Of all the changes to business and household life over the past decade, few have been more dramatic than the ongoing crisis on our high streets.
We are now almost inured to the collapse of retail names that once seemed a permanent feature of our shopping centres. But there is a more far-reaching crisis as local authorities battle to ratchet up business rates, parking fees and charges ever higher – further intensifying the cost pressures on retail and forcing ever more closures.
The stories of decline and fall are all too familiar. Outlets such as Toys R Us, Maplin and Poundworld have gone bust and have vanished forever. Fashion chains such as Karen Millen and Coast have recently announced closures. Others such as HomeBase, Carpetright and New Look have sought restructuring deals with their landlords, closing hundreds of shops between them.
Giants such as Debenhams and House of Fraser have struggled under mountains of debt while the seemingly indestructible Marks & Spencer has been closing outlets and concentrating on out of town development to halt a sales and profits erosion. Overall, the UK’s top 150 retailers are reckoned by new research to have 20 per cent more store space than they need and can afford.
Nothing seems sacred. Bank branch closures have been dramatic. Even the oft-voiced “solution” of shopping centres converted into meeting places, restaurants and café bars has wilted under debt pressure (Pizza Express) and the trend towards home delivery – Domino’s Pizzas and Deliveroo.
High street footfall continues to decline. The proportion of empty shops across the UK now stands at a record high of 10.3 per cent, with 85,000 retail jobs lost in the past year alone – the 15th consecutive quarter of year-on-year contraction.
Here in Scotland bricks and mortar retail sales are in decline. Scottish Retail Consortium figures show that in the five years 2011 to 2016 the number of shops fell by 4 per cent and turnover by 8 per cent. But this masks extreme turnover falls in some areas such as Dundee, North Lanarkshire, Falkirk, Glasgow, Inverclyde, Aberdeen City and West Lothian – all of which recorded double digit percentage declines. These are likely to have worsened since 2016.
For years, the retail sector in Scotland could fairly claim to have been the goose that kept on laying the golden eggs. In 2016, according to the SRC, the sector paid £579 million in tax. It is liable for 22 per cent of Scottish business rates and has paid over £60m since 2016 as a consequence of the higher Scottish Large Business Supplement.
The ever-increasing burden of business rates, it says, “is putting those retailers under immense pressure. Without change, many will struggle to maintain their current store footprint”.
The Scottish Government said that increases in the poundage rate will be capped in line with rises in the Consumer Price Index (CPI). If so, retailers will pay approximately £12m on top of their existing rates liabilities from next April. Scottish businesses also pay a higher Large Business Supplement in Scotland which cost retailers nearly £14m last year.
For many retailers the grim reaper in all this has been the relentless rise in online shopping. The share of online sales as a percentage of total sales now stands at a record 18.6 per cent. If businesses are seeing 20 per cent fewer sales on the shop floor as well as their fixed costs rising, earnings and profit margins will be further squeezed.
There are limits to the reach and appeal of online. Clothes shoppers are hesitant about buying items without being fully confident of the exact size, colour, feel and the chance to assess the quality of the item. Tangible inspection does matter.
But for countless thousands of other items, online shopping not only brings delivery to the door, avoiding crowded streets, wet weather and parking charges (where a parking space can be found) but websites such as Amazon also provide constant prompts for other items. From household gadgets to homewares, electrical goods to gardening items, consumers can shop in the comfort of their home at the click of a mouse. And it is hard to see this trend reversing any time soon.
This momentous change in the way that millions now choose to shop has brought about what the economist Joseph Schumpeter called “creative destruction” – companies go to the wall with plant and assets cannibalised and re-employed in new business ventures. This, said Schumpeter, was part and parcel of the cleansing process of capitalism – the market enforcing a re-allocation of assets in favour of new and more rewarding enterprises.
The problem is that we have seen a great deal of “destruction” but little that could be described as “creative”. This may emerge in time as “physical” retailers develop hybrid business models with an online offer alongside a re-modelled and refreshed presence on the high street.
And there can be no doubting the natural human desire, both to congregate and socialise and also to enjoy new and diverting experiences. A new form of experiential retail may emerge in time. And high streets as we knew them will increasingly come to seem like museum pieces.
But in the meantime, there is intensifying pressure for immediate relief on business rates and charges, together with modification of rental agreements. Straightforward as this might seem, government, central and local, will be extremely reluctant to see any diminution in income on which they rely to maintain their services and supporting staffs.
This is the greater crisis now unfolding across Scotland and the UK. Without change, more retail businesses will suffer: many will contract, others go the wall, intensifying pressure for an online sales tax.
Now supermarket giant Tesco is urging the government to impose a 2 per cent online sales tax to help pay for a cut in business rates for shops, saying the current system is unfair and is damaging communities across the UK. It has made detailed proposals for a shake-up of the system, arguing that the government could raise £1.5 billion via an online sales levy of 2 per cent on physical goods.
This, it says, could fund a 20 per cent cut in business rates for all bricks-and-mortar retailers. Such a move will not be without its critics – but watch an online sales tax move rapidly centre stage to help bring relief to the high street.