June 24th was a quarter day and that means in the UK, rents became due for the next three months and it created a wave of insolvencies among big retailers like Jane Norman, Habitat, TJ Hughes and Moben. Allegedly other retailers are under severe financial pressure like Clinton Cards and HMV. Even the giant electrical stores are struggling.
But why is there so much blood on the high street?
I believe we need to return to the five pathways to profit identified in my free report, The Profit Tipping Point for an understanding.
Those five pathways are:
- Attractiveness of the market
- Rivalry among competitors
- Competitive advantage (and I’m particularly focused on differentiation of course)
- Management skills in planning and controlling the business
- The inner game – while I normally think of this as an issue for entrepreneurs, the inner game for big groups is almost inevitably weaker. Even with a charismatic, driven and passionate leader, the motivating force is lost through the layers of the organisation and the bureaucracy.
Attractiveness of the Retail Markets
We have to say it is a bit mixed.
I’ve been astonished at just how quiet it is in Birmingham city centre on a Saturday morning. Few shoppers mean plenty of empty shops and even emptier tills.
I hear we are in a time of austerity brought on by massive public expenditure cuts. The truth is very different at the moment as the government continues to pump huge amounts of borrowed money into the economy (April & May 2011 borrowing at record levels).
I’m not denying that there haven’t been cuts but such was the cash splurge by the last government, that the cuts are a drop in the ocean. It can’t continue for too long or we’ll see ourselves in a Greece style crisis.
It’s also true that some sectors of the economy have been forced to adapt to huge volume changes. GDP is rising slowly after dipping by a few percentage points in the recession but the housing market is extremely depressed with volumes less than half the historic norms. No wonder Moben who sold replacement kitchens got in trouble.
Inflation is too high, partially caused by the VAT increase at the beginning of the year, partially caused by food shortages (from both droughts and floods in different parts of the world) and partially due to the weakness of sterling – €1.10 to £1 is astonishing when the Euro is in crisis.
The cause of sterling weakness should be keeping consumer spending high.
That’s the low interest rates with the bank base rate stuck at 0.5% when the UK norm is considered to be about 5%. This creates a huge subsidy from savers to borrowers and millions of households are benefiting from very low mortgage rates. The worry is that the squeeze will get bigger when interest rates rise.
Unfortunately the tendency in the debt ridden naughties was to spend all the money you earned plus a bit more because credit was so easily available. The day of reckoning was inevitable.
The High Street stores are being squeezed by two different types of competitors.
First, Tesco, Asda and the other supermarkets are taking advantage that we have to buy essentials and while we are in the stores, we can be sold other stuff because of the convenience of one stop shopping.
Second is the growth of online ecommerce stores. Amazon is the obvious example for the impact it is having on HMV and other music stores which is compounded by the digitalisation of the product which allows downloads of music. eBay has made it easier to promote both new and second-hand stuff.
For the consumer, there are two parts to shopping – the buying itself and the fun of the experience.
Unfortunately a lot of the fun and interest has gone from shopping.
The growth of the giant retail chains at the expense of the independents has led to a commoditisation of the High Streets.
The brutal truth is that many are the same – the same stores selling the same stuff in the same way.
We used to go to different towns for “a day out” and we’d browse around the shops and buy if something caught our fancy.
But there’s little point if a town centre or shopping centre is full of the national brands.
We’ve just come back from a short holiday in North Wales and it was lovely to see the absence of the chain stores. I don’t think we even saw a Starbucks but we did see lots of independent coffee shops, cafes and tea rooms… and a few pubs!
It’s not just that the stores are all the same in the different towns and cities, the products seem to be the same or very similar between stores which again takes away the fun from browsing.
Retailing is a science and an art. Some things work predictably and sometimes there’s just a certain, je ne sais quoi that makes you go into a shop.
It’s interesting to watch Mary Portas on Mary Queen of Shops . You may not like her personality but she gets results.
The troubles on the High street are partially caused by a rush to expand – 200 shops are better than 100 is the logic – the myth is broken if the stores are losing money.
It has to be tough being positive when you see so little happening around you but entrepreneurs have a huge advantage over the national chains. They can adapt quickly to local conditions and build personal relationships with key customers.
I’m getting on a bit, but in my day you used to get to know shop assistants and they’d get to know you.
The Opportunity For Independent Retailers
Retail is tough at the moment but often opportunity comes from adversity.
Landlords need to face up to reality – quarterly rental payments and upward only rent reviews smack of the good times when demand for retail space was higher than supply. You can walk around virtually any town centre or shopping centre now and know that’s not true.
But there is hope.
I don’t think the desire to shop has gone away.
It’s just that consumers need to get excited by the idea of shopping again.
I can see the chains retrenching which creates opportunities for the independents.
I’ve heard it said that differentiation and commoditisation go in cycles. When markets get too fragmented, the opportunity for consolidation opens up as brands create trust and bigger businesses mean more buying power and lower purchase prices – giving stores the choice between discounting or pocketing the extra margin.
But when things go too far – as they have done now – the opportunity is for the independents to reclaim the High Streets and give back each town centre a unique shopping experience.
If I wanted to move into retail, I may not be ready to rush back just yet – landlords need to feel more pain to relax their terms – but I would be on the look out for opportunities and working on my concept.
Unfortunately there is a network effect – High Streets are only going to feel different when there are enough independents – so towns and shopping centres that experienced some commoditisation but not total would be where I’d be looking for opportunities.
What do you think about the future of the High Street?
Paul Simister is a business coach who helps small business owners to profit from differentiating their businesses, by being distinctive in the eyes of their customers and standing out in a crowded marketplace…. in other words, by building a business to be proud of.