Like many other 90s kids, I spent many a Saturday pootling around the local Topshop with friends, with the annual pilgrimage to Oxford Street. I remember being dragged around Debenhams with my mum watching her happily buy (yet more) bed linen, knowing that payment for my patience would be a cake in the café afterwards. The high street had something for everyone and it offered an experience that brought people together. I’m sure I’m not the only one who has felt unsettled this year watching these childhood institutions fall like dominoes. These days, being an “institution” is just not enough and retailers need to be swift and agile.
On 29 January 2021, business advisers, Quantuma, led a great webinar discussion enticingly titled “Retail: has Christmas killed the high street?” and the general consensus was that the high street might be here to stay, but not in the way we know it.
Here are 5 of the key points on the how and the why…
- Is high street retail doomed to fail?
This depends on the brand. With enough investment in a digital offering, the ability to change business models quickly and great remote customer service, there’s every chance of success. There are some brands however who will struggle more during this interim digital era, for example those who rely on the shopping experience (e.g. footwear and beauty) and smaller brands who were previously only displayed in department stores. These brands will need to rethink their offering and find new ways of reaching customers quickly.
- Overhaul of commercial rent
Debt levels are generally high and those retailers who have been receiving government support just to stay afloat (and not even cover their rent) are likely to struggle as government support reduces and landlords become less amenable. On the other hand, landlords are still owed this debt and entitled to payment under their contracts (even though right now the moratorium has taken away their key leverage to enforce rent collection).
What’s for certain is that commercial rent needs an overhaul, but it is unclear how. One option is footfall based rents, although this can be problematic due to click & collect distorting figures. Landlords also fear that there will be a race to the bottom and tenants will simply pay the minimum they can get away with (rather than what they are able to), so this will require openness and transparency to work in practice. Another option is turnover based rents, however landlords are likely to be less willing (or able) to agree to the lack of certain income.
- Takeovers on the cards
With a reduction in government support and debt levels high, we can expect to see more private equity coming in to restructure retailers, as well as more insolvency. E-retailers like Boohoo and ASOS are likely to be leading the M&A deals in the UK as they look to add well-known high street brands to their digital offering.
- Does the outlook vary regionally across the UK?
Covid-19 has re-drawn the map. The bricks and mortar winners tend to be those retailers in affluent towns closer to London (e.g. St Albans and Cobham), where well-off people in the locale are all suddenly shopping locally rather than spending their money in the cities they used to work in. Those suffering more are regional towns and cities in the North West and South East, particularly following closures of Debenhams, Arcadia etc. These large retailers tend to be “anchor tenants” and their closure will have a ripple effect on other high street stores if they tended to bring the footfall.
- Is there a future for department stores?
Department stores are likely to continue to suffer. One of the key difficulties is that they are all things to all people. This lack of specialism and lack of specialist customer help essentially provides the same experience as internet shopping. Luxury department stores tend to do much better in this respect as they focus on the in-store “experience”.
So what will happen to these large prime rental spots? Quantuma expect to see diversification and mixed-use conversions e.g. offices, shops, restaurants and residential. In terms of timeframe, these stores might be vacant for some time as retailers are unlikely to want to commit until they can be sure consumer demand is there. Government intervention by way of legislation will also likely be required to help ease planning to allow easy conversion of use for much-needed diversification.
So what does the future hold for the high street? In the immediate future, landlords, retailers and the government are going to need to work collaboratively to ensure that town and city centres are revitalised, vibrant and fit for purpose. And what might this look like? Well, we will still need physical stores, but less of them. These physical stores will offer the “browsing” customer experience where people can feel, touch and try items. This structure should be complemented by low-rent giant warehouses to cater for online sales. Digital offerings need to increase with smart technology such as AI mirrors on the horizon, as well as easy-access fast customer service.
Covid-19 may have exacerbated the divide of “bricks” versus “clicks”, but with change comes opportunity and fortune will favour the agile.
How we can help
- If you are facing contractual performance issues, you can read our full guide here.
- If you want to find out more about insolvency issues for directors, please click here.
- Alternatively, do not hesitate to contact a member of our Dispute Resolution team who can offer a free initial assessment via LS Unlock.
The full webinar is available here: