ID Comms

Will the last retailer to leave the British high street please turn out the lights?

Well that’s the way it looks at the moment as UK retailers Carpetright and Thornton’s (which makes and sells chocolate) prepare to slash the size of their high street estates and fashion chain Jane Norman tumbles into a pre-pack administration that sees Scottish firm Edinburgh Woollen Mill pick up a third of its stores.

Iconic Habitat, founded originally by Terence Conran, went down last week.

Retail analysts are also fretting about the mighty Marks & Spencer’s decision to start its summer sale early, suggesting that its decision to unload its summer stock just as the sun has started to shine again is a sign that the British have decided to curtail their purchases of shorts and sunglasses this year.

There’s no doubt that a major review is happening on the high street as the long-awaited recovery in the UK economy fails to arrive. The big banks, who were willing to fund struggling high street shops as the UK anticipated recovery, have evidently decided that enough is enough.

Their balance sheets, while hardly robust, are strong enough now to write off a few more debts, for which read a few more retailers.

There is also an endemic problem at the heart of British high street retailing and it’s called landlords.

For most retailers the big problems happen four times a year on ‘quarter days’ when they have to pay the next quarter’s rent in advance. The quarter day at the end of March is the cue for those retailers who haven’t sold as much as they hoped at Christmas to call in the receivers, as Woolworth did three years ago.

Landlords, mostly big commercial property companies, clearly know this but have usually worked on the basis that if one tenant goes bust, another will turn up. Many old Woolworth stores are now occupied by discounter Poundland which seems to be doing a roaring trade. The big supermarkets are always eager to snap up high street sites for their convenience offerings.

But maybe this time the high street won’t bounce back unless landlords lighten the burden, both in terms of how much they charge and how they collect the money (monthly in arrears would help).

With about a quarter of UK retail sales being made online, the overall economy will need to see a period of sustained growth for conventional retailers to commit to expensive high street sites.

So rents will come down won’t they? Supply and demand, innit?

Well not necessarily. Many of the aforementioned property companies borrowed heavily before the financial crisis, many of them from ever-generous HBOS, now part of semi-nationalised Lloyds Banking Group. So to pay their loans they need a certain income and they often need it on the wretched quarter days to meet their own financial commitments.

Otherwise the banks will be writing off a large number of property company bad debts.

Retailer liabilities are peanuts in comparison to these.

Therefore all three players on the UK high street – retailers, landlords and banks – need some growth in the economy and fast.

Coalition government chancellor George Osborne, committed to deficit reduction through higher taxes (including raising VAT to 20 per cent) and public sector cutbacks, says he has no ‘plan B.’

Well he’d better find one and fast, even if he calls it something else.

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carpetright coalition chancellor edinburgh woollen mill failures George Osborne habitat jane norman landlords online growth plan b quarter days Terence Conran thorntons uk high street

About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.
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