UK retailers struggle with global move away from physical shops

For a nation of shopkeepers, Britain has had an exceptionally bad time of it recently.

BHS and Austin Reed, two of the country’s best-known retailers with 200 years of trading history between them, collapsed within days of each other in the past month. Their loss involves 284 shops and 12,000 jobs.

The former British Home Stores, which once rivalled Marks and Spencer as a general merchandiser on the high street, and Austin Reed, the menswear company founded in 1900, are the latest in a growing roll call of high street retail failures.

The BHS crash is the biggest since that of the 800-store Woolworths chain in 2008. But other high-profile British names to have gone into administration since the financial crisis sparked a recession include clothier Aquascutum, sports goods chain Blacks Leisure and Barratts shoes, although some have re-emerged under new owners or in a new form.

Though each had its own set of problems, the one they all shared was failing to adapt quickly enough to the internet revolution that has changed fundamentally the way people around the world shop.

Jamie Merriman, analyst at Bernstein Research, says retailers in the US and in Europe face similar challenges: “Apparel has always been extremely competitive and retail is one of the least consolidated sectors. Brands have to evolve or risk becoming less relevant.”

In the US, clothier Aéropostale filed for bankruptcy protection last month, just weeks after Pacific Sunwear and Sports Authority did the same. Late last year American Apparel also sought bankruptcy protection and losses at Sears, the department store group, widened in the latest quarter.

Still there have been winners. In Britain, Primark, part of Associated British Foods, bought Littlewoods, the struggling retail chain, in 2005 and has been opening shops rapidly in the UK, expanding in continental Europe and recently entering the US. Next has also bucked the broader retailing downturn at times.

Smaller UK fashion chains such as Ted Baker and New Look — which last week reported a double-digit rise in profits — have expanded internationally, while British online retailer Asos has grown rapidly.

Meanwhile, overseas groups are also thriving in Britain, including Sweden’s H&M and Zara, part of Spain’s Inditex that also owns Massimo Dutti and Bershka. German discount grocers Lidl and Aldi have also seen their sales rise.

The rise of online shopping has driven not only fundamental change in consumer behaviour and bricks-and-mortar retailing, it has also contributed to a radical shift in the nature of the businesses found in city and regional shopping districts, as well as in malls, according to industry analysts.

Back in the 20th century, the classic British neighbourhood “high street” had a butcher, baker and grocer. It was also the only place for locals to buy food, clothes and homeware.

But the development of large supermarket groups, shopping centres and online retailing has given people great choice over where to shop. High streets in turn have adapted, and retail space has given way to cafés, restaurants and hairdressers.

“The UK’s town centres and high streets have been progressively shifting their orientation from retail to services for at least two decades in line with changing consumer culture, lifestyle and demographics,” says Neil Wrigley, professor of human geography at the University of Southampton.

Research done there on 1,100 high streets found the number of cafés, restaurants, hairdressers and opticians increased 24 per cent between 2000 and 2006, while clothes stores fell 4 per cent.

This trend persists. The Local Data Company, a consultancy that tracks the composition of 2,700 high streets — half the UK total — found health and beauty services, including nail salons, hairdressers, opticians and tattoo parlours, were among the fastest-growing businesses last year.

Matthew Hopkinson, director of the Local Data Company, said many clothing retailers failed to realise that falling sales reflected a structural change rather than simply another recession.

“They thought ‘we’ll get out of the recession and go back to normal’. So they sat on their long leases and high rents — they failed to adapt. But the consumer had moved on,” he says. “The high street is focused on experiences, culture, eating, leisure; shopping is secondary. Unless you are good and in a good area, your shop won’t cut the mustard any more.”

UK shoppers buy more online per head of population than other developed economies, so British retailers are on the leading edge of a wave that it starting to hit other countries, says Helen Dickinson, chief executive of the British Retail Consortium, the industry group.

“There has to be a real driver to come into a physical store. The space needs to be more of an experience rather than a place for a functional transaction,” she says.

The shift has hit mid-market British brands particularly hard. “Those that have done well, such as Barbour and Burberry, are at the premium end of the market. When it comes to the mid-market, we don’t seem to do so well,” says Scott Corfe, director at the Centre for Economics and Business Research.

Professor John Van Reenen, director of the LSE’s centre for economic performance, says the entry of overseas groups should be welcomed as bringing big benefits for British consumers.

“It’s true that British retailers have lost some market share, but that’s what competition is all about,” he said. “In my view, having plenty of foreign competition is a good thing for consumers, as it gives more choice and keeps British retailers on their toes.”

The British high street does, at least, seem to have emerged from its recession. The proportion of vacant shops fell to its lowest level in April since 2009, according to the Local Data Company. But there are still 12,000 that have been unoccupied for more than three years.

Mr Hopkinson predicts: “2016 could see further dramatic news, such as we’ve seen in the case of BHS and Austin Reed.”

The nation of shopkeepers, it seems, simply has too many shops.