The Collapse of the high street and its wider economic and business implications. Image:Colchester high street showing tough times with stores closing at a rapid rate. The warning signs of a crumbling economy in Britain can be seen as far back as 2007, with New Century Financial specialising in sub prime mortgages filed for Chapter 11 bankruptcy protection. With the banks being sold many of NCF’s debts, so began the collapse of the sub prime mortgage market. The impact of this collapse was soon felt by banks on a global scale.
Later in July Investment bank: Bear Stearns tells its investors they will not receive any money due to rival banks not providing a bailout. In Britain Northern Rock were amongst the first to feel the media coverage of what was revealed as just the beginning of an economic decline, Little did the public know just how deep we were about to go into decline. Fast forward one year later and Britain is on the brink of a recession House prices have fallen by 10. 5% and Chancellor Alistair Darling warns that Britain is facing its worst crisis in 60 years.
In the US the government bailed out Fannie Mae and Freddie Mac accounting for almost half of the outstanding mortgages in the USA, it was seen as one of the biggest bailouts in history. This side of the pond in the UK, Lloyds TSB announced that it will take over HBOS one of the UKs biggest mortgage lenders. Jump to today and Britain’s economy has avoided a triple dip recession. “The Office for National statistics said its preliminary estimates for gross domestic product (GDP), showed the economy grew by 0. 3% in the first three months of the year. (1) However our minds are still fresh from the UKs embarrassing blow earlier in the year, by losing its AAA credit rating, from one of the worlds leading credit rating agencies Moody’s. Now at AA1 this is the first time in Britain’s economic history that it has had a less than perfect rating. This came as an even bigger blow for Chancellor, George Osborne, who promised that Britain would not face a downgrade in credit rating. The economic problem as we all know now , is not specific to the UK and its effects can be seen across Europe and North America.
Already there have been bailouts for Greece ($145 billion) and ($110 billion) to Ireland. Cyprus is also in a heavy crisis. Step away from the banks and the bigger picture starts to reveal itself elsewhere: The high street. What was once a bustling selling ground and has now become a desolate graveyard, with big high street names disappearing in what seems over night. It became apparent there was a problem when iconic retail chain Woolworths went into administration on November 26th 2008 resulting in 27,000 job losses.
A clear message was sent to the rest of the high street, that even the biggest stores were able to fail. It was a message too late, the wheels had been set in motion and one by one other retailers had to bite the bullet and enter administration. In 2013 alone: Jessops, HMV, Blockbuster, La Senza and Republic were just a few of the big names to enter administration and who could forget Britain’s second-largest electrical retailer Comet. Going into administration in 2012, Comet had to close 243 stores and lose 6,500 employees when it ceased trading.
Is the high street dying or is it that the high street needs to evolve, to adjust to the changing needs and expectations of the consumer? Jon Copestake, retail analyst at the Economist Intelligence Unit, said: “A theme is beginning to emerge on the high street as sellers of obsolete products using outmoded channels and inflexible business models see their creditors waiting until after Christmas to call in debts. (2) The administration of Game; to name one of many, is a true testament to a market lagging behind consumers expectations and needs of the market.
With the acquisition of Gamestation in 2007 costing ? 74 million, why were no alarm bells ringing? Physical purchases of media were (and still are) in decline with the increase in availability of high speed broadband, we have seen a steep rise in downloads and then fall out between Game and publishing giants EA (Electronic Arts) added another blow, when the sale of Mass Effect 3. the million dollar game franchise, was delayed from sale in the store. Administrator PricewaterhouseCoopers began the administration in March 2012 “The group has faced serious cashflow and profit issues over the recent past.
It also has suffered from high fixed costs, an ambitious international roll-out and fluctuating working capital requirements,” according to PricewaterhouseCoopers’ Mike Jervis, one of the administrators. (3) Earlier this year specialist camera retailer Jessops also bit the bullet with all of its retail stores closing, once again PricewaterhouseCoopers at the helm of the company’s administration. Jessops had been struggling since the beginning of the recession in 2007, with a massive overhaul of the company leading to several stores being closed.
Part of Jessops demise was largely down to the strong emergence of online camera retailers being able to undercut the large mark up prices that come with the retail store territory and the popularity of smartphones with increasingly improved digital cameras. With a declining economy and a hard hitting recession, consumer spending has taken a different direction, mainly due to the increase of online sales with Amazon proving itself as one of the market leaders..
The “always open” store that the internet can offer has become an easier way to purchase products at the consumers own convenience, overcoming the nine to five blockade faced when purchasing from a retail store on the highstreet. “Tumbleweed rolling through our high streets is a picture some have been quick to predict,” says O2 sales and service director Feilim Mackle. “I don’t believe that will ever be reality. The high street is transforming before our eyes. Technology is opening new doors for retailers and I think the high street of the future will be defined by the digital experiences that make our lives easier. (4) One solution could be to increase the trading hours of high street stores, creating a longer working day and opening up the ability of more jobs to compensate for the longer working day. However it is a question of assessing the consumers need for longer opening hours and looking at what impact it would have on the store owners. Reflecting on the extended Sunday opening hours during the 2012 London Olympic games. These extended opening did not appear to create a substantial amount of economic growth that would make it a worthwhile option to businesses.
One argument put forward by Tory MPs is that increasing Sunday opening hours would be detrimental to the local corner shops that rely on being open twenty four hours a day including Sundays. Looking to the future and what it has in store for the high street and retail sector. When you look at the current trends, where online sales are still heading skyward it would appear that ultimately the high street is set to fail. The higher mark up of products in store against the rival online stores, delivering from warehouses with lower building rental costs it will be a tough hill to climb.
The government have set out plans to help rejuvenate the high street. There is a focus on bringing a bigger market presence back to the high street. The goventment website gov. uk says “the launch of the Love Your Local market campaign with over 400 markets and 2,000 new traders taking part, giving budding entrepreneurs a chance to take their first step on the business ladder for free or tables under a tenner” Technology will be a big part of the future high street, with a bigger interaction between products and smartphone devices.
Google country sales director for the UK Peter Fitzgerald says: “Retailers spend a lot of time thinking about how they grow their business by opening new stores and having the right stores in the right place. Yes, stores are very important, but now it’s also about providing a great experience digitally. ” (5) It appears that a more digital high street is the future. For the larger companies the traditional store has to change to incorporate the same sort of ease consumers are familiar with when using online stores to purchase their goods.
The digital switch will also be an easy one for employees to transition into as they are already familiar with the technology being used (being consumers themselves) Another big trend emerging on the more successful high street retailers is the use of click and collect, a combination of online ordering with the physical collection of the products. For the consumer this cuts out the delivery charge that is associated with ordering online. With this becoming more commonplace, it can allow for tores to become smaller with smaller rental costs. It is the smaller rental cost that could lead to more businesses wanting a place on the high street once again and a great start to get the economy moving in the right direction. Harvard References (1) BBC News. (2013). UK economy avoids triple-dip recession. Available: http://www. bbc. co. uk/news/business-22290407. Last accessed 25 April 2013. (2) Duncan,H. (2013). Talk of high street death is premature. Available: http://www. thisismoney. o. uk/money/markets/article-2264679/HUGO-DUNCAN-Premature-talk-high-street-death. html. Last accessed 15th April 2013 (3) Coby,A. S. (2012). Game goes into administration. Available: http://uk. gamespot. com/news/game-goes-into-administration-6368067. Last accessed 15th April 2013. (4) Chahal, M. (2013). Open all hours: the future of the high street. Available: http://www. marketingweek. co. uk/trends/open-all-hours-the-future-of-the-high-street/4005606. article. Last accessed 24th April 2013. 5)Chahal, M. (2013). Open all hours: the future of the high street. Available: http://www. marketingweek. co. uk/trends/open-all-hours-the-future-of-the-high-street/4005606. article. Last accessed 24th April 2013. Appendices http://news. bbc. co. uk/1/hi/7521250. stm http://www. thetimes. co. uk/tto/business/economics/article3697147. ece http://www. morssglobalfinance. com/coming-euro-bailouts-who-how-much/ http://www. retailresearch. org/whosegonebust. php http://www. telegraph. co. k/finance/newsbysector/retailandconsumer/9807042/Jessops-HMV-and-now-Blockbuster-is-the-high-street-dying. html http://uk. gamespot. com/news/game-goes-into-administration-6368067 http://www. guardian. co. uk/business/2012/dec/25/boxing-day-sales-millions-recession http://www. telegraph. co. uk/news/politics/9472904/Downing-St-longer-Sunday-opening-hours-could-stay. html http://news. sky. com/story/1036884/jessops-camera-chain-closing-all-stores https://www. gov. uk/government/news/new-body-to-focus-on-future-high-street-renewal
