Is this the end for High Street retail?

I would normally apologise for employing such a click-bait headline, but in this instance, I am asking the question in a calm and pragmatic tone. I do think we are facing an existential crisis about whether the concept of High Street retail is actually sustainable and has a future, especially if we are only envisaging remedial tweaks to the existing model.

If there was such a thing as a Consumer Behaviour qualification, then the 101 class would probably reference the moment that we started to use the internet to transact purchases as the ground-zero moment. After that everything started to shift, as newly empowered consumers lifted their heads from the high-street to the horizon and pushed back against the norms of consumption that had been in place for generations.

(For the purpose of context, it is probably worth reminding ourselves that Amazon was founded in 1994, eBay in 1995 and in the MI space Thomann in 1997 and Dolphin Music in 1999).

Fast forward a quarter of century and the impact is both structural and real. Store closures have been rife for a long time and whilst the headlines are reserved for the loss of beloved retail chains such as Wilko and Woolworths, the reality has been a constant drip of independent store closures due in most part to reasons of viability, retirement or owners simply stepping away. At the same time existing businesses aren’t changing hands or  new stores aren’t being established.

Now before you scream at your screen – ‘it’s just consumer evolution, deal with it’ – I want to look at the journey to this point in a little more detail just to see if that argument of inevitability actually covers it.

And to be clear this is not about e-tail bashing, there are lots of examples of virtual retail being really positive for MI, no this is just  a moment to reflect and sense-check if where we are headed is actually where we want to go.

Structural Challenges

There are (of course) fundamental inequities built into the system that have been challenging for years. As a rule of thumb bricks and mortar retailers operate in or around High Streets, Shopping Centres & Retail Parks. Traditional retail space is expensive, sustained in large part by factors of supply and perceived locational value. Now as demand for retail units falls so you would expect market reality to start to bite and rental costs to re-calibrate, and to a certain extent this has been the case, but the lag has been pronounced and I would argue still not reset to the point of viability.

Of course even if rental costs do come down, there is still the gift of business rates to contend with. Pretty much everybody agrees that as a model business rates is broken, but nobody (at the time of writing) has really been able to put forward a viable solution. The idea floated of an Online Sales Tax to fund business rate relief was quickly abandoned, as it became clear it would be complicated and downright non-sensical. Since then the current Government have decided that business rates is just too difficult a problem to tackle for the time being.

Hence bricks and mortar remains a fairly expensive way of putting product in front of a consumer.

Now it is more than fair to say that transacting online brings with it its own unique set of costs. Professional e-tail ain’t cheap, particularly when you consider the challenges around product returns and of course the massive cost of promoting your e-store and securing transactional revenue. But it has the advantage of being scalable in a way that just isn’t possible for a local retail operation, because in the real-world millions of people are not going to walk past your shop window. Ultimately if you pour enough income into the top of the machine, some surplus should drop through to the bottom line.

Not just about the cost-base

There is little doubt that increased market visibility has resulted in consumers getting a better deal on pretty much everything. We have become a generation of savvy shoppers, with little interest in loyalty to a particular reseller if that comes at any sort of premium.

Every discretionary sale is a battle and as you would expect the margins on branded product sales, particularly those that are seen as industry standards, have been squeezed. The linear go-to-market model of manufacturer-to-distributor-to-reseller-to-consumer has for a long time been adequate enough to sustain all of the interested parties, but it is now at the point of collapse.

It doesn’t take a genius to work out that it is the independent resellers that are feeling it most acutely. If you can’t easily scale your revenue, then any decrease in pound-amount margin makes covering running costs a challenge and the consequence of closure is exactly what we have been living through. If you are selling the same quantity of the same stuff in 2023 that you were in 2020, but you aren’t making enough to pay the bills then sooner rather than later it is going to catch you out.

What do we want the consumer experience to be?

This doesn’t mean I think we should be pushing back against evolution, ultimately if this is the consequence of shifts in consumer behaviour then so be it. The question I would ask is have we arrived here by design or by default?

Stats from the British Retail Consortium suggest two things, firstly that high street footfall has recovered pretty well post pandemic and is performing ahead of shopping centres and retail parks. Secondly online sales penetration in the non-food category continues to drop, with currently 65% of transactions occurring offline. Pre-pandemic the split was 70:30. and the current direction of travel would suggest it may well end up back there

What that might mean is that consumers haven’t given up on the high street just yet. As a industry we should be questioning whether the decline in number of bricks and mortar MI retailers is running ahead of the trend across other sectors, because if it is then it would be missed opportunity if it were down to default and not a considered plan.

Shape the outcome.

I get that everybody wants to have a relationship with the consumer, and to curate what that purchasing path looks like. However, I also wonder if we have really worked out what we the constituent parts of that journey are, and who is going to deliver them, because if it turns out bricks and mortar retail has a part to play, and we carry on the way we are going, then that may not be an option.

There are many of things to consider in regard to this topic. Lots has changed that means we don’t have to rinse and repeat existing practices to try and arrive at a different conclusion. What I suggest we need is an honest conversation about what comes next, and how is it going to all bolt together.

The MIA has its annual conference in a few weeks, and this is going to be one of the topics of conversation. I will be chairing a panel that will include Competition Law specialist Marc Shrimpling and other industry colleagues to kick-start the debate and explore some of the options open to the industry moving forward.

You can find more information here.

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