The long view: should investors completely avoid high street retailers?

The high street is in decline, with one in 10 shops empty, but some outlets are thriving in the online retailing storm. Should investors avoid the high street when shopping for shares? 

Retailers are calling 2018 the year of crisis. By the end of October, almost 3,500 stores on the UK’s high streets had shut their doors for good during 2018, according to the Centre for Retail Research (CRR), resulting in the loss of 49,600 jobs. Retail specialists have been forecasting the death of the high street for some time, but this has been the year in which those predictions have really started to come true.

“Since 2008, retail has gone into slow decline,” says Joshua Bamfield, director of CRR. “Its decline is now speeding up. The equivalent of just under one in 10 retail employees has been affected by administration in the past 10 years. In the previous 10 years, the figure was about one in 50.”

To understand why, consider a single statistic: last year 16.3p of every pound spent by shoppers in the UK went to an online retailer, up from 3.4p in 2007, according to the Office for National Statistics.

Retail derailed

Other factors have played their part. During a decade in which people’s earnings have failed to keep pace with inflation, consumer spending has come under ever-increasing pressure. Meanwhile, retailers’ costs have increased – not least business rates that their online competitors don’t have to pay – while many retailers over-expanded and over-borrowed during the better times, when consumer credit was fuelling a spending boom in the run-up to the 2007 financial crisis.

These latter problems are all woes that will pass. However, the rise of online shopping looks inexorable. Research consistently shows millennials and members of Generation Z, a younger cohort, are more likely to do their shopping online than their parents are. They still visit physical stores, but often only to size up or try potential buys before shopping around online or on mobile channels.

Fewer people are going to be buying in-store in the future, unless retailers do something radical to change this dynamic. And not only on the high street. The shopping centres and out-of-town retail parks once seen as the biggest threat to high street shops in towns and cities are suffering just as badly.

Retailers that did not anticipate the pace of change and position themselves accordingly have been painfully caught out. Retailers that have collapsed this year, such as Toys R Us, Maplins, House of Fraser and Poundworld, have in the main been those that missed the online boat. They follow a long line of retailers – beginning with Woolworths a decade ago – that simply no longer seem relevant.

So is this the end of the road for the UK’s once-bustling high streets? In some towns, it might feel like that. According to The Local Data Company, across the country as a whole, one in 10 shops now stands empty the to-let boards forlorn reminders of what has been lost. And this is just an average figure. More like one in five shops stands vacant in the worst-hit areas.

And yet, while the high street is changing, it is not disappearing altogether. Certain types of retail outlet are bucking the trend towards closure. Data from PwC shows that there were more openings than closings last year among beauty stores, coffee shops, ice cream parlours and booksellers.

“The UK high street is undoubtedly facing headwinds, but retailers are waking up to the challenge and reimagining the future,” says Lisa Hooker, PwC’s consumer markets leader. “The winners at the moment – nail bars, coffee shops, bookstores and craft beer pubs, for example – are all flourishing because they serve the needs of emerging consumer segments such as experience-seeking millennials, and offer a differentiated physical proposition that online offerings can’t compete with.”

The second idea is easier to grasp. Coffee and craft beer are products that consumers will always need to buy in-store, assuming we’re talking about drinking them immediately. Similarly, nail treatments really can’t be delivered online.

A graph showing the rise of online retailing

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