Britain’s Streets are in crisis. This week the toy store chain Toys r Us is collapsed into administration, along with the electronics retailer Maplin.
The restaurant chains, Jamie’s Italian and Prezzo have announced closures, while the fashion chain New Look and department store group House of Fraser are looking to shore up their finances.
Experts say that the retailers are battling a “perfect storm” of pressures and expect more closures in 2018. 1. He gritted his income
An important factor has been a fall in discretionary spending, driven by the increase of the store’s prices and weak wage growth.
Close to a 15% drop in the pound since the Brexit vote has pushed inflation above 3% – well above the Bank of England’s 2% target. This has made imported goods more expensive, with the costs to consumers.
Couple that with the fact that wages have increased at a slower pace than inflation, and buyers have less disposable income to spend in shops and restaurants.
By volume, retail sales have continued to grow but at a much slower rate of decline of 4.7% in 2016 to 1.9% in the past year.
“It has been a real problem for merchants and accelerated the decline of some”, says Samuel Tombs, chief uk economist at Pantheon Macroeconomics.
“The sector was already suffering from structural problems, such as the increase in online shopping and the high business rates. But with the outbreak of inflation since the referendum the EU has squeezed incomes in real terms, leading to much weaker growth in sales of the retailers had anticipated.”2. The change in the purchases by internet
Internet giants such as Amazon have had a huge impact on the street as more consumers see online shopping is cheaper and easier than going to the shops.
And while overall retail sales growth is weak, online sales continue to shoot up.
Paul Martin, director of uk retail at KPMG, says: “With the market in general is not growing, it’s all about the market share, and 20% of that market is held by the players in line. If you do not have the right online offer, again, you’ll have to fight.”
That is pushing retailers to try to reinvent their stores, with the likes of John Lewis and Debenhams now with more in-store events and “experiences” to attract buyers.
If the stores do not do “value, convenience, or experience,” well, they’re going to the fight, Mr. Martin says. 3. The change of tastes
Toys R Us came up short in all three areas, according to Simon Thomas of Moorfields Advisor, the toy chain managers.
He says that it was “unlikely” that the retailer can be saved, because their business model is not what consumers really want now”.
“We have very large shops, which are quite impersonal. People are looking now to have a better shopping experience, and we have not been able to deliver that.”
Mr Thomas added: “On top of all that, we have the line problem … people can go to our store, look for something, looking for an alternative and buy at cheaper price.”4. The increase in general expenses
Inflation is not the only cost of the pressure retailers face. The National Minimum Wage and the National Wage by more than 25 years to climb each year, pushing up payroll costs.
The trade body the British Retail Consortium estimates that the National Life of the Wage costs of the industry between Â£1.5 million and Â£3 billion a year.
Business rates – that are due to rise again in April – are a burden, too, he says. Retailers will have to pay an additional Â£2 billion over the next three years compared with the past three years, a spokesman says.
“Business rates are deterring investment in local communities, causing store closures and job losses in struggling communities, and the prevention of the retailers offer what your customers want in an efficient and cost-effective.”
5. Also many shops
With trading conditions tight, the retailers can’t afford the luxury of having a low communication performance. And yet, many businesses expanded during the boom years, leaving it dangerously exposed.
According to reports this week, New Look is set to close 60 of its 600 uk stores as it continues to battle massive debts.
The burger chain Byron said last month that it would close 20 outlets as part of a rescue plan approved by creditors and owners.
At the same time, manager Simon Cope said the firm wanted to focus on a smaller number of profitability of the restaurants.
Richard Benefits, director of retail research at Mintel, says: “In business, either go forward or backward – but how do you move forward? The first thing is to open up the shops. People convince themselves that they need, and then it goes pear-shaped.
“But there is much more to be a successful distributor of its store count having too many stores won’t kill you if you have everything else right.” 6. Too much debt
As a result of a excessive expansion, many retailers are charging “high debt burden”, says KPMG, Mr. Martin.
Just before its collapse, Toys R Us united kingdom faced the imminent VAT payment of the debt, the date limit of Â£15m. It would have been unable to pay without an injection of money from an outside investor.
Mr. Martin says 2018 will continue to be difficult for retailers, but not all is gloom and doom.
“There will be winners and there are losers. But if you’re not good in line, if you’re not really rigid about their cost structure, there will be more challenges to face in the future, and no doubt we will see more low.”