Is The High Street Dying?
So another high street main player is currently on the brink of collapse it seems. Reading an article today regarding the struggles of House of Fraser and it made me think about the high street model. In a world that is changing so fast, there are not many high street giants moving with the times. According to PWC the first quarter of 2018 has been the toughest since 2009-2010 which was mid recession. Huge high street names such as Toys R Us & Maplin have already gone in to administration this year and it doesn’t show any sign of slowing up. Marks and Spencer came out the other day explaining how they will consolidate a number of stores, which essentially means cut cost and get rid of more staff. So what are the current problems these high street giants are facing?
First of all I believe they have not changed business models or invested in their own offering for such a long time, they have become complacent. If I walk in a House of Fraser today, it looks exactly the same as it did 20 years ago. Everything is exactly the same, which means there is a huge lack of innovation. Considering 20 years Asos didn’t even exist, it is amazing the high street model hasn’t changed. People like to spend money on experiences in this modern era, I am sure with such big spaces they could be a lot more creative. A trend that is currently doing this very well is London Brunch venues. Creating a new offering to capture business between quiet hours.
The fixed costs of the stores make it near impossible for the stores to be profitable now. By the time they have paid rent, rates, bills, staff, insurance, security and all the other costs there is an extremely tight margin to work with. No wonder they are unable to compete with the online giants, that are paying minimal cost for a warehouse in the middle of nowhere. They have minimal business rates because they are not high street presence and minimal staff costs as none of the staff are customer facing. Again why not use some of this space to their advantage, create pop up shops, work with local business’s. I think there is numerous ways to bring in further revenue and get different customers in stores.
What does this have to do with lending? Well with such large corporates showing trends of decline and closures, it essentially makes the banks very wary of lending to companies that operate under these dated models. I can see a trend across the retail market, guidelines are becoming very tight across anything retail related. This includes lending for commercial investment and owner occupier led lending. Which in turn squeezes the sector even further. Lets hope the government can see what is happening and start looking at strategies to try and save the retail sector. I believe a good starting point will be a reduction in business rates for having a retail premises.
As always please leave your thoughts.
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