No retainer for the retailer

Date: 18/07/2020
Author: Subrahmaniam Krishnan-Harihara
Company: Greater Manchester Chamber of Commerce

Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce, looks at the state of the retail sector.

Britain loves shopping. Almost every weekend, thousands of people descend to the shopping districts and malls up and down the country and spend their cash. What they spend boosts the British economy and the economy of our overseas trading partners. When we go to shop, we spend not just on the goods we are buying. We also spend on the coffee shops and eateries. And many shoppers will finish the day with drinks at bar or a meal at a restaurant. If you need proof that money makes the world go around, look no farther than your local shopping centre on a warm July afternoon. From being a nation of shopkeepers, we are also certainly a nation of shoppers. Whether we continue to remain a nation of both shopkeepers and shoppers remains to be seen. 

Sectoral data presents a fairly robust picture. Total retail sales in 2019, excluding what we spent on automotive fuel, were nearly £380 billion - a 3% annual growth. Nonetheless, the 'struggling high street' has been a persistent worry for policy makers. The rise of the internet has certainly had an impact. E-commerce sales accounted for up to a fifth of retail in the last couple of years. With the growth of e-commerce, consumer behaviour has also changed. The other key challenge for high street retailers is their higher cost of operation. Leasing costs, business rates and wage inflation all contribute to this. They all need addressing.  

Into this heady mix, the coronavirus pandemic has thrown a cinder. As the nation went into lockdown, many shops shuttered their doors. Some will never reopen in their current guises. The retail and hospitality (incl. food, accommodation and leisure) were the two most affected sectors during the lockout. Against that backdrop, announcements of store closures have shaken confidence and raised the prospects for job losses. In the last few days, big retailers such as Boots, Halfords and John Lewis have announced some store closures. Others such as Harveys and T M Lewin have collapsed into administration. It is true that some of these businesses had underlying difficulties, but the pandemic worsened the scale of their challenges and dealt the death blow. It will be some more time until we learn the fate of smaller, independent retailers. And while the high street has been almost brought to its knees, e-commerce continues to thrive. Between January and May, the proportion of internet sales increased from 20% to 33% of overall retail sales. 

Yet, the Chancellor’s Summer Economic Statement had precious little help for the retail sector. The hospitality sector received a fair amount of attention – the temporary VAT cut and the “Eat Out to Help Out” meal discount scheme will provide some relief to the sector. For struggling retailers, the announcements would have been disappointing. In the short-term, two aspects affect ‘bricks and mortar’ retail cover: the confidence of shoppers and financial worries. Yesterday’s announcements about face coverings becoming compulsory in shops are intended to address customer confidence but could also add to the ambiguity in shoppers’ minds, who may indeed be wondering whether there has been a decline in the public health scenario that has necessitated this new requirement. Moreover, the financial worry prompting people to save at near zero rates instead of spending must be tackled.  

The build-up to the Chancellor’s statement was filled with hopeful discussion of a voucher scheme to stimulate retail spending. Originally proposed by the Resolution Foundation, the scheme would provide a £500 voucher per household to be spent on the two sectors – retail and hospitality - that need the most help to recover post-lockdown. If implemented, the scheme would have injected up to £15 billion into the struggling high street. It was reported that H M Treasury was actively considering this scheme but was dropped from the recovery package. There is still some hope that the Chancellor will revisit this for the Autumn statement. The support package for the hospitality sector also has some problems, the “Eat Out to Help Out” scheme, for example, is only applicable on Mondays, Tuesdays and Wednesdays. Besides the fact that this scheme may simply transfer weekend demand to the beginning of the week, these schemes could end up causing some damage for retail. Families are usually not out shopping on weekdays, so there is no scope for weekend shopping to be topped up with a discounted meal. This is, of course, not to say that the hospitality sector should not receive support but if most people chose to go direct all their discretionary spend on cheaper (with the VAT cut) meals and leisure activities, it could result in lower shopping spend and a deepening of woes for high street retailIn the long term, a poorer high street will also mean a poorer hospitality sector. There is an inalienable link between the retail and hospitality sectors. We ignore one at the peril of the other. Without support for Britain’s retail sector, the Chancellor could deliver a levelling down rather than a levelling up.