The biggest threat to the future of the British High Street

22 July 2019

The British High Street is facing unprecedented challenges, and fixing the online tax imbalances won’t be enough to save it

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The Centre for Retail Research (CRR) keeps a running tally of the major retailers entering some form of insolvency in Britain each year and it makes grim reading.

In 2018, 43 retailers shut up shop.

While some such as House of Fraser have been resurrected, it’s not been without deep cuts. Nearly one in five stores has closed on our High Streets since 2012 according to the CRR.

There are a number of factors driving this, including weak consumer demand since the 2008/2009 crisis, intensive price competition and consumer’s growing preference to spend on ‘experiences’ — like travel and eating out — rather than ‘things.’

But the biggest threat continues to be the internet.

Online spending now represents around 18% of all retail spending in the UK according to the Office for National Statistics — the equivalent of £61.4 billion. It is almost double what it was just five years ago and is expected to rise to nearly 23% by 2022.

One of the biggest advantages ‘e-tailers’ have over bricks-and-mortar stores is lower costs — lower rents and lower business rates mean they can charge lower prices.

Therefore, inevitably, the starting point for many when seeking to rescue what is left of the High Street is to find a way to level the playing field.

The Parliamentary Housing, Communities and Local Government Committee recently published a report, High Streets and Town Centres in 2030. It found that Amazon UK’s business rates amounted to just 0.7% of its UK turnover, while High Street retailers were paying up to 6.5%.

The committee welcomed the new 2% digital services tax that large online businesses will start paying from next April, but it warned that this does not go far enough in addressing the tax imbalance between online and High Street retailers.

The committee also recommended that any such taxes should be used to subsidise a cut in business rates for retailers and to add to the government’s £675 million Future High Streets Fund — a pot of money that towns can bid for to help fund town-centre regeneration projects.

Repurposing the high street

But a healthy High Street may need more than a level playing field for taxing retailers.

Think-tank the Centre for Cities says too much attention has been paid to the plight of shops and not enough to the wider economic factors that contribute towards a healthy city centre.

Indeed, Centre for Cities argues that there is a clear correlation between city and town centres that have a strong nine-to-five working week population and those with thriving shops, restaurants and cafes. These workers provide custom from Monday to Friday; shoppers on Saturday and Sunday.

Others are increasingly recognising that the challenge is no longer merely to keep alive shops but to keep alive town centres themselves. This means finding positive uses for some of Britain’s 50,000 empty shops.

Stockton-on-Tees is one role model that has managed to reverse the trend of High Street decline. Its award-winning £38 million regeneration project included the creation of an attractive water feature and open-air theatre space in the centre of town.

This has allowed the town to host specialist markets and cultural activities, including a cycling festival, street theatre and fireworks, and has put the centre at the heart of the community.

Investment impact

The current struggles facing the retail sector have been clearly reflected within many retailers’ share prices.

Commercial property owners have also faced challenges, finding themselves with empty properties to fill. This in turn has had an impact on the share prices of real estate investment trusts (REITs) with a large exposure to retail.

In contrast, property trusts investing in the warehouses and distribution centres that online retailers depend on have seen strong growth and have been among the best performers in the sector. However, this market may be nearly saturated.

The British High Street has always been susceptible to the vagaries of the economic cycle. It has survived wars, recessions and the rise of out-of-town retail parks.

But whether the internet poses one threat too many, or if high streets can adapt and survive, remains to be seen.

Graham Waddell is investment director at Rathbone Investment Management

Please note the views expressed in this article are for informational purposes only, should not be considered advice, and do not necessarily reflect the views of Moneywise Publishing Ltd