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12 January 2019

The Death of the High Street

Tag(s): Politics & Economics, Business
As a young chorister in the Church Choir I remember the inaugural sermon of a new curate. He began by describing the stained glass windows of a church in a rough part of Liverpool. The message should have read “Glory to God in the Highest” but some vandal, either with great skill or more likely luck, had thrown a brick through the window leaving a hole where one of the letters had been. It now read “Glory to God in the High St.” He went on to draw some lesson from this about the ubiquitous nature of God but it is the image I remember. It now seems somewhat forlorn as the modern idea of the High Street as a thriving commercial centre of the community is fading rapidly.

Twenty years ago I wrote an article about this in the Marketing Society’s then quarterly periodical ‘Market Leader’, edited by the excellent Judie Lannon. My article was entitled The Threats and Opportunities of the Internet. My main thesis was that the threat of what was then called ecommerce or e-tailing was greatly exaggerated. At that time only 0.1% of retail turnover was transacted online and previous forecasts that it would be much greater had all proved mistaken. But I was mistaken as the threat has simply taken longer to prove real. This is nearly always the case with new technology. Its impact is usually slow to emerge but when it does it is even greater than was originally forecast.

My argument was based on the fact that even if 20% of turnover moved online this would be so damaging to the economy and to society at large that the authorities would have to act. I said that brand owners would find their brands under enormous threat as their selective distribution policies would lie in tatters. The retailers would be in huge danger because their main assets are their property. The barriers for entry would be very low if this property base were no longer required. Our pensions are heavily invested in these property portfolios and so there would be a serious dislocation in pension funds. Media owners would lose massive sources of revenue as brand owners and retailers sought to establish alternative Internet strategies. Much of the Internet revenue would flow abroad, leading to loss of profits and avoidance of VAT, and so the total tax take would fall. “Surely the government would have to act”, I said.

But all these things have happened and the government hasn’t acted. Brands have been under threat and some have reacted by selling direct thus undermining the retail base even more. The retailers have been in danger and many have gone to the wall with many more following soon. There has been serious dislocation of pension funds and the stock market lies at the same level it did when my article was published in 1999. [i] Media owners have lost massive sources of revenue. Much of the internet revenue has flowed abroad. The tax take has fallen. I wrote my article before the emergence of Amazon, Google and Facebook but I could clearly see the dangers and just assumed that a sensible government and sensible competition authorities would not allow this stuff to happen. But they weren’t sensible and it has happened and is happening.

This time last year the newspapers reported the poor results of many retailers over the Christmas season at the end of 2017 and concluded that the consumer had gone on strike. This year they have finally woken up to the fact that many consumers are doing a lot of their ‘shopping’ online. Amidst an array of gloomy reports this year one stood out for me. Sir Charlie Mayfield, Chairman of John Lewis and Partners plc, was interviewed on Radio 4‘s Today programme and said that 40-45% of John Lewis turnover over Christmas was online. He and his board have worked hard to create a proper multi –channel strategy, giving credit for example for online sales to local stores that may have demonstrated the product before it was purchased online. But still their profits shrunk almost to nothing last year as their long term policy of being ‘never knowingly undersold’ meant that they had to price match those retailers who in their last days of struggling to avoid bankruptcy were heavily discounting.

My financial adviser runs his business from a High St shop. It gives him easy access and a permanent advert in the centre of town. But he pays a business rate of £13,000 pa, an astonishing sum for such a business. The Chancellor has talked about giving some relief to SMEs but it is all too little, too late. As the High St gradually but inevitably dies these business rates will no longer be paid. Local authorities which rely heavily on this source of income will all go bankrupt as some already have. Local services like care for the aged will obviously suffer and in the end central government will be forced to act but only after huge harm has been done to society.

125 retailers went bankrupt in 2018, a rise of 7% from, 2017. This included large firms like Toys R Us, Maplin and Poundworld. Recently HMV filed for administration for the second time. It said its £15 million business rates bill was partly to blame. Meanwhile Amazon paid just £63 million in business rates on a turnover of £8.8 billion. It paid only £23.5 million in corporation tax and does not disclose its UK profit but admits to organising its affairs so that two thirds of its sales in the UK are somehow channelled through a Luxembourg based subsidiary. As a percentage of its sales its business rates represents 0.7%.  This contrasts with 2.7% for Debenhams, £80 million on £2.3 billion turnover, 1.7% for Marks & Spencer and 1.5% for John Lewis. In retail, where margins are tight, such a difference is significant. It also means that Amazon is simply not making its rightful contribution to society. It may be legal, just, but it certainly isn’t right.

The first threat to the High Street came from the out of town stores. These were larger with greater choice and usually offered free parking. The authorities were again too slow in restricting the growth of these, no doubt guided by the view that they were good for consumers. But they were only good for consumers in the short term. As the supermarket killed off the specialist butcher, baker and green grocer that was not good for consumers. As the High Street gradually lost its specialist shops to be replaced by charity shops (that pay no business rates), betting shops (that ought to pay a much greater business rate for the harm they cause) tattoo parlours and coffee shops, many consumers gave up going there. I live in a prosperous town but my bank has recently closed its branch there. What are they thinking of?  The bank manager used to be a pillar of the community who knew his customers personally and helped local businesses manage their cash flow.

Clearly you can’t get a haircut over the internet so barbers and nail bars will still be needed. But if the rest of the High Street is boarded up will even these businesses survive?

I don’t want central government to try to solve all these problems. They will just make a bigger mess of it. They should simply reform business rates so there is a level playing field. Then landlords, retailers, local authorities and community groups should work together to decide how best to transform their local high streets to cope with the changing marketplace.

[i] On December 30 1999 the FTSE 100 index was 6,950. As I write this it is 6,923.

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