Predicting the death of the high street is nothing new. It’s been going on for several years and has turned into a bit of a cliché – the end is nigh, we’re all doomed. Sometimes, when a problem becomes over-hyped it’s real significance gets lost among all the noise and confusion. People grow fatigued at all the gloominess and switch off. They stop paying attention.
It’s not only a cliché, it’s also a sweeping generalisation – it differs from town to town, and region to region. But things are far from positive, and there’s every reason to believe 2018 might be the year when things get a whole lot worse.
According to the Guardian, “January was a tough month for high street retailers as sales rose just 0.1%, far below City expectations, as higher prices continued to deter shoppers from spending.”
That follows the 1.4% fall in sales in December.
If you feel like you’ve heard it all before, you have my sympathies. We’re all growing accustomed to such news. But allow me to outline why I think things might be different this time, and why life could get considerably tougher on the high street this year and next.
In November last year the Bank of England increased its base lending rate to 0.5%. Now, that’s still very low. But it was the first increase in more than 10 years and the Bank has indicated there is another rise to come before too long, maybe several.
One of the main reasons for the increase in interest rates is the UK’s current rate of inflation, which at the time of writing was 3%. That’s higher than the 2.9% that had been expected by market analysts and way above the target of 2%. And as everyone knows, higher inflation means higher prices, which could be one of the reasons behind the retail slowdown.
When it comes to combating inflation the most popular mechanism, here in the West anyway, is through monetary policy. What that means is you increase interest rates to make spending money less attractive, because it is more costly to borrow. That can even reduce the amount of disposable income people have by increasing the amount they have to spend servicing credit card debts, or paying their mortgage and so on.
So that’s two factors affecting the humble shopper which have implications for retailers – rising prices and a squeeze on disposable income.
And here comes a third, which for smaller, independent retailers could be the most troubling of all.
In 2020 the way in which local authorities in England are funded will change dramatically. The central grant councils receive from the government is being withdrawn, and in its place will be… well, honestly no one seems completely sure. But the emphasis is going to be on local councils raising all their money locally. There are two principal levers local authorities can pull to raise money – council tax and business rates.
Raising council tax is politically sensitive, and therefore not favoured by many in local government who want to hang on to power. That leaves business rates. In prosperous parts of the country, where the checkouts are always busy and there’s plenty of money being spent on the high street, an increase in business rates will be an unwelcome nuisance.
But in those parts of the country where things are already tough, where unemployment is stubbornly high, where there is little inward investment, it could be the final straw. Declining sales, rising inflation followed by increases in interest rates, and then business rates on the up. The phrase perfect storm springs to mind.
Retailers who haven’t yet started making every effort to diversify their offerings, to find new ways of getting shoppers over the threshold could find they are seriously running out of time.
As grim as this all sounds, it is actually a wake-up call. A sign that those who don’t want to be swept aside by change need to pay attention to. Become the agents of your own change. Get out into your local community and make connections that go beyond the range of items on the store shelf. Make people want to visit your store, not just because of what you sold them last time they came in, but because of what they can rely on you to provide in the future.
Sebastian Steinhauser, CEO & Founder of Parcelly comments: "It’s time to reinvent traditional retail. Recent examples from the toy and fashion industry revealed that the established way of distribution and commerce prove to be a challenge in today’s economic environment. Customers are looking for more than a simple exchange of goods at the lowest price, and equally care about the sourcing, production, branding and final distribution of their purchased items. A comprehensive omni-channel strategy serves more than just a multi-channel sales approach providing the customer with an integrated customer experience. It also helps to optimise physical resources, establish cost efficient sales channels and streamline the overall product or service offering. And this opportunity is not just available to tier 1 retailers, but can be implemented across the entire retail industry. And we want to be part of it.
Parcelly’s business model not only aims to revive local highstreets, increase footfall to small shops and business, and generate an additional revenue stream for our location partners, but each single Parcelly transaction contributes to offset carbon emissions and helps to improve air quality in congested high traffic areas. Through our logistics partnerships we can trigger efficiencies along the entire supply chain, whereby our recently expanded partnership with Barnardo’s drives our ‘click & donate’ concept across the entire country, allowing customers to making an impact with each purchase."
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