the decline of the high street

As the trend towards shopping online or in out-of-town retail parks accelerates, British high streets are seeing rising numbers of vacant stores and undergoing a structural reform.

It is expected that next month’s retail vacancy report by the Local Data Company will announce national average vacancy rates exceeding 15%. In the country’s worst hit areas, Margate and Rotherham, one in three stores are believed to lie empty. This revelation coincides with new data from mapping agency Ordnance Survey detailing the structural change unfolding on many British high streets.

The Ordnance Survey data compares the number of different types of businesses populating high streets today with the amount from October 2008, thereby providing an insight into how the composition of the high street has altered over the course of the recession. Building societies, recruitment agencies and estate agents have been closing down at the fastest rate. However, betting shops have bucked this trend, with 5% more high street stores open today than in October 2008.

The growing number of vacant shops can be attributed to a combination of factors – failed businesses departing from the high street, cost-conscious firms relocating to out-of-town retail parks and the rising popularity of Internet shopping. The consolidation of the UK banking sector, coupled with increased usage of Internet and telephone banking services, help explain the 28.2% fall in building society branches.

A number of high profile store closure announcements in recent months highlight a structural change within the UK retail sector, with businesses shifting their focus to increasing online sales at the expense of their high street stores. Sir Philip Green announced the planned closure of 300 stores from his Arcadia empire in November 2010; HMV have followed suit this month, with 60 of the entertainment retailer’s stores set to close throughout the UK.

The tough trading conditions experienced in December, brought about by heavy snowfall, have not helped confidence in the high street. Whilst retailers are likely to want to maintain a level of high street presence in order to increase brand awareness and attract offline customers, this may be done by trading only from bigger cities and closing down regional stores. Commercial real estate advisor CBRE has published research indicating that half of the UK population can be accessed from 90 stores, and explains that ‘the trend in retail is for more spend to be concentrated in fewer, dominant locations’. This, together with the pressure of rising commercial rents, provides a strong incentive for retailers to streamline their store portfolios.

Although growing in importance, online sales only account for 10% of an average retailer’s turnover. Not all high street departures are translating into online growth – many businesses are simply relocating to out-of-town retail parks. Rob Templeman, Chief Executive of Debenhams, has announced that ‘In the medium term, we will be opening department stores on out-of-town retail parks’, explaining that ‘Rents out of town are two thirds of the cost and there is ample parking.’ The high street is also struggling to compete with supermarkets, which are increasingly becoming a one-stop destination as they diversify into several different product areas.

According to the head of Retail at Jones Lang LaSalle, Guy Grainger, ‘The locations that retailers choose to walk away from could be areas of high unemployment, or high streets that are overshadowed by a large out-of-town retail destination or food store,” The worry amongst analysts is that movements away from the high street may escalate into a full-blown exodus of retailers. Vacant shops, as well as a higher proportion of low-end stores such as charity shops or one pound stores, will discourage visitors to the high street, creating a vicious circle that results in more retailers departing.

The future of the high street may lie in providing the kind of services that cannot be provided online, and that consumers are less willing to travel out of town for. Bookmakers have already been leading the way in establishing a greater high street presence; with fixed odds betting terminals providing an increasing share of profits. The number of hairdressing salons has increased by 3% since October 2008, and there has been an incredible 28% increase in car washes. Paradoxically, the supermarkets, which have contributed to the demise of the high street, may now be positioned to save it. Shore Capital analyst Clive Black has predicted that Tesco and Sainsbury’s will open a combined total of up to 300 convenience stores by 2016, explaining that, due to tight planning controls, ‘the big supermarket operators are being forced to go into smaller units, which includes the high street”.

2011 could prove to be a pivotal year for the British high street. The trends that play out over the coming months may well determine the way in which the high street is defined in future years. In the words of Matthew Hopkinson, director of LDC, ‘In 10 years’ time, high streets will still be there, but they will look very different.’ Exactly what they will look like remains to be seen.