The death of the high street

A record number of high-street shops are being left empty in Britain. Does this mean the British town centre is doomed? Matthew Partridge investigates.

What's the issue?

Technically, Britain may have pulled out of recession in the last quarter, but things remain grim on the high street. The insolvent electrical retailer Comet will close 125 stores in the next few weeks, with stocks run down in the remaining ones. In doing so it will add to a trend towards vacant shops in town centres.

The British Retail Consortium estimates that 11.3% of shopping units are now empty. The Local Data Company, which specialises in tracking high-street sales, puts the rate even higher, at 14.3%. In towns like Nottingham, up to a third of shop premises are empty. The consultancy Deloitte predicts that two out five units will close in the near future.

Why is this happening?

Last year the government commissioned retail consultant and TV personality Mary Portas to investigate. She concluded that during the years leading up to the financial crisis many well-known chains over-expanded, driving out independent retailers. When the big names were forced to cut back during the recession there was no-one left to take their place. The growth of online sales (see below) and out-of-town shopping centres have also played a major part.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

However, she also points the finger at smaller retailers failing "to meet the expectations of today's increasingly sophisticated, time-poor yet experience-rich consumer". The business rates system has also been criticised many shops have to pay taxes based on valuations carried out at the height of the property boom. The CEO of Kurt Geiger claims their Newcastle store has to pay 16 times more rates than it would in America and Germany.

The decline in town-centre shopping seems to be replicating what's already happened in America. Kaid Benfield notes in The Atlantic that the rise of large shopping malls from the 1960s onwards has been "spinning small downtowns everywhere into decline".

What's the situation in other European countries?

The picture is very different in most of the rest of Europe. As the Economist points out, thanks to strict planning laws, "Continental Europe boasts plenty of charming boulangeries and confiteras". Indeed, German publication Der Spiegel notes that, thanks to grants and subsidies from the German states' governments, over 200 small speciality (or "Auntie Emma") shops, usually run by an individual or a couple, have opened in Baden-Wrttemberg and Bavaria.

However, this all comes at a price. "Charm costs time and money. You may have to visit six or seven shops to fill your shopping bag and one or two will inevitably be closed." Meanwhile, Brussels is concerned that a bias against big stores in Europe is undermining the single market and keeping the overall cost to the consumer higher than it should be.

Do we need a healthy high street?

Harjeet Johal argues in the FT that "large-format retailers in central locations" are best able to satisfy consumer demand for "price, value and special offers". He also claims that the rise of shopping centres has improved the range of shops and the quality of goods on offer, taking over most of the high street's traditional functions. Overall, "as long as people are spending, should we care where or how they are doing it?"

However, independent retailers are angry they argue that they deliver wider social benefits and "are the heart of towns and communities". That claim is hard to measure objectively, but Kingston University researchers have found evidence of a "broken windows effect", where empty shops have boosted crime levels in several London boroughs. Last summer's riots were also worse in places with empty high streets.

How could the trend be reversed?

There are several possible solutions. One is to support high streets by cutting business rates and investing money in town centres. Alternatively, out-of-town development could be more heavily restricted. Mary Portas thinks there should be "a presumption in favour of town-centre development in the wording of the National Planning Policy Framework". She also wants any future out-of-town development to be evaluated for its impact on the high street and the effect on local firms.

Yet the government appears to be taking the opposite stance. It recently postponed a planned re-rating review from 2015 to 2017 and the £20m allocated for high-street regeneration is pretty paltry. It's also said it wants to loosen, not tighten, planning laws. As the recent furore over corporation tax bills at international retailers such as Starbucks and Amazon reveals, the government actively encourages global retail giants to operate in Britain. Unless something changes, many of Britain's remaining independent retailers will disappear.

The growth of online shopping

E-commerce has had a massive impact on the British retail sector. Deloitte estimates that online sales will account for 14% of total sales in 2015, almost all at the expense of high-street stores. Even in America, online penetration is only 5%, while in Europe it is 3.4%.

British stores are under attack from several directions. Mobile apps enable consumers to scan barcodes in-store and then instantly find the online price. One recent survey suggests that four out of ten people now use physical stores just to browse for products before buying more cheaply online from another firm.

One way shops can fight back is to redesign stores purely as showrooms and collection points, like Argos. But this is clearly not an option for smaller retailers. Besides, adopted en masse it would turn the average high street into a rather soulless place to go Christmas shopping.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri