Experts warn of bleak future for ailing department stores Matthew Lynn:
A RAFT of struggling department stores may never reopen as the high street struggles to recover from coronavirus, retail experts have warned.
Fears are growing that dozens of sites across Britain could shut for good, with analysts concerned that the floodgates are now poised to open after John Lewis said it will pull the plug on eight of its 51 sites.
It came as landlord Great Portland Estates said that it is struggling to collect cash owed by tenants.
The axe is expected to fall hard on department stores, many of which were already battling to survive before the pandemic, and will be left with no choice but to push through brutal cuts.
Richard Lim, of Retail Economics, said: “The model has been under pressure for years. It’s just whether they can be relevant with so much of our shopping being done online.”
Patrick O’brien, a retail analyst at Globaldata, said: “I don’t think they’ll be a staple of the high street.”
Industry insiders privately agree that the picture is bleak.
One former department store boss said that the predictions about the death of the industry “are right” and their travails will be further exacerbated by coronavirus.
John Lewis. Debenhams. Boots. One by one the biggest, most reliable names in British retailing are starting to crumble. We all knew the high street, and increasingly the malls as well, were in big trouble. But as Covid-19 has closed town centres, and social distancing rules have forced changes to the way stores are laid out, the crunch has finally arrived. Lots of big flashy shops are never going to reopen their doors.
Over the next few weeks, we will hear lots about what a disaster that is, how jobs will be lost and communities hollowed out. And we will hear lots of demands for the Government to step in with more help. But hold on. Maybe that is not such a bad thing.
In fact, the UK has been too reliant on retailing. Why? Because it mostly creates lots of low-paid, low-productivity jobs; because there is hardly any technology or innovation; and because it relies on vast quantities of debt to keep it alive. If the UK emerges from this crisis with a slightly smaller retail industry that is no bad thing; it might be an improvement.
Rishi Sunak, the Chancellor, might already be regretting that he didn’t throw one of his clever wheezes to help out the retailers into Wednesday’s mini-budget. A 50pc-off voucher for new shades and swimwear, so long as you buy them on a Tuesday perhaps?
Or “coronavirus cashback” for anyone who hammers their credit card in three different malls over the same week? But, heck, it is still early in the weekend. He can probably have something ready to announce on Monday.
There is certainly a case that something is needed. Over the last week, the casualties have started to mount up. John Lewis, the one chain that seemed unaffected by retail’s decline, decided to close eight of its sites permanently, including a flagship 250,000 sq ft department store in Birmingham. Boots announced it would lose 7pc of its workforce and close optician branches. And of course a string of household names – from Victoria’s Secret to Monsoon and TM Lewin – have already collapsed into administration. It is getting to the point where it might be simpler for the papers to run stories about the shops that have remained open rather than the ones that have closed.
For the staff, landlords, suppliers, customers and shareholders, that is, of course, the worst possible news. No one wants to see a firm slim down, or close, and especially not in the middle of a deep recession. It will be especially tough on women, who hold 58pc of retail jobs. And yet, in truth, it may not be as bad as it appears. In fact, shops are not a great locomotive for an economy. Here’s why.
First, retailing is typically a low-productivity industry. It creates millions of low-skilled jobs but, precisely because output per person is so low, they are not usually very well paid. In industries such as software, manufacturing, business services and so on, productivity improves over time, and that enables companies to grow and wages to rise. But it is really hard to do that with a shop. It takes time to put stuff on display, to check out customers at the cash desk, to give advice or take returns. That amount of time is roughly the same now as it was 50 or 100 years ago. Ignore the products and today’s bookshop or clothes retailer isn’t much different from a Victorian one – and neither is the output per person.
Next, technology has passed it by. Apart from the self-scanning machine – and even those are so cranky there is usually an assistant helping out – there has hardly been any innovation in the last 50 years. The last significantly new thing in retailing was the supermarket, and that dates back to the Sixties. The tech giants are at least trying – Amazon has opened cashierless shops and Apple’s outlets are hugely successful without appearing to sell anything at all. But the rest?
Just building more shops and offering more discounts is the same old formula. New ideas, and new technologies, are thin on the ground.
Finally, it relies on debt. From store cards, to buy-now-pay-later deals, and sale after sale, retailing depends on people spending money they don’t really have to sustain itself. The most successful chains are often those that find ways of persuading people to borrow more, usually at punitive interest rates. Overall, a retail-driven economy is critically dependent on the Government and banks to keep pumping more debt into the system to sustain itself. Is there anyone who really thinks yet more borrowing is what the British economy needs right now? I hope not.
True, we will need to find new jobs for all the people who will be laid off. And, of course, it may be especially hard on women. That said, female
‘Launching sale after sale, retailing depends on people spending money they don’t really have to sustain itself ’
employment has been advancing at a faster rate than for males, and younger women are now better educated than men (and smarter too, come to think of it, at least in my house).
As they lose jobs in retailing, they will find new ones in faster-growing companies that can pay them better.
Overall, retail has been shrinking for a decade, but employment has still grown. There is no reason why that shouldn’t continue.
No one would want retailing to disappear completely. Nor is that going to happen. There will still be shops, and as soon as it is safe to do so, we will start visiting them again.
But for at least three decades, the UK has been far too dependent on the high street and the mall, and on frantic consumers maxing out their credit cards every weekend. If we have a slightly smaller retail industry after the Covid-19 crisis, that is hardly the end of the world – and if resources are shifted to higher-growth, higher-productivity industries, it might even be an improvement.