Shops...they’re so last century
MY PREDICTION for the coming year: the next 12 months will be a watershed moment for the high street. In fact, that moment may already be here.
Its arrival has been slow but painfully inevitable. Most of the saurian beasts that inhabit the retail sector went into – and came out of – the economic crisis in 2009 with one big idea. More shops.
As online retail surged, many retail boardrooms acted as though life would eventually just get back to normal.
Shopping is, after all, the nation’s favourite pastime and shops is what we’re good at. The problem is neither of those things have been much in evidence.
Fast forward to 2017 and the pace of change is rapidly accelerating, not helped by higher staff costs, inflation, consumer nerves and low wage increases. But the fundamental problem is the growing awareness that the obsession with going to the shops is not what oils the wheels of consumerism in the 21st Century.
People like eating out, going on holiday, going to events. They are far more exciting ways to fill those endless Facebook posts than with stuff you’ve bought from a shop.
If you really want to buy something, you can order it on the bus to work and it will be waiting for you by the time you get home.
Worse, and not always by their own choosing, the next generation don’t own so much: renting homes, hiring cars and even clothes for the weekend. Beyond that, all you really need in life is your smartphone. Sounds a bit like the future, doesn’t it?
But, so far, the response within the retail sector to the myriad changes has looked a little like the shuffling of deck chairs.
Most retail groups are heavily bound to fixed costs even though they’ve had the last decade to get on the front foot and fix that.
The next three years will be crucial. Britain has too many shops and far too many in the wrong places – eking out an existence in doomed high streets or shopping centres.
Meanwhile, Christmas was, by all accounts, not pretty on the high street.
The first few weeks of 2018 will begin with much soul-searching as chains look ahead to an uncertain future.
For many, closing a few stores here and there is not going to cut it. Closing lots rapidly is painful with exit costs for rental contracts high. The reaction to the possibility of a no-growth or a shrinking existence has already started.
Last month, a flurry of shopping centre mergers culminated with France’s biggest operator snapping up Westfield for £19 billion.
Meanwhile, supermarkets, the T-Rexes of the retail market, have already struck.
Sainsbury’s bought Argos in 2016. Tesco, already twice the size of its nearest rival, this year bought Booker – adding £5 billion sales at a stroke.
It registered barely a flicker with the competition authorities.
Some suggest to me that looks a lot like a green light. They say the investment banking community will be dusting off those old files from 2008 filled with outlandish merger ideas dreamt up a decade ago when money was cheap and the possibilities, amid a consumer boom, seemed endless.
Could supermarkets merge? Or buy a Next or even a Marks & Spencer?
Is someone, possibly beerchugging sports tycoon Mike Ashley, pondering a future with a slimmed down Debenhams or House of Fraser?
The difference between 2008 and 2018 is stark.
Some of those ideas, be it more aggressive restructuring in private equity hands or mergers with the hope of boosting profit margins, will have a new urgency.
For some, they will be a last throw of the dice.
Supermarkets could merge – or buy a Next or even a Marks & Spencer