MarketLine Blog

The UK high street and the need for change

In recent years, the UK high street has become synonymous with decay as once thriving town and city centers struggle to attract shoppers. The rise of e-commerce, ‘showrooming’, and reduced consumer spending and confidence are significant factors in the decline. If they are to enjoy a fruitful future, many retailers must embrace change and adapt the way they operate to suit 21st Century consumer needs.

In recent years, the UK high street has become synonymous with decay. According to a report from UK TV station Channel 4, 25,000 town center stores have closed since the year 2000. The decline has shown no signs of abating with figures from Deloitte showing that there were 183 retail brand casualties in 2011, a trend which has continued through 2012 and into 2013. This shows that dwindling footfall and spending on the high street is far from a short-term phenomenon and is an issue that retailers simply cannot afford to ignore if they are to stave off the threat of administration. The slump does not seem to be limited to any particular market, as stores specialized in fields as diverse as consumer electronics, DIY and apparel all fall victim to the disease plaguing the UK high street. However, data from the UK Office for National Statistics (ONS) does show that clothing & footwear stores and household goods stores have particularly hard hit, seeing year-on-year declines of 0.3% and 2.2% respectively between December 2011 and December 2012.

Even companies that are seen as strong and as British institutions such as Debenhams and Marks & Spencer are feeling the pinch. While both have seen revenues grow in recent years, they have also been forced to accept decreased profit margins as heavy discounting has been necessary to tempt reluctant shoppers to part with their cash. In its H1 2013 results press release, Debenhams cited the need for discounting, particularly over the Christmas period, as a major factor in its decreased profitability: “The high street was highly promotional during the peak Christmas period and we traded the business accordingly.”

This is a worrying trend for retailers as they run the risk of setting expectations for heavy discounting among consumers. There is already some evidence of brinksmanship between shoppers and retailers, with the former deliberately holding off on purchasing products in the knowledge that it will soon be made available at a discounted price.

E-commerce, or online retail, has long been seen as a potential threat to the long-term viability of bricks-and-mortar retail outlets and UK shoppers have wholeheartedly embraced the internet as a retail distribution channel.

In absolute terms, only Americans and the Japanese currently spend more online than UK residents and on a per capita basis, the UK significantly outstrips them both. In 2012, UK shoppers spent $124.8bn online, representing year-on-year growth of 14.5%. If they are to remain viable, UK retailers must embrace multi-channel retail and perhaps even change the function of their stores. The growing popularity and capability of mobile devices has created a phenomenon known as ‘showrooming’ and this is proving to be a thorn in the side of many retailers. Savvy shoppers looking to save money are increasingly using smartphones in stores to read product barcodes and instantly find the best price online. This trend, whereby consumers effectively use bricks-and-mortar stores purely as a display stand with little intent of buying is on the rise in the UK.

One possibility to combat this is for retail companies to reduce the number of stores they operate and actually turn the remaining ones into showrooms to showcase goods that can then be purchased online in the store or on the internet. This would help reduce operating costs and allow them to compete more effectively with the likes of Amazon. Although online sales still represent only a small proportion of total sales, they are growing all the time and high street retailers must take action now or face the threat of administration. While such a result is no certainty, one thing is; the glory days of the high street as a cherished British institution are over for good.

For deeper analysis of the UK high street’s decline and the reasons for it, see MarketLine’s Case Study ‘The UK High Street: The decline of a British institution

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