Last week two household names in British retail – Toys-R-Us and Maplin – closed their doors. The usual excuses were trotted out by the directors of the companies, and most commentators duly toed the line, blaming slow wage growth, business rates and Brexit. But is the real reason for the store closures much simpler? Is it a case of not so much bad luck, as rank bad management?
…And we can add a few more household names to the store closures list. Mothercare has just breached its banking covenants and is seeking extra funding. The same hedge funds that bet so heavily against Carillion have also been betting against Debenhams – now 29% owned by Sports Direct.
The retail sector is under attack like never before. And it is not just retail: restaurants are closing up and down the country as out of town shopping also starts to feel the pinch. So let us look at the reasons why store closures are happening, starting with the six conventional reasons why the UK High Street is in trouble.
We have touched on this many times over the past year. Inflation has been running at, or close to 3%, whilst the majority of wage rises have been below that. Consequently, people are worse off in real terms and have less money available to spend. Economics is known as the ‘dismal science’ and the appropriately named Samuel Tombs of Pantheon Macroeconomic lays much of the blame on the fall in spending power.
“The sector was already suffering from the rise in online shopping and high business rates,” he said. “But the burst in inflation has squeezed income in real terms, leading to much weaker growth in sales than retailers had anticipated.”
The Growth of Online Shopping
Retailers such as Debenhams and John Lewis are now holding more ‘events’ in-store to lure shoppers away from their laptops. But do I really want to brave the ‘Beast from the East’ (reputed to have cost the UK economy £1bn a day) to go to an ‘event?’ More to the point, do I really want to go shopping any more? For me, at least, we are no longer talking books and Christmas presents, we are talking everything. Three of my last five online purchases have been worming tablets for the dog, some new bathroom scales and a measuring jug. All every day, high street items – but now money that has gone to Amazon, simply because it took less of my time than to the vet, Boots and Wilkinsons.
This is what is being blamed for the fall of Toys-R-Us (or Toys Were Us as it is universally now known). Shoppers no longer want a big warehouse: they want a more personal shopping experience.
Again, we have written previously about the rise in business rates, and it is being blamed for plenty of woes in the retail sector, as well as many of the store closures among restaurants chains such as Jamie’s Italian and the burger chain Byron.
Too many shops
…And as above, too many restaurants. Inevitably companies will concentrate on the most profitable, meaning that some town centres are facing a very bleak future, especially if a flagship store like Marks and Spencer closes. What is more, the store closures damage may not be confined to the city centres: in the USA it is predicted that one in four malls will close by 2022. Do not bet against the same thing happening in the UK.
Lastly, too much debt
Desperate for market share, too many retailers expanded too quickly, taking on too much debt and tying themselves into leases with upward only rent reviews.
So there you have it: the six reasons why so many retail businesses are struggling, and why last week saw the store closures of Toys R Us and Maplin. And they are all perfectly valid reasons.
But is there a seventh reason we could add to the list? Whisper it quietly but could some of these high profile failures just be due to rank bad management? After all, statements like this seem to be trotted out on an almost daily basis these days:
The squeeze on take-home pay coupled with the increasing emphasis on online shopping, plus the customers’ desire for a new shopping experience and the increase in costs as a result of Brexit meant that the business had become unsustainable in the long term.
Is that not just another way of saying, ‘change happened and we did not deal with it?’ Change is always happening in business. And it is not like Amazon is a closely guarded secret, known only to a few hand-picked initiates.
These statements/excuses all too often come from directors who seem perfectly capable of awarding themselves hefty pay rises and healthy bonuses – but totally incapable when it comes to running a business.
Call in the SWAT team
Writing in City AM one contributor suggested that Toys-R-Us could have been saved from store closures by bringing in a crack SWAT team. Sorry, before you panic SWAT here does not refer to Special Weapons and Tactics: your children would not have been exposed to super-fit men and women in body armour toting assault weapons. A SWAT team is one of the latest business buzz words: a specialist team brought in to solve a specific, critical problem.
What does a SWAT team do? It is simple: they take ownership of the problem, think outside the box, add value, shift the paradigm and pick the low-hanging fruit. Then they trouser their fat fees and go home.
Toys-R-Us did not need a SWAT team: it needed management to open its eyes. To listen when their friends said, “We did all our Christmas shopping online.” To realise that wandering around a toy shop with an excited child is not the same as wandering round B&Q picking up packets of screws and a paint brush.
What about the restaurant trade?
If anything, the restaurant trade is under even more pressure than the high street, with the chains closing branches up and down the country. Prezzo is the latest chain to place a bulk order for ‘closed’ signs: if you are reading this in Taunton, Telford or Tewksbury I’m sorry, but you had better get there quickly. The full list of all the other 91 towns where Prezzo is closing can be found here.
But at the beginning of last month, I wrote about the meal my wife and I had at Frankie & Benny’s, part of another chain who have been forced to close branches. The meal was dreadful: the food was undercooked, poorly presented and the staff did not seem to care. That is the fault of bad management, not of the 17m people who voted for Brexit.
Is there any light in the gloom?
The conventional answer to that question is ‘yes:’ that stores that learn from the Toys-R-Us debacle can still prosper if they harness technology and the stories become an integral part of an interactive web/mobile/bricks-and-mortar shopping experience. Hmmm… I am not so certain. I am not sure that I want the ads that stalk me online as soon as I have looked at something to stalk me when I walk into a shop. After all, I might be with my wife.
“What, darling? Well, it’s a glitch in their software obviously. Hacked by the Russians I expect. Look, there’s the last restaurant in town over there. Why don’t we go for something to eat…”