the store or make a purchase without the need to do so. The major problem with mobile retailing is customer unwillingness to make payments by mobile, because they prefer cards. For keen students of jargon, the term ‘multichannel’ is now passé. It is last week’s phrase. The next stage is omnichannel, where bricks and mortar and other channels including TV, catalogue and social media, act as a single means of making transactions rather than, as often at present, being completely separate. This requires a new strategic choice by retailers and major investment in IT systems, particularly to provide a single view of each customer rather than having four separate (and often inconsistent) views of his or her transactions with each channel. It is not very clear precisely what omnichannel is. Like every trade, retail loves its pet phrases and they are usually fairly easy to understand. But not omnichannel. Here is a quote from a senior executive of one of the most important design companies writing in a recent copy of Retail Week about omnichannel:

‘Big bricks retailers like John Lewis, Tesco and Argos are ahead of the curve, but they also recognise a much bigger opportunity to seamlessly connect multiple channels to cater for all of shoppers’ dreaming, exploring and locating mind-states’.

Much writing about omnichannel is of this kind. Omnichannel is a work in progress or a direction of travel for a retailer, which requires considerable investment in IT and operations to make it work, rather something which can be seen currently working in practice. Many retailers now have a strategy for their transactional websites and are



attempting to integrate this with their store operations and other channels by which they communicate with customers and distribute merchandise. In normal circumstances this may mean that chain retailers do not need so many stores, or they may need different types of store, and new entrants to the UK market may be able to prosper by using a smaller number of locations and selling more than 50% of their merchandise online. The development of online retailing has serious implications for strategy and the number of stores needed in the UK. A major issue currently concerning the industry is the lack of personnel with the requisite IT skills, data mining skills and statistics to be able to handle Big Data or the new infonomics which will be critical to multi/omnichannel and the single customer view 37 (Information Age, 2012). Although Cloud Computing, expert software and ‘bring your own device’ have made some aspects of IT easier and cheaper, it still needs to be managed, secured and coordinated 38 (Information Age, 2012a). The skills gap will be an increasing barrier preventing retailers from providing the multi/omnichannel experience that they wish to do. 37 InformationAge (2012) ‘Training Tomorrow’s Data Professionals, InformationAge, December, p. 27. 38 InformationAge (2012) ‘Putting a Price on Information’, InformationAge, November, pp. 14-6.



Part Four

The New Consumer The value of retail sales between 2008 and 2012 rose by a total of only 10.6%.39 This was a fall in real terms as the CPI measure of inflation rose by 13.4% in the same period.40 Food sales grew by 14.2%, and did better than non-food whose sales rose by only 3.6%. There have been major shifts in public tastes and how shoppers source their merchandise. Retail categories that have done particularly well include: mail order (+56.1%); second-hand goods (+36.1%); watches and jewellery (+23.1%); sports equipment, games and toys (+22.2%); and the major supermarket chains (+17.1%). Some specialist retailers have done very badly as their markets go online or are taken by generalist retailers like supermarkets: there have been significant falls in sales in specialists: alcohol, beverages and tobacco (-36.7%); music and entertainment (-33.0%); computers and telecommunications (-24.0%); dispensing chemists (-20.0%); floor coverings (-15.6%); and electrical household appliances (-14.0%).

Figure 9

[source: calculated from ONS, 2013b]

Shopping patterns. Consumers go shopping less frequently, but may shop for food more often. They do not travel as far (because of rising fuel costs) and they visit more stores (particularly shoppers who live in cities). CRR research of 1,800 food shoppers between March 2008 and March 2012, showed that 47% now claim to shop for foodstuffs three times or more per week compared to only

39 ONS (2013b) Statistical Bulletin: Retail Sales January 2013, February, London: ONS, table 3. 40 ONS (2013d) Consumer Price Inflation Summary, February 2013, London: ONS

-40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

other non-store retailersmail order

Non-store retailingSecond-hand goods

Other non-food retail specialistsOther specialist non-food

Watches and jewellerySports equipment, games, toys

Cosmetics and toilet articlesFlowers, plants, pet food

Dispensing chemistsBooks, newspapers, periodicals

Music & video recordings, equiptHardware, DIY, paint and glassElectric household appliances

Floor coveringsFurniture, lightingHousehold goods

Non-food retailingComputer equipt & Telecomms

Footwear and leatherBooks, newspapers. periodicals

ClothingTextiles

Textiles, clothing, footwear, leatherTotal Non-food sales

Alcoholic drinks, other, tobaccoFood specialists

Food generalists, incl SupermarketsTotal Food sales

Total retail

7.1% 56.1%

36.1% -6.4%

-0.5% 23.1%

22.2% 16.8%

-15.6% -20.2%

-3.5% -33.0%

-10.1% -14.0%

-15.6% -3.5% -10.7%

3.6% -24.4%

14.4% -3.5%

11.3% -12.4%

11.2% 3.6%

-36.7% 7.5%

17.1% 14.2%

10.6%

Percentage Changes in Retail Sales Values 2008-12



37% that did so in 2008. In 2008, 31% of consumers did a single ‘big shop’ once per week usually in a supermarket, but by 2012 this had fallen to 20%. People’s modes of shopping are changing. The fashion retailer Next reported in 2012 that customers were becoming more immediate, not purchasing merchandise until the last minute and that this created more extreme peaks and troughs.41 This change may result from the fact that there is now more choice or it may be an heuristic to prevent over-spending. Price and the growth of discounters. Consumers are spending less on average 42 and the perceived lower level of online prices has been a major factor in prompting shoppers to spend online. Price has become more important in affecting where to shop and what to buy: in grocery more than one-half of products are on promotion at any time 43 and the proportion of shoppers claiming that price was ‘extremely important factor in store choice’ rose from 40% in March 2011 to 48% in March 2012. 44 The price factor has been primarily responsible for the growth of discounters and the development of pound stores (or ‘eurostores’ in Ireland). The grocery discounters, Aldi and Lidl, have grown rapidly during the recession but this sector also includes home-grown discount grocers such as 99p Stores, Poundland, Farmfoods and Poundstretcher. The discounter recipe is not invariably successful as shown by the fact that the Danish-owned firm Netto quit the market in 2011.45 Discounters account for only 6.9% of the food market, but their competition affects larger supermarkets’ pricing as well as town centre shopping and convenience stores in C2DE areas.46 The Economist argued in May 201347 that the new popularity of discounters among middle-class shoppers was one of the most significant trends in UK retailing. Discounters are a dynamic sector of the market and have been disruptive to second-tier grocery retailers and newsagents (CTNs), affecting customer perceptions about the true level of acceptable prices. Companies such as Wilkinsons, T J Morris (Home Bargains) and B&M Stores (Bargain Madness) in non-food are enjoying equal success to grocery discounter and are now starting to add grocery products to their offer.48 Less stereotypical. The shocks delivered by the recession have made customers less stereotypical about their purchases. At one time MOSAIC or CACI could use a household’s postcode to forecast with unerring accuracy where they would shop and the type of car they might use. But these days people shop both at Sainsbury’s and Aldi, Prada and Primark, buying outside traditional categories and mixing more expensive products with those that are cheaper.49 Consumers are being more individualistic. The squeeze on incomes has also made most shoppers more conscious of the money they spend so that they trade down by buying cheaper items or goods from discounters for some of the things they buy. This is not happening across the board and shoppers may also buy themselves a 41 Leroux, M and Johnston, C. (2012) ‘Next Goes from Famine to Feast as Consumers Shop on Whims’, The Times, 14 September, p. 49. 42 ONS (2013) Family Spending 2011, Edition, London: Office for National Statistics. 43 Lawson, A. (2012a) ‘Deal or No Deal as OFT Cracks Down’, Retail Week, 7 December, pp. 18-9. 44 IGD (2012) ‘IGD Shoppervista, Retail Week, 20 April, p. 4. 45 Wood, Z. (2010) ‘ASDA Forced to Sell Quarter of Netto Stores’, The Guardian, 24 September, p. 28 46 Parry, C. (2013) ‘When Price Promotions Are No Longer Enough’, Retail Week, 1 March, pp. 39-40. 47 The Economist (2013) ‘In for a Pound’, The Economist, page 17, 17 May. 48 Phillips, B. (2012) ‘Discounters Dominate in the Grocer’s Top 50’, The Grocer, 31 March, found on 22 Feb 2013 at http://www.thegrocer.co.uk/companies/discounters-dominate-in-the-grocers-top-50/227884.article 49 Thomson, R. (2011) ‘The Not-so-usual Suspects’, Retail Week, 1 July, pp. 36-7.



‘treat’ as a bit of self-congratulation for saving some money elsewhere in the personal or household budget. The New Consumer therefore is frugal as a type of learned behaviour rather than frugality being an obsession. Clothing market. The traditional clothing market has been hit by recession and the growth of specialist low-priced fashion retailers such as New Look, Primark, Uniqlo and Inditex (Zara). Online sales of clothing, against many expectations, has been one of the fastest growth areas and sales per week increased by 50% between 2010-12.50 51 Although many prestige labels have performed well, the rest of the market (including quality) is characterised by frequent promotions and a price orientation. Supermarkets have also gained a significant part of the clothing business in the last five years. Research from Santander52 in 2013 found that 16% of shoppers use supermarkets exclusively for their clothing and 72% purchase some of their clothes from supermarkets. Clothing sales by UK grocers in 2012 exceeded £4 billion, equivalent to more than 10% of the total clothing and fashion market (Kantar Worldpanel, 2012). Housing-related retail markets. Straitened finances combined with the reduced availability of mortgages have had an adverse impact on sales of those household products which are often bought when people move home. This effect can be seen in Figure 8: ‘floor coverings’ (down 15.6%), DIY and paint (-10.1%), textiles (-12.4%), crockery and tableware -10.7%), and kitchens and electrical durables (-14.0%). The sales of beds have fallen from £1.5 billion in 2008 to less than £1 billion in 2012. 53 Music and Entertainment. Until about four years ago most towns of any significance had several record shops such as HMV, Virgin/Zavvi, Tower Records, Fopp and Our Price and these were supplemented by non-specialists such as Woolworths (which was an important part of the top 10 market) and W H Smith. Most of the specialists have now gone out of business and HMV is trading under administration. W H Smith, having discontinued much of its CD/DVD lines a year ago, has now brought them back in and some areas is the only music stockist in the town centre. 54 Sixty per cent of music and entertainment has now moved online, where CD and DVD prices are normally much lower than in traditional retail stores. Sales through conventional record shops fell by 33.0% between 2008 and 2012.51 Much chart music is now purchased at low prices by digital downloads rather than as a physical product, or heard on Spotify. Supermarkets have also moved into this area selling a small range of highly promoted film, TV box sets and music, which undercut the most profitable section of the market. Kantor Worldpanel 55 found that in the UK, Amazon was the market leader in entertainment sales (19.9% of the market), followed by HMV (19.2%), Asda (9.3%) and Tesco (9.0%).

50 IMRG (2013) IMRG Capgemini Quarter Benchmarking Index, Q3 2012, 27 February, London: IMRG. 51 ONS (2013b) Statistical Bulletin: Retail Sales January 2013, February, London: ONS, table 3. 52 Petah, M. (2013) ‘UK: 72% of shoppers buy clothing from supermarkets’, Just-Style, 20 April, found at

http://www.just-style.com/news/72-of-shoppers-buy-clothing-from-supermarkets_id117509.aspx

Verdict (2009) Clothing Retailers 2009, London: Verdict Research. 53 Ernst and Young (2013) Particulars of the Sale of Dreams PLC, London: Ernst and Young. 54 Ruddick, G. (2013) ‘WH Smith Brings Back DVDs After HMV Failure’, Daily Telegraph, 9 March, http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9919996/WH-Smith-brings-back-DVDs-after-HMV-failure.html 55 Myretailmedia (2012) ASDA leads supermarkets on Entertainment, 1 May, extracted 22 Feb 2013 at http://www.myretailmedia.com/blog/6820/asda_leads_supermarkets_on_entertainment.php



Part Five

The Crisis: Business Failures, and Retail’s Failing Business Model Retail failures Table 3 shows data about the retailers that have gone into administration every year since 2005. These figures are collected weekly by the Centre for Retail Research (and published at www.retailresearch.org/whosgonebust.php). Table 3

Business Failures Amongst Large and Medium-sized Retailers Companies failing Stores Affected Employees Affected

2013 (to end March) 23 1,819 18, 044

2012 54 3,951 48,142

2011 31 2,469 24,025

2010 26 944 10,930

2009 37 6,536 26,688

2008 54 5,793 74,539

2007 25 2,600 14,083

2006 22 1,370 9,257

2005 16 1,221 7,926

[source: CRR data, www.retailresearch.org/whosgonebust.php]

Even in good years, like 2005, some retailers go into administration. In 2008, the first year of the recession, retailing was significantly buffeted by the downturn in trade, with 54 retailers going into administration. These firms were responsible for 5,793 stores and almost 75,000 employees. The situation improved by 2010, but, by 2012, 54 retailers had gone into administration employing 48,142 people and, in the first 13 weeks of 2013, 23 retailers had failed, with store closures and affected employees running at 46% and 37% respectively compared to the whole of 2012. The traditional retail financial model What may be termed the ‘traditional British retail financial model’ is broken. The model was dependent on constant increases in retail sales, funded by higher personal incomes and by personal borrowing. 56 Comparative stability and tight control over operating costs enabled retailers to adopt a high level of debt or gearing in order to grow more quickly. Successful small or medium-sized retailers could build their market share and gain additional buying economies though opening more shops, although to do so they bid up rents, creating a ripple effect on the rents of other retail sites. The normal rental terms, comprising long tenancies and upwards-only rent reviews, created systematic inflation in rents and in property prices. Two hundred and fifty stores would give national coverage of UK towns and shopping areas. Larger retail groups sometimes adopted a two- or three-store policy for shopping centres, requiring them to open around 450 stores or more. The most vulnerable retailers break first While sales and profits were rising, the business model, based on borrowing, high rentals and corporate expansion, worked well. But the retail financial model started to fail, when consumer spending declined (certain categories dropped through the floor) and online sales starting to affect the performance of shops. The weakest retailers making the lowest profits were the most vulnerable, followed by businesses that were very highly geared, had acquired too many stores or competitor businesses in the previous ten years, or were hit by rapidly falling demand, or all of these. Typical

56 Warwick-Ching, L. (2005) ‘Debt Loses Stigma as a Four-letter Word’, Financial Times, 14/5 May, p. M28



mechanisms for failure have been retailers choosing to enter administration because they had insufficient funds to pay their quarterly rent; or finding that because their insurance cover had been withdrawn suppliers refused to deliver merchandise to their shops. Private equity Private equity funds became increasingly interested in the retail sector because of its apparent stable cash flows, which meant that a retailer could be acquired using loan capital, which would then appear in the retailer’s balance sheet as debt. The aims of private equity are normally only medium-term: the retail company may be expanded and more shops added, cost-savings are made, the company’s real estate may be transferred to a separate company57, and the new slimline, low-cost retailer may be made ready for sale for an even higher amount in five or seven years’ time.58 This can sometimes work, but retailing normally requires a long-term commitment. The new retailer can be very vulnerable to changes in the business environment, as the record of private equity Peacocks, La Senza, Dreams, Comet and Republic have all shown.58 The scale of the issues (online, store portfolio, low-growth, and inflation) now facing any retailer company force it to take a long-term strategic view rather than focusing cost reduction and modest enhancements preparatory to a sale. This precludes the conventional style of private equity involvement. High street costs versus online costs One reason why established retailers have suffered so much compared to online retailers concerns differences in property costs. Online retailers pay much less per square foot in rents and business rates than do conventional retailers, because their main spaces are low-cost warehouses in inexpensive parts of the country rather than costly high streets and retail parks. A small store on a high street in the English Midlands paying £10,000 per month in rent might find the equivalent space in a warehouse on the outskirts of Corby costing £650-£1800 per month. The impact of business rates would be similarly lower.

The larger retailers have attempted to renegotiate the terms of their leases as an alternative to quitting the high-rent stores as soon as they were able to do so. Apart from the London area, average rents charged fell in both 2011 and 2012.59 As early as 2011, vacant property was available at up to 50% of the previous rent for Prime Zone A, which placed retailers still paying the old rents in a difficult position. 60 Dixons for example paid £370 million rent annually for 600 stores, although it had already closed 120 units and expects to close another 150 high-rent stores in the next few years.60 Sports Direct, the new owner of Republic fashion chain, is currently forcing landlords to halve rents or accept a total occupancy charge (rent and rates) of 15% of revenue. Oxford Economics and OxIRM61 have estimated that the costs of operating a retail business increased by £20 billion (21% of the total) between 2006 and 2012, from a total of £96 billion to £116 billion. In the same period, retail sales have grown by an average of only 12%, which helps to show why and how many retail businesses are reducing their headcount, the number of stores they run or quitting the business entirely. A major part of the operating costs of retailers is business rates, which increase annually based on a government formula. Retailers pay 28% of all business rates and increases in business rates have added £500 million to retailers’ costs in the last two years.62 These rates are based on property 57 Grimsey, B. (2012) Sold Out, Croyden: Filament Publishing. 58 Thomson, R. (2013) ‘Has Private Equity Been Good for Retail?’ Retail Week, 29 March, pp. 30-40. 59 Collier International (2012) Autumn 2012 | Great Britain Retail, London: Collier International 60 Barrett, C. (2011) ‘Retailers May Shut Stores in Rents Row’, Financial Times, 13 May, http://www.ft.com/cms/s/0/30c01138-7d8e-11e0-b418-00144feabdc0.html 61 Oxford Economics and OxIRM (2012) UK Retail: Leading Globally, Serving Locally, London: BRC. 62 Retail Week (2012) ‘Retailers urge Rates Freeze’, Retail Week, 28 September, p1.



Valuations, but the 2015 revaluation has been postponed until 2017. Property rentals have fallen considerably in the last 5 years and retailers expected an average cut in their business rates of 19%, except in Central London. Nothing certain but taxes Conventional retailers also have to pay UK corporation tax, although global retailers may shelter some part of their international operations in low or zero tax countries. UK retailers normally pay significant amounts of UK corporation tax, although some online retailers have taken care, perfectly legally, to minimise the amounts of corporation tax they pay to the UK. They may take advantage of the favourable UK tax treatment for capital investment or reduce their UK profits (and tax) by adjusting their transfer prices or by charging licence fees for the use by the UK operations of their brand. Amazon employs 15,000 people in the UK, but is registered in low-tax Luxembourg as Amazon Europe. The UK operation is just part of the European business and recorded a turnover of £207 million in 2011. It paid £1.8 million in corporation tax. 63 Amazon Europe’s sales in 2011 were €9.1 billion (£7.3 billion), much of which was reported to be in the UK. Reuters has shown that Amazon, perfectly legally, pays corporation tax of only 5.3% on its overseas earnings.64 Its attitude to taxation in the US is no less robust than it is in the EU: it normally pays no local sales tax in the US and has terminated affiliates in states that have introduced a mandatory sales tax on online sellers.65 eBay takes a similar approach except that its profits are channelled through a separate company in Berne that enjoys an even lower tax rate on corporate profits.66 Reuters reports that eBay Europe SARL recorded a 2011 turnover of only €5 million, although Reuters reports eBay fee income for that year of €3.1 billion.

A system of retailing where the most successful businesses can avoid paying tax is obviously disadvantageous to other UK businesses that do pay corporation tax. John Lewis Partnership has pointed out that it would have much more money to invest if it did not have to pay 27% of its profits in tax.63 ‘They will out-invest and ultimately out-trade us,’ said Andy Street, the JLP managing director, ‘and that means that there will not be the tax base in the UK’. 63 The additional costs of store-based retailers in terms of rent and rates and corporation tax all make it much harder for them to mount a devastating response to the rise of the internet retailers. What does this mean? It is important not to exaggerate the impact of these accounting measures, but the sense of unfairness felt by UK retailers is understandable. The argument of Part 5 has been that an increasing number of retail businesses are failing and they are doing this because of weak strategies, the rapidly-changing business environment, or because private-equity firms have adopted unrealistic objectives. The UK retail business model is broken, based as it was on often reckless consumerism, debt, high property prices, tightly-controlled multiples and constant advances in retail sales. Online retailers at their best have shown that extensive ranges can be sold at low prices, operating costs away from high streets are low, and innovative websites and promotional activity can provide shoppers with additional services that they value (such as product information and customer reviews) even though they are not able to interact with a member of staff. Although rents have fallen on average, they are ‘sticky’ downwards and are still high compared to comparable countries (and need to fall further), whilst business rates continue to advance inexorably. Thus the squeeze on retailers caused by the fracture of the retail business model will continue, causing further business failures and loss of stores and loss of employment. 63 Retail Week (2012a) ‘A Taxing Issue for International Retailers’, Retail Week, 23 November, p. 40-1. 64 Bergin, T. (2012) ‘Special Report: Amazon’s Billion-Dollar Tax Shield’, Reuters US, found 12 March 2013 at http://www.reuters.com/article/2012/12/06/us-tax-amazon-idUSBRE8B50AR20121206 65 Brandt, Richard L. (2011). One Click: Jeff Bezos and the Rise of Amazon.com. New York: Portfolio. 66 Bergin, T. (2012)’ EBay's double tax base prompts calls for investigation’, Reuters US, 12 March 2013 at http://www.reuters.com/article/2012/11/30/net-us-ebay-tax-europe-idUSBRE8AT0S720121130?type=companyNews



Part Six

The Forecast 2018 Retail Spending to 2018 The rate of growth in retail spending has been weak since 2008. The next few years are expected to be slightly better: the Office for Budget Responsibility (OBR) forecasts67 limited, but rising, GDP growth starting with 0.6% in 2013 rising to 2.7% in 2016 and 2.8% by 2017. The UK is not expected to return to its long-term rate of growth (around 2.4%) until 2016. Time alone will tell whether the UK actually grows at the OBR’s projected rate, and if so whether this will lead to faster growth in retail sales. The OBR’s previous forecasts have been too high (at one time the OBR forecast for 2012 was +2.4%, not the actual outcome of +0.2%) so it is not implausible to suggest that the return to the UK ‘normal’ growth rate may not occur until later, say 2017 or even 2018. But even if 2017 and 2018 prove to be – against all recent evidence - high spending, high debt - years for consumers this will not be enough to rescue more than a small number of marginally-profitable retailers and unprofitable stores after ten years of recession. This recession is not like the 1930s: people are not starving in the way identified by Walter Brierley’s 1935 novel, Means-Test Man67. Our economy’s current difficulties result from the fact that a few quarters of low growth are followed by reversals: after four years total GDP is still 3.2% below peak output of 2008, quarter 1. The media are preoccupied with discovering new micro recessions (two quarters of negative growth), which are almost inevitable in view of the faltering manner in which the UK is ‘emerging’ from this recession. It may well take more than three years before normal GDP growth and consumer confidence return. The absence of significant growth in the overall retail market means that investment in new store and shopping centre development will continue to remain low (Collier, 2013), whilst online retailing will develop further at the expense of traditional shops. Figure 10

66 OBR (2013) Economic and Fiscal Outlook, March 2013, Cm 8573, London: Office for Budget Responsibility 67 Brierley, W. (1935) Means-Test Man, London.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

4.2% 5.3%

6.6% 7.6% 8.3%

9.5% 10.5%

11.3% 12.7%

13.9% 15.2%

16.5% 18.1%

19.6% 21.5%

Actual and Forecast Online Retail Sales as a Percentage of Total Retail Sales 2004-2018



The Forecast Growth in Online Spending Our view is that the annual rate of growth of online spending will slow from its current growth rate of 14%-16% to around 10%, but its share of retail sales will rise from 12.7% in 2012 to 21.5% by 2018 (Figure 10). Its market share will grow by 69.3% over the six years, 2012- 2018. By 2020 we expect the market share of online retailing to be 25.4%. Whilst the Centre for Retail Research’s forecast online shares of retail spending look high, they assume that online retail growth will continue at a slower rate and are below those of other analysts. AXA Real Estate, 68 in a report commendably dependent on references to the Centre for Retail Research, estimates that as early as 2016 the online share will be 19.6% and may be as high as 30% by 2020.69 Panmure Gordon estimates that online sales will double by 2020 to 30%. 70

Food and non-food shares of trade Online food sales, which were 3.7% in 2012 (see Part Three) are expected to grow rapidly in the next few years, as a result of consumer preferences, heavy investment by retailers (particularly in ironing out delivery problems) and the proposed joint venture between Morrisons and Ocado. Currently Tesco, Sainsbury’s and ASDA control 71.7% of online grocery. The likely breakdown for 2018 is as follows:

Food online share 9.5% Non-food online share 32.1% All retail online share 21.5%

The estimates are based on continued growth in the online market, but at a slower rate than hitherto. We expect bricks and mortar store retailers to improve their offer, but also to follow the multichannel option by integrating offline and online activities so that one supports the other. The consequence of this is that physical stores will be partially involved in facilitating online sales, making it difficult to differentiate between ‘true’ online sales and multichannel. Supply chain constraints in storage and delivery may also restrict the growth of online retailers in the medium term. There is a shortage of new speculative warehouse space coming on to the market. Between 2005 and 2008, UK developers built 58 million square feet of warehouse space, but the figure dropped by more than 95% to 2.5 million square feet between 2009 and 2012. 71 In addition the consumer distribution chain from warehouse to the customer’s home or a locker on a retail park may not be able to handle a doubling in order volumes. In order to reach a 30% share by 2020, the extra volume that took five years between 2007 and 2012 will now need to be achieved in two-and-one half years to early 2016. This is not impossible but it will be difficult to achieve.

The Number of Shops As a result of both the continuing growth of online retail and the expected low growth in consumer spending over most of this period, we estimate that store numbers will fall by 61,930 by 2018, a fall of 22.0% from the 2012 figure of 281,930 (Figure 11). The number of employees affected by the closure of their stores is expected to be 316,000 people. 68 AXA Retail Estate (2013) Market Edge: Retail Will Never Be the Same Again, London: AXA Real Estate. 69 Property Investor Europe (2013) Online risks to retail may not be priced in - AXA RE 19 Feb, http://www.pie-

mag.com/articles/4803/online-risks-to-retail-may-not-be-priced-in-axa-re/ 70 Rankin, J. (2013) ‘High street sales forecast to shrink £13bn in next five years’, 8 March

http://www.guardian.co.uk/business/2013/mar/08/high-street-sales-forecast-shrink-13bn?INTCMP=SRCH 71 Cooper, B. (2013) ‘Warehouse Woes’, Retail Week Property, February, pp. 15-18.



It is impossible to be absolutely certain about the speed of the decline in shop numbers, so this reduction may not be fully completed until 2020. We expect there to be further reductions in the pipeline of around 8,000 stores in both 2019 and 2020. By 2020 total store numbers should be approximately 204,000, a total reduction of 27.6% between 2012 and 2020. Figure 11

[source: Centre for Retail Research forecast]

The estimated fall in store numbers of 22.0% by 2018 is more than double the total reduction in the previous six years (where store numbers fell by 28,412). UK retailing has never faced the combination of recession and online growth before so that the use of historical trends in store numbers will not capture what is likely to occur. We have assumed that the decline in the next six years will be much greater than the last six years and will heavily involve loss-making small-to-medium sized stores, particularly neighbourhood stores. The loss of 22.0% of retail units does not necessarily mean that the total retail sales area will fall by the same proportion. The causes of decline include the rapid rise in the online market share, the reduced requirement for stores, the fact that many empty stores must now be regarded as virtually unlettable, and the rise in operating costs since the recession started, which has eviscerated profits. Retailers, whether large multiples or family-owned independents, can only hang on for so long making losses from stores. If the future looked bright and optimistic that might be different, but the critical decision facing many retailers is whether to close poorly-performing stores now or wait for another couple of years when the situation (for them) is likely to be even worse. A large proportion of pre-recession leases come to a break point in 2014 and 2015. It is expected that many retailers will refuse to renew unless rents are reduced considerably. Without large-scale rent reductions it is difficult to see how the retail sector can run a majority of their current store portfolio profitably. However this will undermine asset values of landlords and companies and pension funds that have invested in retail property. Hence a fall in store numbers of 22% does not seem exaggerated in the current circumstances. Unfortunately independent stores, particularly neighbourhood stores, are likely to suffer more than multiples because they usually do not have the resources or the range of options available to multiples and neighbourhood retailing has often been worse affected by the changes in consumer shopping patterns than the high streets.

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1982 1987 1992 1997 2001 2006 2009 2012 2018

356,950 340,818

318,751 317,812 314,616 310,342 302,224 281,930

220,000

The Number of Retail Stores 1982-2018 (forecast)



Store closures by type of business The number of foodstores is expected to fall by 17.2% (17,891) to 86,050 whilst non-food will be worse affected with a fall of 27.7% (43,039) to a new total of 133,950. These are of course estimates made in good faith and the actual outcome may be worse or less bad than that forecast (Figure 12). The reductions will be widely spread throughout retailing, although the number of supermarkets and superstores should rise by 10.0% (Figure 12). Major falls will be experienced by ‘other food’ (food specialists, including bakery, fruit and vegetables and butchery) of -60%, pharmacy and health and beauty (-35.2%), electricals, durables and DIY (-29.1%), and entertainment, cards, stationery and leisure (includes books and music) (-28.9%). The breakdown of figures for each kind of business is given in Appendix 2.

Figure 12

[source: Centre for Retail Research]

Store Reductions: Town Centres, Out of Town and Neighbourhood Figure 13 shows the changes in store numbers between 2009 and 2018 classified as out-of-town, neighbourhood (off town centre and suburban) and town centre. These figures are consistent with those of the Portas Review72 and the Verdict Research date reported by Genecon.73 Out-of-town should rise by 2.7% net, making allowance for the elimination of poor quality secondary and tertiary sites. The number of town centre stores is expected to fall by 19.9% or 27,638, but an even greater impact will be felt by neighbourhood stores. These will decline by 34,587 (-26.2%) as a result of the declining profitability of neighbourhood shopping in many areas, the unwillingness of multiple retailers to continue operating in small neighbourhoods and continued drift towards the perceived lower prices and better availability of stores in town centres, retail parks and internet shopping. 72 Portas, M. (2011) The Portas Review An Independent Review Into The Future Of Our High Streets, URN 11/1434, London: Department for Business, Innovation and Skills. 73 Genecon (2011) Understanding High Street Performance, London: Department for Business, Innovation and Skills

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

Sup

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Oth

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od

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Forecast Percentage Change in Store Numbers 2012-2018



Figure 13


Regional Impact of Store Closures Regionally, the largest falls are most likely to occur in Wales (-28.6%), North West (-28.4%), East Midlands (-27.0%), and Yorkshire and Humberside (-24.8%) (Table 4). The lowest falls will be in London (-9.3%) and the South East (-13.1%). Many areas are thriving or stable and the retail centres most vulnerable are those near low-income populations located on secondary or tertiary shopping areas. Table 4

Projected Change in Store Numbers by Region

2012 2018 Change %

East Midlands 20,950 15,294 -27.0%

Eastern 23,600 18,484 -21.7%

London 27,000 24,476 -9.3%

North East 37,000 27,723 -25.1%

North West 24,100 17,255 -28.4%

Scotland 24,885 19,050 -23.4%

South East 39,197 34,055 -13.1%

South West 23,660 18,150 -23.3%

Wales 14,500 10,349 -28.6%

West Midlands 24,400 18,384 -24.7%

Yorkshire & Humberside 22,638 16,780 -25.9%

Totals 281,930 220,000 -22.0%

-

50,000

100,000

150,000

2009 2012 2018

Change in Store Numbers 2012-18 by Type of Location

Out-of-Town Neighbourhood Town centre



Supplement The European Dimension In previous years (2008-12), the Centre for Retail Research has published a report on the development of online retailing in eleven European countries called Online Trends.74 Figures from this study have been cited in several publications including The Economist and the OECD.75 We are not publishing an edition of Online Trends this year, but include as Figure 14 what proved to be the most commented-on Figure in Online Trends. Figure 14, based on comparable data from the same countries as in previous years, gives an online forecast for 2018 along with our estimates for the period 2008 to 2012. Even by 2018, the UK is expected to remain as the country with the largest online market share, although the online shares of Germany (17.0%) and France (16.5%) also are expected to grow quickly. In the long term however it seems unlikely that the UK market will continue to be so much more dependent upon the online sector than other countries. By the early 2020s many of the other European countries are likely to have online retail shares of 18%-22%.

Figure 14


[Note: N/B/L is ‘Netherlands/Belgium/Luxembourg’]

74 Bamfield, J. (2012) Online Trends, 2012, Nottingham: Centre for Retail Research, 75 OECD (2012), OECD Internet Economy Outlook 2012, Paris: OECD Publishing

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Italy

Poland

Spain

N/B/L

Average

Sweden

Switzerland

Norway

Denmark

France

Germany

UK

4.5%

7.5%

7.7%

10.3%

13.2%

14.6%

14.7%

15.2%

15.6%

16.5%

17.0%

21.5%

Online Retail Market Shares 2008-2018

2008

2010

2012

2018



Part Seven

Portas and The High Street For several decades concern has been expressed about the future of the Britain’s high streets. Supermarkets and large box stores started to be located away from town centres in the 1970s, to places where parking and the delivery of goods were easier. In 1988 the Distributive Trades Economic Development Committee (EDC) published The Future of the High Street.76 This proposed improving high streets through such policies as: better forecasting of future shopper and user needs, an amended planning policy, returning foodstores to central areas, the need to improve the lighting, the look and feel of high streets and town centres, and better car parking, as well as encouraging non-retail provision such as catering, leisure and entertainment. It was a worthy document with little discernible outcome. However in 1993, Planning Policy Statement 6: Planning for Town Centres (PPS 6) made ‘Town Centres First’ the new emphasis of planning: the rate of development out of town was reduced.77 Although PPS6 and its successors brought new developments into towns, high streets have continued to lose trade (Figure 15). Their share of total retail sales fell from 50% in 2000 to 43.3% in 2009 and is expected to be as low as 40.2% by 2014.77

Figure 15 Town Centre Spending as a Proportion of Total Retail spending

[Source: Genecon, 2011]

Clone towns The New Economics Foundation (NEF) attacked ‘Clone Town Britain’,78 identikit high streets, where the same multiple chains, from Boots to Monsoon, occupied carefully-sculpted nondescript zones that looked much the same, whichever part of the country you happened to be in. The worst clone towns the NEF thought were: Exeter, Dumfries, Stafford, Middlesbrough, Weston-super-Mare and Winchester. The NEF (2004) concluded that 42% of the nation’s towns were identikit clones. A second report79 found in 2010 that 41% of towns were cloned (where more than one-half of all stores 76 DTEDC (1988) The Future of the High Street, The Distributive Trades EDC, London: HMSO. 77 Genecon (2011) Understanding High Street Performance, London: Department for Business, Innovation and Skills 78 NEF (2004) Clone Town Britain, London: New Economics Foundation. 79 NEF (2010) Re-imagining the High Street: Escape from Clone Town Britain, London: New Economics Foundation.



were chains), 23% were on the verge of becoming clone towns, and only 36% were ‘home towns’ where more than two-thirds of stores were independents. Intriguingly, NEF in 2010 named Cambridge as the UK’s most-cloned town, although of course this is the major town that has been most successful in keeping its shops let. 80 Clone towns are certainly a problem, but the most serious issues may be caused by the absence of independents and the lack of real variety amongst multiples rather than a multiple presence per se. But the problems of the retail sector mean that many towns are now de-cloning, multiples are pulling out of town centres (or, more properly, concentrating only on the best locations). People must always be careful what they most desire: the imminent danger of current trends is that in a few years’ time many towns will be able to look back with regret to when their town was a clone town and say, ‘Wasn’t shopping great then!’ The Coming of Portas In May 2011 the government announced81 an independent review of the future of the high street, examining the case for developing town centres, identifying new business models for high streets and recommending actions for government, businesses and other organisations to create diverse and sustainable high streets. The review was headed by Mary Portas, who had come to national fame running a reality TV show, Mary Queen of Shops, about re-invigorating stagnating independent stores. She had earlier been Creative Director of Harvey Nichols and ran her design company, Yellowdoor (now ‘Portas’). The Portas Review has led to a number of so-called ‘Portas Pilots’, where individual towns test out new ideas. The Portas Pilots are themselves to be televised in a Channel 4 programme, Mary Queen of the High Streets, the publicity for which says, ‘Has the Queen of Shops got the answers or is it game-over for the Great British High Street?’ 82 It all seems terribly ironic and post-modern to assess national policy on rescuing an essential part of British commerce by using the methods of a celebrity-type television show. One can imagine the Prime Minister and Samantha sitting down in front of the television a few years ago to watch Mary Queen of Shops before conceiving the need for an independent review. Could it really have been like that? In practice the Portas’ Review 83 has proved generally useful. It had been rumoured in the industry that the main motive in appointing the Portas Review had been to get some celebrity glitter rather than launch a series of new policies and that the government was surprised by the quality of the analysis provided. Certainly by September 2012 Portas made it known 84 that she felt let down by the government’s apparent unwillingness to back her ideas. However the government has now provided the funding and changes to regulations necessary for most of her proposals, which are now going ahead.85

80 LDC (2013) More Clicks, Less Bricks, London: Local Data Company. 81 BIS (2011) Announcement: Mary Portas Reviews The Future Of The High Street, 17 May, Department for Business Innovation and Skills, found on 1 March 2013 at https://www.gov.uk/government/news/mary-portas-

reviews-the-future-of-the-high-street 82 Optomen, (2013) Mary Queen of the High Street, Optomen International found 121 March 2013 at http://www.optomen.com/international/show.aspx?program=2411 83 Portas, M. (2011) The Portas Review An Independent Review Into The Future Of Our High Streets, URN 11/1434, London: Department for Business, Innovation and Skills. 84 Craven, N. and Lyons, T. (2012) ‘Queen of Shops Mary Portas Turns On Cameron For Stalled High Street Rescue Plan’, This is Money, http://www.thisismoney.co.uk/money/news/article-2210531/Queen-Shops-Mary-Portas-

turns-Cameron-stalled-High-Street-rescue-plan.html 85 DCLG (2012) Grant Shapps Offers 'Portas-Plus' Plan To Revive Ailing High Streets, 30 March 3 Feb 2013 at https://www.gov.uk/government/news/grant-shapps-offers-portas-plus-plan-to-revive-ailing-high-streets



Does the High Street Really Need Rescuing? Analysis by Colliers International (reported in Genecon86) shows that high street customer footfall (excluding Central London) fell by 10.4% in the period 2007-2010 and the tail off has been particularly notable during the second half of each year. Understanding High Street Performance86 suggested that this meant high streets were losing the most potential customers during the all-important pre-Christmas sales period which is traditionally the busiest time of the year for retailers. Commentators like Bill Grimsey, a former retail chief executive, claim that it is too late to save the high street and predicts that within five years one-third of all stores will be unoccupied. 87 Grimsey, ex-Iceland, ex-Focus, ex-Wickes and author of Sold Out 87, says that while most people pay lip service to the notion of old-fashioned town centres, with a diverse range of independent shops, fewer and fewer people have supported them. ‘The reason town centres are dying’, he argues, ‘is consumers don’t want them’. 88 Justin King, the chief executive of Sainsbury’s has argued that town centres need to ‘shrink or die’, by which he actually meant that there were too many unused stores which needed to be converted to residential purposes or other uses.89 Local shops, unlike supermarkets, had failed to cater for the local population. Town centres needed to be cleaned up and made safer.90 As might be expected, our own view is rather more nuanced. There is a spectrum of high streets, some of which have desperate problems and need urgent action and others are doing extremely well - and perhaps the majority of high streets are somewhere in between. It is comparatively easy to talk generally about high streets, their high void rates and the decline in high street store numbers that we forecast of 27,638 (-19.9%). Such talk implies that action needs to be taken to redevelop or convert empty or poor quality premises. However these needs are not universal. Detailed planning must go hand-in-hand with local action to produce a valued and valuable high street, with the right size, adequate mix of stores that is future-proofed for at least the next 15 years. Collier91 have argued that the death of the high street has been exaggerated. They found that the number of multiple stores in town centres had risen by 18.8% between 1998 and 2010 with the smaller and district centres experiencing the largest percentage gains. There had been considerable differences by category: the number of service outlets had fallen by 8.2% since 1998, convenience stores had increased slightly, whilst the share of multiple non-bulky comparison goods (eg clothing) had risen from 68.7% to 75.8% of all multiple shops in town centres. In services, catering outlets had increased by 83.3% whilst other categories of service such as leisure had fallen by 0.9%, motor (-19.9%), financial (-29.0%) and ‘other’ (-32.5%). The Collier view91 in 2010 was that town centre retailing was continuing to evolve rather than facing extinction (Collier, 2010). The fall in multiple stores in town centres (their figure is a decline of -1.8%) simply returned town centres to the posit-

86 Genecon (2011) Understanding High Street Performance, London: Department for Business, Innovation and Skills 87 Grimsey, B. (2012) Sold Out, Croyden: Filament Publishing. 88 Craven, N. and Lyons, T. (2012) ‘Queen of Shops Mary Portas Turns On Cameron For Stalled High Street Rescue Plan’, This is Money, http://www.thisismoney.co.uk/money/news/article-2210531/Queen-Shops-Mary-Portas-

turns-Cameron-stalled-High-Street-rescue-plan.html 89 Lawson, A. (2012c) ‘High Street Must Shrink Warns Sainsbury’s Boss’, Retail Week, 13 February, http://www.retail-week.com/sectors/food/high-street-must-shrink-warns-sainsburys-boss/5033570.article 90 Mendick, R. (2012) ‘Sainsbury's Boss Calls On High Street To Shrink Or Die’, Daily Telegraph, 12 February, http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9076461/Sainsburys-boss-calls-on-high-street-to-shrink-or-die.html 91 Collier International (2010) Research and Forecasting UK: Has the Death of the High Street Been Greatly Exaggerated? London: Collier International.



-ion of 2006, but multiple representation in 2010 was still 25% higher than the late 90s, although the mix was different. The Portas Review Portas made 28 proposals covering town centre/high street management and organisation; finance; regulation; controls; and local markets.92 These are briefly summarised in Appendix 3. The government accepted all except one of her proposals (the possible veto by the Secretary of State on all out-of-town development) and moved quickly to set up first 12 and then a total of 27 ‘Portas Pilots’ to trial her ideas. 93 94 The most important proposal was to set up Town Teams to manage the revitalisation of the high street. These are representative of the various stakeholders, particularly high-street retailers, brought together to prepare and implement their plans to improve the high street. In many areas there were at least 200 different individuals and companies that were landlords, tenants, or policymakers for the properties affected. At their best, the town teams brought the different interests together and could start effective planning. However the town teams needed administrative support and access to some form of management. It is understood that the government did not award the contract for managing the Portas programme, 95 but has appointed eight Town Team Special advisors. This has made any evaluation of the programme difficult (or impossible) in view of the great differences in approach and objectives of the different pilots95 and it is understood that the mid-term review of the Portas Pilots has been postponed indefinitely. The teams have become very dependent on their local authority. This is obviously important to ensure that the funds are spent in accordance to the law, but the local authorities are not the right people to help and support the Portas Teams: after all the Portas Pilots were needed because local councils have failed to do such work themselves. Government response to Portas: A Multiplicity of Schemes ~ Portas and Portas-plus. In the early months, there was so much enthusiasm for trialling different approaches that the government increased the number of Pilots from 12 to 27 and then provided a further £10,000 each for the town teams in 330 town centres that had been unsuccessful in their Portas Pilot bids. 96 Discussions we have had with Town Teams indicate that they have been encouraged by the process. ~ The High Street Innovation Fund (initially £10 million rising to £30 million) and the Future High Street X-Fund will give the most-improved high streets a total of £1 million. 92 Portas, M. (2011) The Portas Review An Independent Review Into The Future Of Our High Streets, URN 11/1434, London: Department for Business, Innovation and Skills. 93 Craven, N. and Lyons, T. (2012) ‘Queen of Shops Mary Portas Turns On Cameron For Stalled High Street Rescue Plan’, This is Money, http://www.thisismoney.co.uk/money/news/article-2210531/Queen-Shops-Mary-Portas-

turns-Cameron-stalled-High-Street-rescue-plan.html 94 Lawson, A. (2012c) ‘High Street Must Shrink Warns Sainsbury’s Boss’, Retail Week, 13 February, http://www.retail-week.com/sectors/food/high-street-must-shrink-warns-sainsburys-boss/5033570.article 95 Quinn, I (2013) ‘Portas Pilots Review Shelved as Process Descends into Farce’, The Grocer, 22 Feb http://www.thegrocer.co.uk/topics/portas-pilots-review-delayed-as-process-descends-into-farce/236904.article 96 DCLG (2012) Grant Shapps Offers 'Portas-Plus' Plan To Revive Ailing High Streets, 30 March 3 Feb 2013 at https://www.gov.uk/government/news/grant-shapps-offers-portas-plus-plan-to-revive-ailing-high-streets



~ Small Business Rate Relief has been given for small businesses in England between 1 October 2010 and 31 March 2013. Eligible businesses paid no rates for that period if their premises had a RV of no more than £6,000, and relief is tapered above that. Businesses will also be able to defer payment of 3.2% of their 2012-13 rates bill for up to two years, although only large-scale businesses would find this scheme anything but trivial. The general problem of the overall impact of business rates upon the retail sector in high streets (discussed earlier in Part Five) has not been addressed by the government. ~ Change-of-Use Regulations have been amended, allowing a landlord to amend a property’s use for up to two years. This should mean that less property is kept unoccupied. Business Improvement Districts (BIDs) have also been given funds to help Town Centres access loans. ~ New organisations. The Government has also taken the lead in establishing a number of new bodies representing the stakeholders in town centres.

o The Distressed Retail Property Taskforce has been set up by the government to find ways of rejuvenating reduced-quality high streets and town centres.

o The Future High Streets Forum is a retailer, property-owner, local government organisation, which will draw on evidence and advice from the retail industry, academics and trade organisation. 97 It is jointly chaired by Local Government Minister Mark Prisk, Alliance Boots Health & Beauty Division Chief Executive Alex Gourlay, and Martin Blackwell, the Chief Executive of the Association of Town & City Centre Management (ATCM). Membership – or representation – comes from John Lewis Partnership, British Retail Consortium, the British Property Federation, the British Council of Shopping Centres and the Association of Convenience Stores. The Forum will advise the government on town centre policy and the issues facing the high street, including: car parking; conversion of redundant empty spaces to pop-up shops; conversion of commercial property into residential space; the application of the Town Centre First planning rules; and rolling out pop-up shops across the 330 Town Team Partner high streets. The involvement of the Association of Town & City Management is particularly interesting as the ATCM is a 600-member organisation in every type of urban area with long experience of shopping, leisure and the night time economy from market towns to the largest cities. Much of the Portas approach has tended to operate separately from this type of expertise. British governments tend to like setting up both regulatory authorities and specialist bodies using participation from expert organisations. However, at best, the High Street Forum is a body to communicate with government rather than a policy-setting organisation. The fact that pop-up stores are mentioned twice in the Government announcement to set up the High Street Forum is particularly ominous.

o Love Your Market has been established as a new body to coordinate support for local

markets. In 2012 a national market day took place with the aim of increasing the profile of the hundreds of markets that are held around the UK.

o Pop-up Britain aims to support the increased use of pop-up shops and is associated with StartUp Britain (whose objectives are to get new designers’ products onto the fixtures and shelves of established stores). 98 The government has become very committed to the cause

97 DCLG (2013a) High Streets Need To Change To Prosper, 7 February, London: Department for Communities and Local Government, found at https://www.gov.uk/government/news/high-streets-need-to-change-to-prosper 98 PopUp Britain (2013) PopUp Britain, found 8 March 2013 at 2012Popup Britain



of ‘pop-up stores’, temporary stores used to provide opportunities for new entrepreneurs and designers, display new products, show new art and thus create a more interesting and rapidly-changing high street. An empty store might become a temporary art gallery or display area. The Department of Communities and Local Government has shown it is on board for the new initiative by setting up pop-up stores near the entrance to its headquarters. 99 There is also a pop-up store kit to help town teams (2012Popup Britain, 2012) and enabling legislation has been passed permitting temporary shops, including any necessary change of use. 99

BIDs Business Improvement Districts (BIDs) are not part of the Portas programme but pre-date it. BIDs are public-private partnerships set up locally by a vote and funded from the proceeds of the business rate. It brings together all the stakeholders (but not landlords usually) who work together to develop an area strategy and to support the changes needed to improve the district. This may include marketing, tidiness, crime reduction, retail markets, advice for visitors and extending the variety of retailers and services that are represented. The UKBIDs Advisory Service is a development body established by ATCM. The most well-known BID is probably the New West End Company, managing and promoting 600 retailers and service business in Oxford Street, Regent Street and Bond Street. How successful have the Portas and Government Initiatives been? The apparent preoccupation with pop-up stores seems frivolous, although some might create useful opportunities. Mary Portas herself has gone through the usual problems of UK celebrities. She started as saviour (‘Mary, Queen of Shops’ 100), but has since passed through agony (as some pointed to the financial advantages that accrued to her101 and the government ignored her102), and now anguish as some of the Pilots go wrong, and the proposals, which have probably been oversold by the politicians, may prove insufficient.103 In addition the government itself has got caught up in the enthusiasm of the Portas approach (it probably was not planned this way) and has provided more funds (Portas-plus) than originally requested. The amounts awarded are well within the statistical error of any Department’s annual budget, but one must recognise that the Government is at hazard by creating a series of programmes which it does not control and for which it may be held responsible if these do not produce significant improvements in high street performance. There are several problems, all of which lie at the heart of the Portas approach. The Portas Review, the TV programmes and the excitement brought together a range of different people with positive ideas to develop their high streets. These groups of busy, opinionated people were probably good at 99 Holland, T. (2012) ‘High Streets Boosted As Government Plans To Scrap Pop Up Shop Restrictions’, Retail Week , 20 July

http://www.retail-week.com/in-business/policy/high-streets-boosted-as-government-plans-to-scrap-pop-up-shop-restrictions/5038901.article?blocktitle=More-news&contentID=5361 100 Frith, M. (2013) ‘“Queen of shops” Mary Portas helps transform Harrow into king of high streets’, Evening Standard, 23

Jan, http://www.standard.co.uk/news/london/queen-of-shops-mary-portas-helps-transform-harrow-into-king-of-high-streets-8462762.html 101 Poulter, S. (2011) “Queen of Small Shops” Mary Portas Faces Questions As It Emerges She Is Adviser To Mall Giants, Daily Mail, 30 May, retrieved 30 May http://www.dailymail.co.uk/news/article-1392279/Queen-small-shops-Mary-Portas-is-adviser-mall-giants.html 102 Craven, N. and Lyons, T. (2012) ‘Queen of Shops Mary Portas Turns On Cameron For Stalled High Street Rescue Plan’, This is Money, http://www.thisismoney.co.uk/money/news/article-2210531/Queen-Shops-Mary-Portas-

turns-Cameron-stalled-High-Street-rescue-plan.html 103 Lawson, H. (2013) ‘Mary Portas's Government-backed Scheme To Save The British High Street Descends Into

Farce With Thousands Left Unspent,’ 24 February, found at http://www.dailymail.co.uk/news/article-2283669/Mary-Portas-Government-backed-scheme-save-British-High-Street-descends-farce-thousands-left-unspent.html



generating ideas but were not necessarily the right people to run the schemes in the longer term. Some have done well. Others have split. The Portas Pilot in Margate, for example, has had particular problems with all the people involved in its bid resigning from the board, critics saying the area’s problems are ‘worse than ever’ and Margate only spending a reported £111.47 out of its £10,000 allocation. 104 Some groups have been reluctant to spend their money or have been advised to keep it back. A FoI request by Paul Turner-Mitchell (the joint owner with his wife of Rochdale fashion store, 25Ten) revealed that at the end of December 2012 only 14.5% of the funds available to the Pilot towns had been spent.105 Although Bedminster, Market Rasen and Stockport had spent 37%, 33% and 25.8% (respectively) of their grant, other areas spent rather less - Margate (0.1%), Bedford (4.6%), Croydon (4.9%), Liskeard (5.2%) and Nelson (11.4%). 104 105 106 There is concern that local government is holding on to the Portas money or using it either to fund stunts or events that would normally be funded by local government anyway or on routine committee work, postage and administration rather than on projects that would improve the look and feel of the high street and increase its attractiveness for several years to come. The Portas equivalent of the ‘moat draining’ episode in MPs expenses has probably been Dartford’s £1,610 spent on a Peppa Pig costume for a day 106 although Dartford council argues that the event was very successful. 107 The £10 million High Street Innovation Fund, awarded to 100 councils with the worst problems, has had little impact so far with only 7% being spent. 108 Another FoI request by Paul Turner-Mitchell, showed that slightly more than £0.5 million out of the allocated £7.2 million has been spent, whilst 47 out of the 72 councils that had responded had not spent anything at all. Although Wyre Forest spent £12,000 in bringing ten empty shops back into use, one council funded a train station ramp, another spent more than £10,000 on Christmas lights and other spending has been devoted to a Father Christmas, reindeer, a PA system, and a nativity street theatre. 108 Although it is true that the measure of the Portas Pilots will be what has been achieved rather than how much has been spent, there seems some support for concluding that the combination of local government (which administers the funds) and overcommitted local business people has meant that the intentions of the Portas programme have got lost somewhere. Lawson106 suggests that each Pilot’s management has been so inconsistent that it is impossible to draw general and specific conclusions from what they have done. Lastly the X-factor celebrity approach of Town Teams involved in struggles about personalities and determining high-street improvements, whilst generating considerable excitement, have created the idea that saving or transforming the high street is mostly about under-funded enhancements of the built environment, special events and making the high street that little bit more exciting – what

104 Graham, G. (2013) ‘”Queen of Shops” All Pomp and Flop’, Sunday Times, 3 March, p. 7.

105 Samuel, M. (2013) ‘Pixie Dust Won't Save The High St’, Daily Mail, 21 Feb, http://www.dailymail.co.uk/debate/article-2282477/Pixie-dust-won-t-save-High-St.html 106 Lawson, H. (2013) Mary Portas's Government-backed scheme to save the British High Street descends into farce with thousands left unspent 24 February, found at http://www.dailymail.co.uk/news/article-2283669/Mary-

Portas-Government-backed-scheme-save-British-High-Street-descends-farce-thousands-left-unspent.html 107 Cooper, C (2013a) ‘”Peppa Pig? Good For Morale,” says Dartford Leader Accused Of Wasting Mary Portas Cash...’ The Independent, 14 February, found at http://www.independent.co.uk/news/business/news/peppa-pig-good-for-morale-says-dartford-leader-accused-of-wasting-mary-portas-cash-8496136.html 108 Simpson, E. (2013) ‘High Street Retail Fund “Barely Touched”’, BBC News, Business, 14 March found 14 March at http://www.bbc.co.uk/news/business-21775773



Samuel109 rudely compares to ‘sprinkling pixie dust’. The Portas approach has created and drawn upon genuine enthusiasm. What is needed as well is a well-funded and properly managed long-term programme to change the high street. As argued in Part 6 this would require a fund of £320 million. It is not true to say that the Pilots have failed but the majority will have to achieve significant improvements in trade and reputation if the Portas Pilots are to be counted as a ‘success’. Greater Realism for High Street Policies

□ Failing and thriving high streets The Collier conclusions110 show that concerns about or advocacy for the complete disappearance of the high street may be excessive: ‘it is always changing and this is just a different type of change!’ What is remarkable is the speed of the change. Ordinary market forces need help in order to ensure that high streets that potentially have a good future are not swept away because of the indifference of policy makers. However some of the smaller and poorer high streets will probably be completely emptied, new uses being found for the property. Some idea of the scale of what is required is provided by research from Collier International, 111 which classifies town centres into five categories, as follows:

‘Failing’ - 11% of the total (40 towns such as Bootle, Mansfield and Walsall);

‘Degenerating’ - 10% (38 towns such as Acton, Cannock and Folkestone);

‘Stable’ – 41% (151 towns such as Gloucester, Huddersfield and Swansea);

‘Improving’ - 20% (71 towns such as Dundee, Leicester and Yate);

‘Thriving’ – 18% (64 towns such as Brighton, Stratford and Harrogate)

‘Failing’ town centres are those suffering problems for many years: ‘degenerating’ are those with a reasonable historical performance, but are now in decline. Hence slightly more than one-fifth (21%) of all towns (or 78 towns in number) are in decline. The ‘stable’ category comprises 41% of all towns (151 in total): perhaps one-half of these in broad terms need some form of support to prevent their moving in the near future into one of the ‘declining’ categories. Town centre redevelopment in the manner popularised in the 1950s and 1960s is certainly not required, but the aim would be to carry out a series of partial developments in chronic areas that could no longer support the same number of shops and service outlets as before, so that what remains is well designed and commercially efficient. This would mean that around 41% or 153 towns need positive action from government as funds to right-size, support and develop their central commercial areas.

□ Rescuing the high street: Government funding £320 million At a time of rapid retail change there can be few high streets that are invulnerable. There are many locations, particularly secondary and tertiary, in the Midlands and the North of England, Wales, Scotland and Northern Ireland which have been significantly weakened during the recession. These need support, both of the kind proposed by Portas and assistance in eliminating hard-to-let and 109 Samuel, M. (2013) ‘Pixie Dust Won't Save The High St’, Daily Mail, 21 Feb, http://www.dailymail.co.uk/debate/article-2282477/Pixie-dust-won-t-save-High-St.html 110 Collier International (2010) Research and Forecasting UK: Has the Death of the High Street Been Greatly Exaggerated? London: Collier International. 111 Collier International (2012) Autumn 2012, Great Britain Retail, London: Collier International.



poor-quality retail units. The areas where rebuilding or conversion has taken place would still have a commercial value for sale or rent, but there would need to be central government pump-priming to get the changes started. We estimate the cost of this to be £320 million over five years. Many areas will need only a small amount of redevelopment and some popular areas will need none at all. But the declining areas (or only just surviving) in many parts of the country, especially the North and Midlands of England, Scotland’s central belt and Wales will certainly need radical surgery. To ensure that occupiers, local authorities and landlords saw this as a priority the funds would need to be time-limited. Devolution of powers to component parts of the UK may mean that such funds would only be available for England, Wales and Northern Ireland. A fund of £320 million would enable a start to be made and show what benefits can be produced by town centre re-engineering of this kind. £320 million would simply be the start. It may help property companies to become involved as well as local authorities. The aim is not large-scale redevelopment but a series of micro-projects each one of which would produce residential accommodation or valuable commercial property as a result. It would not be sufficient but it would be a start. And most of the money would be put into local jobs and small-scale public works with positive effects upon local employment, perhaps creating between 15,000 and 20,000 new homes over three to five years. The March 2013 budget saw the government promising £130 billion for households to help them to buy property: our proposal for a £320 million fund would actually help create new accommodation and would be non-inflationary.

□ The Portas Pilots The concept of giving local people a fund to help improve their own high street is a good one, but obviously needs much better management than many of the Portas Pilots. Retailers, local councillors and officials that we have talked to were universally enthusiastic about the idea of working together as a neighbourhood to make the town centre a better place to shop.

□ Too many funds ‘Every idea its own fund’ is a terrible way to stimulate the high street because it requires multiple applications from intended recipients for comparatively small amounts and an encyclopedic knowledge of an enormous variety of schemes. There will invariably be money that goes unspent by these different funds. It would probably be better to merge most of them into a single programme able to give support to high streets and town centre teams under several different headings.

□ Car-parking Town centre shoppers have been used for too long by local authorities as milch cows, an easy source of income at a time when local government spending is curtailed. Making it easier to park and cheaper to do so should have been a priority for the programme if the high street is to work as a retail environment. The Portas recommendation that local councils should experiment with various free (or low cost) parking options is one of her most important proposals.

□ Improving the appearance of the high street Eliminating clutter, notices, litter, footpaths and access to the high street was cited as long ago as 1988 in The Future of the High Street as an essential part of bringing shoppers back. It is also there in the Portas proposals along with the need to make the centres as safe and crime-free as possible.



□ ‘Sprinkling Pixie Dust’ ‘Sprinkling pixie dust’112 by using pop-up shops, exhibition space, and bringing in new designers and entrepreneurs to make high street shopping more attractive and interesting obviously has a part to play but it can never be the whole of a high-street strategy. Of course the fairy dust provides politicians with plenty of photographic opportunities to show that they are at the heart of their own community.

□ A range of uses The change in the pattern of retail trade means that many high streets will no longer be primarily retail locations, although they will need a good mix of retail stores in order to attract shoppers and visitors to the high street. Other uses include restaurants and cafes, coffee shops, leisure, health, hairdressers and nail bars, gyms, banks, and education. When planning high streets, important roles are played by the offices of local councils, doctors, police, health centres, and libraries in adding customer footfall to retail and service outlets. Access to high streets by public transport is normally much better than to the edge of town-centre locations that public agencies increasingly adopt. Planning authorities will need to ensure that the gaps in high streets are not filled in mainly by money shops, betting and gaming machines (however valuable their clients find them), because this will make the area unattractive to many people, including retailers and other service businesses.

□ Better information and new powers about high-street property owners Portas rightly argues that it must be easier to collect information about who exactly owns property on a high street, so that action can be taken by the local authority, including compulsory purchase of property that is not kept repaired.

□ High-street redevelopment As there are too many shops, part of the changes required to our high streets involve high street development. This will involve converting stores or former banks into classrooms or restaurants, converting three small stores into a new store, making smaller stores into residential accommodation, or eliminating several shops to be replaced by houses and flats or some other alternative use. This will make high streets shorter, eliminate voids, and bring residents back into the high street making it a more flourishing area. Collier International113 notes that in spite of the increase in vacancies in retailing, new retail developments tend to be fully let, which they say shows there is strong demand for well-equipped modern retail units. Many areas will need only a small amount of redevelopment and some popular areas will need none at all. But the declining (or only just surviving) areas in many parts of the country, especially the North and Midlands of England, Scotland’s central belt and Wales will certainly need radical surgery.

112 Samuel, M. (2013) ‘Pixie Dust Won't Save The High St’, Daily Mail, 21 Feb, http://www.dailymail.co.uk/debate/article-2282477/Pixie-dust-won-t-save-High-St.html 113 Colliers International (2013) Shopping Centre Market Review, January 2013, London: Colliers International



Part Eight

Business Strategy I for Retailers: Online versus Stores The retail market, businesses and consumers are going through intense changes as the market develops and no one can be really sure exactly what will eventually happen and what the emergent pattern of retailing will look like. By 2018 sufficient changes in the structure of retailing and in consumer spending patterns should have occurred to enable us to make some accurate forecasts about the 2020s. The fast rate of transformation needs retailers that want to survive and prosper to decide a specific strategy for their online operations and positioning for the kind of business they want to be. This report cannot consider such aspects in detail but it does present the key options and choices that are available: Part Eight discusses online options and Part Nine evaluates key positioning options. Online growth For online retailing to grow from its current 12.7% to 21.5% by 2018 or soon thereafter a market share of 8.8% of total retail sales will have to transfer from retail stores to online retailers, a total of £27.28 billion at current prices. This is unlikely to mean that this market share is taken by pure play etailers, but different proportions will transfer to pure play, to traditional retailers’ websites, or to some intermediate online form such as click and collect. The new ‘realism’ of the retail sector expressed in anecdotal comments like ‘the high street will vanish’ and ‘we’ll buy everything on line’ are too defeatist. There will be a strong role for stores. No market trend is ever irresistible, not even online retailing, and the view that online growth will continue permanently at 14% to 18% without diminution is unlikely to be proved correct. Our view is that there will still be a role for shops, retail town centres, and shopping malls, even though online retail will obviously continue to grow quickly and cut out a significant proportion of shopping provision. Online choices for retailers The impact of ecommerce has been such that many retail analysts now assess a retailer’s quality on its actual and potential online offer rather than its current profitability. No doubt this will change, but it underlines the extent to which a radical and developing online policy is seen as essential for long-term survival. However not every retailer is excellent in its online operations or is going to be able to provide a successful multichannel approach involving both web and physical stores. It would be wrong to characterise such retailers as ‘failures’. There are at least four broad categories into which retailers can fit. These are shown diagrammatically in the matrix of Figure 16. Retailers are classified in terms of: their prospects for online success; and their prospects for running successful physical stores. Each box in the matrix has a different appropriate business strategy.

The north east box (High/High): This is a very favourable position (top right), where the retailer’s stores achieve good results and its online growth performance is also good (or currently, even better than the physical stores). An example would be John Lewis Partnership. Good branding and a well-



run and resourced website mean that online and stores support each other in a virtuous circle, along with social media, catalogues and other channels. These retailers need to develop both elements of their business in a multi-channel or even omnichannel fashion, which will be particularly necessary as competition both in store-based operations and online-based operations becomes more intense.

Figure 16 Strategic Options for Retailers: Online vs Physical Stores

High

Prospects for Success Online

Low

Medium-term Disinvestment from stores, but expansion online

Organic growth in stores & online

Disinvestment, closure and exit

New store expansion, keeping online under review

Low Prospects for Successful High Stores

The south east box (Low/High): These retailers’ physical stores (such as general merchandise and grocery discounters, and even companies like Primark) have good prospects, but whose online prospects are unclear because, for example, of the sector’s low profit margins and the high cost of delivery compared to their merchandise prices. Here, online options need to be kept under review as a strategy to be used when necessary (or possible), but the main strategy is to develop the store offer because this is where scale and profitability currently lie. The south west box (Low/Low): The south-west quadrant is retail’s sin bin for companies whose stores currently have only a weak performance (possibly because of competition from online sellers or past over-expansion) and whose actual or potential online prospects are poor, perhaps because of insufficient skills, lack of resources or small scale. The strategic possibilities are very limited and in the medium-term such firms will probably exit the industry unless they can find some niche area of competence (online or offline) where they can survive.

Low/High High prospects for stores, Low

prospects online

High/High High prospects for stores, High

prospects online

High/Low Low prospects for stores, High

prospects online

Low/Low Low prospects for stores, Low

prospects online



The north west box (High/Low): The north-west quadrant is a space where the prospects for retailers’ sales through physical stores are (or will be) unsatisfactory, but the prospects online are potentially very good. A typical example would be retail chains operating in markets like media and entertainment where online players provide aggressive competition to bricks and mortar retail stores. The retailers in this position may have a good brand name, and obviously need to develop their online operations rapidly to replace the sales and profits that will be lost because of the poor performance of their stores. Retailers in the north-west box have a range of choices and clear strategic decisions need to be made. The main choices are:

Close all stores immediately and focus on online trade. This is a high-cost, risky option. The costs of exiting stores will be high and unless the online offer is excellent, sales from the web may be insufficient to replace the sales lost through closing stores. However if the stores are already unprofitable and cannot readily be improved, this may be the only available option.

Fighting retreat: if there is a decent mix of profitable and unprofitable stores, the retailer may plan to close and disinvest its irredeemably unprofitable stores year by year (using a willingness to quit as a strong bargaining position with landlords), reinvesting the proceeds of the ‘retreat’ strategy to develop its online business as well as making medium-term improvements to shore up the performance of problem stores. Whilst closing the tail of loss-making operations, the retailer can continue to operate profitably, fighting a tactical retreat in some areas, but investing heavily elsewhere. As long as the majority of stores are profitable and well-run this is the least risky option, because it does not hazard the store business until the online operations are very successful. Depending on the performance of the stores and the quality of the online business, the retailer may eventually close all its stores or continue to run a proportion of the best-performers on a multichannel basis.

Concentrate and Focus: instead of a long term ‘fighting retreat’ this company decides to close most of its stores, focusing on a smaller number of ‘excellent’ stores in the very best locations (say 25 or 30 sites), and invest heavily in online. Stores selling prestige brands might prefer this approach of focusing on excellent stores and an excellent online offer, adopting an omnichannel approach to their customers, at the same time as they develop new formats. This is a more risky approach and would require more capital than the ‘fighting retreat’, but it is a longer-term strategy based on a commitment to excellent stores and high-quality online provision.

New entrants and minimum efficient size Good modern retail brands that are successful in a UK region or another country potentially occupy a position in the north east quadrant (High/High). They have new products or a new approach, successful online sales and know how to run stores impeccably – ie the virtuous circle. In the past such chains would develop in the UK by establishing over several years a national chain of as many as 250 to 450 stores. There is no need any more to open so many new shops. A chain with 75 stores will cover the main shopping areas of the UK (although it may decide to run up to 200 stores) and customers who cannot or will not shop there can buy their goods online. A second strategy might involve concentrate and focus: a prestige chain might now aim to establish as few as 20 or 30 stores (eg in London West End, Westfield, York, Cheltenham, Glasgow, Leeds, Manchester etc) acting as shop windows for the business, and use their websites as the main focus of developing strong retail sales. Each retailer has to make its own decision, depending on such issues as its brand, positioning, type of goods and competence both in store operations and online site development. But they need to



make a clear strategic decision at some time and, compared to ten or 20 years ago, the range of options is now much greater. Retailers stuck in the middle. Stuck in the middle, which is the case with many retailers, is a poor strategic position. They have no great competitive advantage in meeting consumer needs in their own shops, they may be seen as ‘me-to’ retailers or lack a competitive edge, combined with little competitive advantage in web design, IT or in consumer online marketing. This is a weak competitive position and such businesses need to migrate to some other quadrant to give themselves a marketable competitive advantage. If they remain stuck in the middle, with weak online and stores offerings, they will become irrelevant and the great danger is that they will drift to the south west quadrant, finally leading to administration and company closure.



Part Nine

Business Strategy II: Positioning Options for Retailers

This section focuses on the main positioning options that store-based retailers, both large and small, may have. No attempt has been made to be fully comprehensive. Part Nine simply sketches out some of the key categories of store that will succeed (or fail) out of many. We do not support the ‘total retail death’ argument: the future, as usual, will be much more diverse and hard to predict. But many shopping areas and types of shops will die, whilst others will succeed and grow.

Location, as ever is important, in driving customer footfall and providing a ready source of prosperous potential customers. People who have the option of convenience, easy parking, and lower prices may shop elsewhere or online rather than run the gauntlet of traffic wardens, having to walk some distance, and the perceived higher prices in local stores.

Specialisation is limited by the extent of the market. To be the only DIY store in a town or a booming locality is a strong position. To be the sole independent hardware store surrounded by four big box DIY retail sheds is normally a dangerous situation.

‘Shopping areas’ need the greatest range of retailers and services or they will die. People’s requirements when out shopping are often complex. What starts out as a single trip to get a ‘couple of items’ may eventually need easy access to a baker, confectioner, butcher, newsagent, card shop, shoe repair, bank, DIY store, and coffee shop to meet their needs (both intended and unexpected). A high street consisting of pound shops, charity shops, two banks, an electrical store, a baker, estate agents and a money shop will not meet these complex needs and shoppers may prefer to visit a supermarket instead or a larger nearby town centre.

If the consumer market is small because the area is small, households have low incomes or the market is diverted towards a shopping mall or a superstore then naturally many retail stores will disappear. Any well-run retailer whose store is suited for its locality will be potentially successful. Nevertheless there are certain features held in common by the most successful locations and the less successful. The Local Data Company 114 reported in February that the most successful and least successful towns in terms of their average rates for store vacancies (in order): Most successful Top Towns: Cambridge, Kingston on Thames, St Albans, York, Salisbury, Harrogate, Central London. Least successful Towns: Stockport, Walsall, Grimsby, Bolton, Nottingham, Swansea, Sheffield. Observation of the data shows a strong association between declining, low income industrial areas and high vacancy rates and high income, shopping destinations and low vacancy rates. Some areas perform better than might have been predicted and others have done worse. The report Retail 2013115 of chief executives indicated that most respondents expected to reduce their store portfolios, with weak locations suffering most of all. This was not only true of high streets, but secondary and tertiary poorly-performing retail parks and shopping malls. 114 LDC (2013) More Clicks, Less Bricks, London: Local Data Company. 115 Retail Week (2013) Retail 2013, London: Retail Week.



Figure 17 models successful and unsuccessful retail provision against (a) price levels (from low to high, vertical axis) and (b) service levels (low to high, horizontal axis). These are not the only dimensions of positioning, but they reveal important issues for the retail sector. Services can mean many different things: services must not only be provided but they must be wanted by customers. ‘Can I help you?’ can lead to a useful interchange when the customer does not really know what he or she wants, but research from the CRR shows that particularly amongst women customers ‘interfering’ or ‘bossy’ staff were the most disliked features of shopping (CRR, 2008). Service which involves chat or banter with employees, too much unnecessary information or where staff are hyper-critical or uninterested is unlikely to be valued by a majority of customers.

Figure 17 Store Positioning Strategy in an Online World

Low Service SERVICE LEVELS High Service

‘Bond St’ Luxury

Prestige Brands

‘Frugal’ Retailing

‘Value’ Discount

Stores

‘Grimtown’ Local in Decline

‘Guildford’ Middle Class

Local Shopping

Artisan/ Customised

Shopping

Experiential/ Lifestyle Shopping

Not Sustainable

Fad/ Gimmick/

Not Sustainable

Declining Independ-ent norm

Modern Enhanced Shopping

High Prices PRICES Low Prices

Strong Independent



Figure 17 shows two weak and unappealing positioning strategies (in blue), eight potentially successful strategies (in pink) and two short-run strategies (white). Some strategies have been given names to distinguish them. They do not relate to any actual city or town. Successful Retail Positioning Strategies Guildford. This is essentially a successful middle class area where house price are above average, unemployment is relatively low and where families want to live. A large proportion of the population (and shoppers) is ABC1 and has middle class tastes and ambitions. It is not completely Waitrose territory and a significant proportion are from socio-economic groups C2DE. Many families want to shop locally on the high street but they also use superstores, shopping malls and retail parks. There is sufficient income for them to do this and also to permit a thriving high street to continue. The Guildfords also benefit from shopping trips made by people in a 50-mile radius. A mid-range level of services and prices that are somewhat above average do not deter trade. Bond Street. These are extreme shopping areas with high prices and high service levels from stores that are often international global brands. The product is vanity, branded, exclusive, prestige and individual, prices are high and the service is superb. Shoppers are prepared to travel long distances to visit the Bond Streets, which need to be either well-served by international flights or close to fabulous holiday destinations. A range of different prestige shops is required in order to make these shopping trips worthwhile for well-heeled customers. Artisan. This is artisan, customised shopping which can be food, but also may be fashion, jewellery, furnishings, personal organisation, stationery, or health, fitness and sport. One might think primarily in terms of exotic breads, cakes or tableware, but it also includes customised cars or angling equipment, household products, handmade gift cards and furniture. Artisan stores are best served by there being an agglomeration of customising stores in particular location, or perhaps a regular market.

Discount stores. Success in modern retailing is not simply about non-Tesco approaches to the needs of attentive middle class families. Although ‘value’ discount stores are almost at the opposite end of the spectrum from Bond Street, they are a successful form of operation and one of the few categories that are keenly interested in new sites for stores. They attract both ABC1 customers as well as the C2DE and flourish on the basis of a combination of tat and useful household goods, hardware, clothing, toys and novelties at amazingly low prices. It is hard to leave such a shop without buying something. Discount stores now need to offer a certain level of service because their customers now demand it, and this increases their operating costs slightly. Frugal retailing. This is rock-bottom pricing for the poor (and the squeezed middle) with zero services. It will be a cash-only business in poor-quality surroundings. In locations where incomes are low and there is a lot of unemployment, frugal retailing may be all that is on offer. Strong independent. Although the independent sector is in difficulties because of the decline of the high street, insufficient training, and the absence of scale economies for buying or store size, there will still be a role for an independent who knows his or her area, customers and product well and brings in clientele through being located near to other strong independents, promotion, events, plus good pricing and good service levels. A strong independent may also have a niche online offering that gives additional buying economies and may bring physical customers to the store.



There are two newer strategies that are likely to become increasingly important: Experiential/Lifestyle shopping and Modern Enhanced Shopping. These strategies can be used for any kind of business. Experiential/Lifestyle. For at least ten years retailers have been thinking and experimenting with stores where customers do not passively walk around but engage with staff and consultants and experience the products being used or plan how they might use them. Hamleys, the toy shop, is probably the best known, and is one well-known for ‘retail theatre’ where customers, particularly younger ones, are very willing to engage in experiencing the products. The Apple stores have shown that it is possible for customers to have good/useful interactions with staff, receive advice and suggestions about how to use a product or where to get help to solve a problem with Apple products. The Apple stores produce sales per square foot that are more than four times higher than any other electrical store. Shoppers can use the products in the store and identify the ones that are most suited to them. They can buy them, order them for home delivery or they can buy them from another retail store or from Amazon. Apple is of course a manufacturer with a cult following, so the danger that customers might walk out and buy a cheaper product from a competitor is smaller than it would be for many other products. It is an expensive way of running a store because of the high number of staff. In a world where there are few actual bookshops or stores selling computer games one can envisage book publishers and games software suppliers opening stores to allow customers to assess the options rather than expecting shoppers to rely on word of mouth, reviews in magazine and newspapers, or the Amazon website. For both retailers and suppliers with some expertise in pop-up (temporary) shops this might be a way of showcasing new product lines, fashion ranges, DIY lines, or cookshop pans or devices. The stores would be bustling with a lot of activity as shoppers were shown how to use the items or were encouraged to do things themselves. Modern Enhanced Shopping is a more generic form of store making use of display, information, recommendation and ordering technology in the hands of customers and retail stores. Modern enhanced shopping would naturally be available for all types of store, depending on its positioning and whether the application would be profitable and useful.

Deals for customers. The store would ‘push’ offers, electronic vouchers and recommendations to customers by email and smartphone. Short-term offers and recommendations can be pushed to the smartphones of customers who are nearby. The offers can be redeemed by swiping the smartphone.

The transparent store. The store would have wi-fi. Customers could use their own tablets, smartphones or the kiosks or computer monitors and keyboards available instore to check what is on offer, the availability of products, compare prices with other stores and online, read third-party reviews and thereby check that what the store and its employees say or promise is completely accurate. Employees or advisers may carry tablet devices to illustrate what they are saying or to demonstrate the ratings of different products; for large items (eg a kitchen) they might use their tablet to sketch out a plan. Product reviews are readily available, perhaps even on electronic shelf-edge labels or hangers.

Expert. In parallel with today’s greater emphasis on service quality, the sales assistance of the future will need to be knowledgeable about categories and products, trends and know how to get information quickly from an iPad. Companies like JD Sports and Marks & Spencer are using enhanced training and iPads or consumer screens to interact more intelligently with customers.



The fast store. Goods can be ordered or purchased in-store or online, but there may be a role for specialised pop-ups and other locations such as posters using QR codes to facilitate rapid transactions.

Virtual fitting rooms. Shoppers can try out different products or fashion styles and colours electronically (via augmented reality) without having to put on any garments at all. Apart from the speed and convenience, this would also be useful in online channels, because as the customer’s size and fit requirements are known the dangers of buying unsuitable items would be reduced. 116 Returns of clothing are currently around 25% of all orders, and this is mainly because the goods are the wrong size or not the right colour.

Shopping as a social event. Shoppers can take photographs of the product or use the retailer’s photographs readily available in a cloud or a well-known product like Dropbox, compare different colours to see which gets most votes from their friends, or fashion items can be captured using an electronic mirror (in truth a camera) from front, back and side and shared with others before making a decision.

The approach is omnichannel. Merchandise may be available ex-stock or delivered to home or purchased later and collected from the store (or other nominated collection point) using clicks and bricks. Gifts may be bought via social media that have been tried on instore by the intended recipient. Whichever channel is used the retailer knows about the customer, recent purchases and likes and dislikes and so this store or this retailer will be seen as relevant and authoritative. The shopper starts there because he or she knows and trusts them.

The transaction will be electronic. Depending on the retailer, transactions might occur anywhere in the store, with the employee taking payment on their iPad and issuing receipts. For some categories, item scanning may be done automatically using radio-frequency tags (RFID) or 2-D codes similar to QR codes. Payment may be made by swiping a smartphone, cash, credit/debit cards or electronic money such as Paypal. Queues can be eliminated quickly as additional staff equipped with tablets work along the queues.

Customers are known entities. Customers will want to share and hold their data with retailers, which in turn need to store it and use it carefully. Recommendations need to be based on sound knowledge of the customer’s preferences and sizing, rather than one-off purchases.

Franchise. Franchising is a successful retail model where a smaller business can operate as a well-known brand, gaining buying, training, merchandising, marketing and store design benefits as part of a worthwhile franchise (for example Subway and MacDonalds). Franchise members are often small-scale, but, for example, the French E. Leclerc superstore chain is a franchise comprising some large retail businesses. Franchising is the predominant model used in the UK for take-away food and many chain restaurants. The franchisee has to pay for the right to operate the franchise and gain its benefits of course. The Budgens convenience chain is an example of a national grocery/convenience chain which is actually run by franchisees, whilst Tesco is understood to be trialing a similar scheme for one of its convenience sub-brands. Franchising has been used at times by several retailers, including Thorntons, Sock Shop and Tie Rack. One way of reinvigorating the high street may be to use franchising which gives national brands plus some local element and management. A national multiple chain might have a ‘shadow’ franchise with a different name, but selling its normal range in 116 Hughes, N. (2012) ‘Online Fashion Fit for Purpose’, Retail Week Ecommerce in Fashion Supplement, October, London: Retail Week, pp. 4-5.



secondary locations or using some combination of the place name, owner’s name and the multiple. Unappealing Strategies There are a number of strategic positions that will involve decline for normal or traditional stores, but even so good independents, niche players and value retailers may still do particularly well. Please note that these comments do not relate to any specific location or business even where the name of an actual location is used: Grimtown. Places with a declining local area with a high proportion of socio-economic group C2DE in the consumer market. Local unemployment rates are on the high side and many households are dependent upon the public sector for benefits or employment. Reductions in public spending createa future that is even more uncertain, at least for the next five years. Growth is flat or negative so retail profitability is difficult to achieve and is usually modest. People shop in other towns and retail parks and malls and the proportion of visitors from elsewhere is low. Prices are relatively high, whilst the services and attractiveness are weak. There are high vacancy rates and many stores are value retailers, charities and money shops. Declining Independent norm. Many independent stores are lively and successful, but others face problems caused by local area neglect (ie an unappealing area to visit for shopping), car parking/access problems, retail category decline (entertainment, newsagents, electrical goods), poor (unwanted) ranges of display for customers, poor (or unwanted) services, and low footfall. People may enter the store simply because of proximity or to enquire whether a certain product is stocked. Prices are relatively high, whilst the services and attractiveness are weak Stuck in the Middle. This is a norm for many chain retailers, where prices can always be undercut online and the range and attractiveness of the stores and the merchandise displayed is low. They are not cheap enough to win against online or discounter competition, and not good enough for product or services to encourage shoppers even though their prices are on the high side. Grimsey,117a former retail chief executive of a number of national multiples discusses this further in Sold Out.

117 Grimsey, B. (2012) Sold Out, Croydon: Filament Publishing.



PART TEN

CONCLUSIONS Retail Futures 2018: Shop Numbers, Online and the High Street argues that the retail crisis results from a combination of weak consumer spending and the cannibalisation of shop sales by the rapid growth of online spending. These have affected some retail categories significantly (including music, entertainment, antiques and second-hand goods) but stronger retail models (for example discount stores) have been comparatively unaffected. Retail Futures 2018 forecasts that in the period 2012-2018:

□ 61,930 stores will close, 22.0% of the total, affecting 316,000 employees;

□ online retailing’s share of retail sales will grow from 12.7% to 21.5%.

□ the major transformation of UK retailing will continue for at least the next eight years. The main impact of store closures will be felt by neighbourhood stores (a fall of 26.2% or 34,587 stores) and town centre stores (a fall of 19.9% or 27,638 stores). Independents will suffer the brunt of these changes. Low-performing secondary and tertiary sites in areas with large below-average income households are likely to suffer disproportionately from the fall in shop numbers, but new developments and retail locations in thriving towns in every area of the country should continue to do well, although store numbers are likely to fall even in such towns. Regionally, Wales, the North West, the East Midlands, and Yorkshire and Humberside are likely to be severely affected. The Portas Review (2011) has had a positive effect in stimulating debate about the high street and encouraging individual stakeholders to work together on local improvement projects. Many schemes have been poorly managed and the outcomes scale of change has often been modest. But, after all, this work should have been done 25 years ago. However the Portas approach implies that ‘saving the high street’ can be the result mainly of better marketing, pop-up shops, and running a few attractive events every year. Such things certainly have a role to play, but improving Britain’s high streets must involve substantially improved funding, some remodelling of buildings in order to ‘shrink’ the high street in 153 (41%) of our towns and a focus on easing congestion and making car parking easier and cheaper for shoppers. This report recommends that a fund of £320 million be made available to pump-prime small scale changes in town centres with a view to converting empty shops into residential accommodation or other uses. Remodelling the high street should not be seen as a failure. Creating 15,000 to 20,000 new residences, providing new offices, classrooms and clinics as well as using retail premises to provide health and beauty or fitness services will create extra footfall and new business for existing shops. However it may be true that some poor-quality retail locations may be better off turned into housing or hotels because they are not needed in their current use. Shops and stores will continue to be important, but the retail future will – and must – be different from retailing past. Many shops are no longer suited to their locations: they may be too small and cramped, with inadequate delivery facilities, superstores that are now oversized, or box stores from the 1970s or 80s that are no longer appropriate for anything. These stores will all need remodelling for new retail needs in the next ten years: two or three smaller stores may be combined to make a single modern store, whilst the over-large stores may be subdivided or demolished and replaced by more suitable premises.



Multichannel and omnichannel approaches create a way that online retail approaches can be interlaced with store-based approaches, giving the customer a multitude of choices about deciding what to buy, how to source it, how to carry out the transaction, and to choose how it gets to the customer’s home. The likelihood is that for comparison goods such as electrical items a customer will use several channels for any one transaction, whilst for rebuys and day-to-day convenience items a single channel might be used. People will shop in different ways for different products, but it is unlikely that in the next five to 15 years shops will become unimportant or unnecessary to the process.

But there will be fewer shops and they will operate differently.

□ ‘Experiential’ stores will provide ways of engaging customers, often using IT, having them interact with the products, and gain in-depth advice and recommendations or suggestions about the use of products. Retail ‘theatre’ may be part of that but retailing new kitchens and leading-edge computers will also use experiential approaches.

□ ‘Modern enhanced’ shopping will make use of IT products and internet services to guide people around the store, to enable them to access product reviews and product information using in-store wi-fi, to visualise how products will suit their homes or how particular styles will fit them, using different designs, patterns or colours (all done electronically), and share this information with friends by phone as part of making a buying decision.

All this depends on having a single view of the customer, knowing their preferences and what they have bought before, and being able to make recommendations based on their data about what they might like.

Many shops of course will be neither experiential or modern enhanced, but they may go some of the way. An independent delicatessen might offer, as many do now, courses in breadmaking, food preparation or cookery to create awareness and make people feel involved in the products. A bookstore, fashion, or electrical shop can arrange marketing and awareness events, and use technology to push recommendations or reminders as the seasons change or new merchandise comes into stock. Location has always been regarded as a vital element of success in retailing, but location today also means website availability and having a high ranking in Google searches. Retailers in unsuccessful, unattractive, non-prosperous areas will decline more quickly than those in thriving areas, unless they bring some element of interest or distinctiveness that will create extra customer footfall. Retailing in the Guildfords will win against shops in the Grimtowns, though retailing in both areas will remain difficult. Accurate positioning by location and type of business will be increasingly important. Location in a prosperous or mid-range area, having a distinctive proposition such as ‘value’, ‘artisan’, ‘smart exclusive’ or ‘product range’ combined with a ‘value for money’ approach compared to online prices and some options about delivery are all important factors in ensuring long-term survival. The high occupancy costs of operating from central areas relate to an earlier type of retailing and it is difficult to see the necessary mix of retailers being able to survive unless there is a substantial fall in rental levels (by about 30%) and a reduction in business rates (ditto). Franchising, the model used for fast food (MacDonalds and Subway for example), may become a significant option for multiple retailers as a method of running a large network of stores at lower cost. The aim would be to use the individual entrepreneurship of highly motivated branch managers/owners to ensure each branch was well run, responding to local needs as well as meeting organisational corporate standards. Whether this would be more than a medium-term fashion to deal with the problems of having too many stores would depend upon the quality of selection, training and support given by the franchisor.



APPENDIX 1

Terminology Billion: one ‘billion’ is ‘one thousand million’ (109), following the current practice of the UK Office of National Statistics, the economics profession and UK business. Click and collect: customers buy online or reserve online and visit a designated store to complete the transaction and pick up the product. Also called ‘bricks and clicks’. Convenience stores: smaller stores (normally less than 2,500 square feet) selling a range of grocery and fresh food from different categories and open long hours. Discount stores: stores selling below the conventional price or selling lower-priced product ranges not readily available elsewhere. e-commerce: retail sales made over the internet. Footfall: the number of customers using a store or shopping area over a given period irrespective of whether they buy anything. Franchise: a form of retailing, in which (from the viewpoint of the consumer) stores with different legal owners operate identically as thought they were a single business, with similar product ranges, fascia and logo. High Street Stores: downtown or central business district shopping in key central areas as well as major suburban locations and smaller towns. Independent stores: retailers owning and running predominantly only a single store (85% of independents), but including small retailers that own up to five stores. Mobile computing: use of smartphones (or function phones) and tablets to make online transactions away from the home or the office. Multichannel: customers can use either online or physical stores to compare goods and prices, start purchasing, complete transactions or collect the merchandise/have it delivered. Multiples: multiple retailers own ten or more stores, usually run in the same way, with similar prices, layouts, fascia and logos; also called ‘chain stores’, ‘chains’, or ‘groups’. Omnichannel: retailers combine online, physical stores, social media and TV to gain a single view of the customer, who can use any one channel or combination to make a transaction. Online retailing: e-commerce, retail sales made over the internet. Pop-up shop: a retail space used temporarily as a formal shop, display for new products or designs, a trial area for new electronic consumer ordering, or short-term art gallery or information centre. Pound shops: discount stores selling merchandise including shadow brands at reduced or deeply-disounted prices. Retailing: the sale of goods to final consumers through stores, e-commerce and mail order, excluding petrol, travel agents, tickets, and catering, but including virtual goods such as software and e-books. Sales turnover: now means ‘sales-before-tax plus VAT’ and is the conventional way in the UK and Europe to refer to a retailer’s total sales.



APPENDIX 2 Forecast Change in Store Numbers by Type of Store

Change in Store Numbers 2012-2018

2012 2018 change percentage

Supermarkets 9,192 10,111 919 10.0%

Other grocery 79,249 69,739 -9,510 -12.0%

Other Food 15,500 6,200 -9,300 -60.0%

Total Food 103,941 86,050 -17,891 -17.2%

department & general stores 17,750 15,390 -2,360 -13.3%

fashion/footwear 32,700 25,889 -6,811 -20.8%

textiles/household/furniture 14,850 11,400 -3,450 -23.2%

electricals,durables/DIY 27,900 19,780 -8,120 -29.1% music, books, cards, stationery, gifts, leisure 35,369 25,160 -10,209 -28.9%

pharmacy, health and beauty 14,670 9,500 -5,170 -35.2%

others 34,750 26,831 -7,919 -22.8%

Total Nonfood 177,989 133,950 -44,039 -24.7%

Total All Retail 281,930 220,000 -61,930 -22.0%



APPENDIX 3 Summary of the Portas Proposals The Portas Review (Portas, 2011) made 28 separate proposals, which can be found in the report itself, which is available for download from https://www.gov.uk/government/publications/the-portas-review-the-future-of-our-high-streets. The Key Proposals are:

Organisation: New body, ‘Town teams’, to revitalise each high street, bringing together landlords, councils, retailers and other stake holders; Landlords eligible to join the Business Investment Districts (BIDS); Trials for free controlled parking; High street deregulation.

Finance: Attempts to reduce impact of business rates upon retailers; Lower business rates for smaller businesses and for new local retailers; Developers to make financial contribution to local community/high street.

Regulation: Ease change of use controls allowing premises to be used for a different function. Explicit presumption in favour of town centre development in National Planning Policy Framework Explicit agreement (ie veto) of Secretary of State for any new out of town development, which should also have an ‘affordable shops’ quota [this proposal was not accepted by the government].

Controls: (Financial) disincentives against leaving stores empty; Banks to manage empty stores they own or dispose of them; Register of owners of high street properties; ‘Empty Shop Management Orders’ aimed to bring voids back into use; ‘Community Right to Buy’ or ‘Right to Trial’ (new uses) orders over void shops; Local community to have strong input into the planning system.

Markets: A National Market Day to encourage new entrepreneurs; New traders and retailers should have the right to set up stalls, unless there are contra indications.



Centre for Retail Research Limited Blackburn House Brake Lane Boughton, Nr Newark, Nottinghamshire NG22 9HQ Tel: 01623 867559 Int: +44 16 23 86 75 59 Email: [email protected] www.retailresearch.org twitter: cristobel75

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