Hard times for the UK high street

Since 2000, some 25,000 retailers have closed and 14% of shops on Britain's high streets stand vacant. Will there be a revival of fortunes in the New Year? Simon Wilson reports.

How's business?

Trading in the run-up to Christmas accounts for more than £1 in every £8 spent in shops, and around half of non-food retailers' annual profits. So widespread reports of flat sales and heavy December discounting don't augur well for the British high street. Credit is hard to come by, fear of unemployment has made people ultra-cautious, and inflation means real wages are falling. The result: households are 1.5% worse off than this time last year, according to the Centre for Economics and Business Research (CEBR), and overall spending in December is set to fall 3% in real terms this month.

Might there be a late surge?

Last year the pre-Christmas period saw heavy snow in many parts of the country, and many analysts had expected an uplift from that low base. With this Christmas falling on a Sunday, there may be a late surge in spending. But it's by no means certain. Accountants Deloitte echoes the CEBR forecasts that December sales will be flat or slightly lower than last year. "Christmas is going to be very difficult," said Richard Hyman, strategic retail adviser at Deloitte. Analysts at PricewaterhouseCoopers also predict a fall in sales, "with the possible exception of flagship shops in London"; luxury retailers continue to do well from wealthy overseas shoppers.

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Shopper numbers were 4.7% down in mid-December year-on-year and visits to shopping centres fell 6.3%, according to data from Springboard Research. But it's not just concern over sales that has got investors and analysts worried. Heavy discounting has become the norm this month, raising fears that retailers are protecting turnover at any cost, but that profits are about to tumble across the board. "The high street is the most promotional we have seen since late 2008 [in the post-Lehman panic]," said analyst Andrew Hughes at investment bank UBS. Only a few retailers, such as Zara, Fat Face and Next have not discounted pre-Christmas. All this suggests a flood of work for insolvency practitioners when quarterly rent bills become payable after Christmas. More than 1,000 retail businesses have gone bust this year, according to accountants RSM Tenon, with worse to come in 2012.

Is it all gloom?

John Lewis, Moss Bros and Sports Direct all reported encouraging figures last week, and a Confederation of British Industry (CBI) survey was hailed as a ray of hope. The business group's Distributive Trades Survey found 41% of retailers saw sales rise in the first two weeks of December, while 32% saw them fall. That net figure of +9% was better than expected. But the CBI also warned that sales growth was weak for the time of year, that the uplift isn't expected to last, and sales will slump in January. "Sales have been lifted by heightened discounting and promotions, which will have eaten into many retailers' margins," says Howard Archer, an economist at IHS Global Insight.

What next?

"If only this was the nadir," says Deloitte's Richard Hyman. "But common sense says next year is going to be worse because we will have a full year of austerity and the recession will hit the consumer economy, which didn't happen last time round." So for the likes of high-street mainstays such as HMV, Peacocks, New Look, JJB Sports and Argos who have all seen sales savaged by the internet and/or pressure on household income next year is set to be "diabolical", reckons The Sunday Times. In the last few weeks, Peacocks has announced a £240m debt restructuring, while the perennially troubled Blacks Leisure put itself up for sale in a last-ditch effort to avoid going into administration. Meanwhile, Thorntons issued (another) profits warning and La Senza appears to be teetering on the brink. And as for HMV, as The Daily Telegraph put it this week, the "fat lady" might not be singing just yet, but she is surely "limbering up".

How bad have things got?

Since 2000, some 25,000 shops have closed in Britain's high streets; this year big names such as Habitat and Barratts Shoes were added to the list. On the average high street, 14% of shops stand vacant a rate that has doubled in the past two years. As online sales continue to take a bigger share of the non-food retail market (14% and growing), that situation is set to get worse. Research by retail analysts Verdict predicts that almost 9,000 of the remaining 140,000 town centre shops will close their doors in the next three years (after 25,000 disappeared between 2000 and 2009). The government will be responding in the spring to the recently published report by Mary Portas (see below). But this Christmas, at least, the nation of shopkeepers has little to cheer about.

Can Mary Portas revive our towns?

Last week, retail consultant and TV presenter Mary Portas delivered her report into the future of the high street. Her plan is to make it harder to set up out-of-town shopping centres. That's "unhelpful", says the FT. But the recognition that high streets are a "social good" and need to be protected is welcome. She sensibly recommends making it easier to set up street markets; simplifying the process for redesignating high-street properties from retail to other uses (such as gyms, crches, residential); giving concessions on business rates to small businesses; and establishing "town teams" (of councillors, shopkeepers, landlords etc) tasked with devising regeneration strategies. These ideas could help rejuvenate town centres in the medium to long term. But can they turn round the fortunes of Britain's retailers? Unlikely.