The High Street resembles a graveyard in 2018: every single month this year has witnessed store closures, job losses and administration. That’s a total of 35,000 jobs lost or at risk.
Toys R Us, Jamie Oliver’s restaurant chain, Mothercare, Carpetright, and now, most recently, House of Fraser are just a few of the big-name victims of a seemingly intractable High Street slump.
House of Fraser has resorted to a company voluntary arrangement (CVA). It’s a type of insolvency that allows a business to renegotiate its deals with creditors and landlords, but at a steep cost: store closures and laying off staff.
The iconic department store will be shutting down 31 locations, and 6,000 people will lose their jobs as part of the CVA. House of Fraser’s chief exec Alex Williamson told the Press Association that its CVA proposals were the “last viable” option to save the business.
“It is a highly emotional, highly regrettable situation that none of us either imagined or wanted to see happen, but there is simply no alternative,” Williamson said.
Why is this happening?
The usual suspect in the ‘Who killed the High Street’ murder mystery is e-commerce. Amazon, in particular, hovers imperiously over the retail landscape. But as Diginomica’s Stuart Lauchlan explained, it’s a simplistic explanation to a strategic problem.
Modern retail demands a convenient blend between online and instore, and the Old World opulence of department stores, in particular, have failed to catch up. Department stores are expensive to run and the last few years have seen rents and business rates rise alongside the introduction of the National Living Wage.
House of Fraser is actually an exception - the firm invested in e-commerce at an early stage - but “it failed to address the ‘drag’ of its legacy real estate until too late in the day”.
Business rates, in particular, have hobbled House of Fraser, a retail chain known for its sprawling stores. Recent expert estimates suggested that it had been saddled with a £120m business rates tax bill in England and Wales as a result of last year’s revaluation.
In Wolverhampton alone, House of Fraser’s store location faced an estimated rates bill of around £470,000 next year based on the rateable value of £925,000 for the huge site, according to the property services group Colliers International.
The closure of over half its stores under the CVA will ostensibly help put things on an even keel (that is, if the landlords accept the deal’s terms). But Richard Hyman, an independent retail analyst who has worked in the industry for over three decades, is dubious.
"House of Fraser is essentially saying it can’t make a living on Oxford Street with these closures, that it can’t make a living in the centre of Edinburgh or Birmingham,” Hyman said. “If it can’t get the right bums on seats in those key shopping locations, then I’m not feeling overly confident.
“My big question is ‘Will shutting a large number of stores make them a better retailer?’ The answer is no.”
Is the High Street dead?
House of Fraser’s struggles are a precursor to a bigger retail apocalypse, according to Hyman. And it’s not just down to one factor but a combination of numerous, damaging trends
“There’s rarely one thing and this is no exception,” said Hyman. “There are a number of external things going on: Brexit, the consumer economy hasn’t ever recovered post-debt crisis. It’s looked as though it has recovered, but it has mainly been illusory.
“There’s a lot of structural factors that are driving this. There’s too much capacity: online shopping has reached £60bn of sales in a 15-year period. But it’s not added to spending: that £60bn, had online not been invented, would’ve gone through the shops.”
So it’s a case of massive new costs, but no additional revenue. And the private equity model has really magnified the cracks in the economic models of a lot of businesses, said Hyman. “The old private equity model is okay in a growth market. The consumer economy has always grown. But that’s over.”
There’s less space at the retail table now, but Hyman said there still are success stories. “If you look at the successful retailers: Primark, Asos, Aldi, Lidl, Selfridges, Zara; they all understand exactly who their customer is. It’s built into their business model. It’s not something that’s characteristic of most retailers. They’ve grown fat and flabby by chasing too much peripheral business."
Selfridges, a chain of high end department stores, has recently enjoyed record profits of £180m and a 16% rise in sales. Where Selfridges has excelled, according Dan Higgot of CADA Design, a retail design consultancy, because it realised "that to create a destination required more than just range or quality". "By offering customers theatre and experience through events, themed campaigns, pop-ups and some social campaigning, Selfridges has maintained, and grown in, relevance over the last two decades," Higgot said.
Ultimately, its important to avoid excessively pigeon-holed conclusions, concluded Richard Hyman. "It’s not all about online. It’s more difficult and this is not a market where if you tick a few formulaic boxes, you’re alright. It’s about how you execute as well.”
About Francois Badenhorst
I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter.