No British retailer seems immune from pressures of online as Marks & Spencer and now Tesco close stores and websites, but is this really the death knell for bricks and mortar shops?
What future for the UK’s retail sector? Britain’s high streets and out-of-town shopping centres have been hit by a raft of major store closures and bankruptcies so far this year.
ToysRUs finally went bust in February after administrators failed to find a buyer, closely followed by electronics chain Maplin. And while still in business, struggling Mothercare, New Look and Carpetright are axing stores around the UK.
But now British retail icon Marks & Spencer has unveiled plans to close 100 stores and posted a painful 62% drop in pre-tax profits. The fall in profits is mainly down to the cost of the store closures – a whopping £321m.
The retailer had previously planned to axe 60 stores but accelerated the closures after turnaround specialist Archie Norman joined as chairman. Plans to open new M&S outlets and more Simply Food stores have also been shelved – 15 new chain stores and 200 more Simply Food outlets were previously planned. It’s thought that over 600 jobs are affected by the store closures.
M&S’ Digital Offering ‘Wasn’t Good Enough’, Says Boss
“There were a number of structural issues to address and we are taking steps towards fixing these,” M&S chief executive Steve Rowe told investors. “The team is now tackling transforming our culture to make M&S a faster, lower cost, more commercial, more digital business.”
Rowe freely admits that Marks & Spencer’s online offering hasn’t been good enough. “The trend has been moving online and out of high streets… M&S has been a bit slow to react to that…,” Rowe told ITV’s Good Morning Britain. “We have a website that is not fast enough. Our distribution centres don’t allow customers to get the best service and delivery.
“Now, customers demand quicker and quicker delivery of merchandise. We’re working really hard to ensure our service is improved.”
Tesco to Close Tesco Direct Website
Yet the retail giants have also found that exploiting online opportunities isn’t always that simple, either. Tesco also made the shock announcement this week that it is closing down Tesco Direct, its household goods and clothing retail website. This ran separately to its grocery sales website.
The closure puts 500 jobs at risk and the grocery giant admits it is doing so because management could see no way of making the venture, which was meant to compete with Amazon and Argos, profitable.
“This decision has been a very difficult one to make, but it is an essential step towards establishing a more sustainable non-food offer and growing our business for the future,” said Charles Wilson, head of Tesco’s UK and Ireland.
“We want to offer our customers the ability to buy groceries and non-food products in one place and that’s why we are focusing our investment into one online platform.”
Britain’s Ghost Town High Streets
Worryingly for Britain’s high street planners, research by Springboard shows that when towns lose major stores, like their Marks & Spencer outlet, overall high street footfall also declines with a likely knock-on effect on other businesses.
“When such a store ceases to trade, our evidence demonstrates that it can lead to an initial reduction in footfall of 15 to 20 per cent,” Diane Wehrle, insights director at the market intelligence provider told the Financial Times’ retail correspondent, Jonathan Eley.
British towns set to lose their M&S outlet include Northampton, Newmarket, Darlington, Stockton and Walsall.
Another worrying trend, Eley points out, is that many UK high street retail spaces are remaining empty once the big names have vacated.
“When Woolworths went belly-up, virtually all its stores were reoccupied,” Eley commented on Twitter. “Two years after BHS went under, fewer than a third are. How many of the 100 stores M&S is closing will remain stores? I’d venture less than a dozen.”
What Went Wrong for the British High Street?
Competition from online retailers, particularly Amazon, continues to be stiff as the decline of traditional bookshops has demonstrated. Many high street names, as Marks & Spencer’s own CEO acknowledges, have been slow to compete with online competition and to offer a strong digital proposition.
What’s more, the high cost of business rates has pushed many firms out, big and small. Business rates, a levy on non-domestic properties paid to local authorities in the UK, have risen sharply in recent years particularly in London and the South East as it is based on a property’s rental value.
While property values have continued to rise in South East England, pressure on consumer spending has also increased and many high street shops are struggling to stay afloat.
Even Bank of England Governor Mark Carney acknowledged the issue of business rates while being questioned at a recent Treasury Select Committee meeting, stating – perhaps a little late for some business owners – that it had become a “real issue”.
Property rents have also risen sharply. Offloading expensive retail space quickly can be difficult when retailers are tied into expensive rental agreements with landlords. It’s rumoured Jamie Oliver begged landlords to cut rents on his restaurants before closing many of them.
Eley notes that Marks & Spencer should be able to enact its closure programme more quickly than some rivals because it tends to own the freehold of its properties.
‘Retail Apocalypse’ Overblown
However, some commentators believe that the bricks and mortar retailing sector ‘apocalypse’ as some analysts have dubbed it is more of an ‘evolution’ and that shoppers will continue to want to frequent stores in person.
Many retailers have been proactive in offering click and collect services or even experimenting with queue-free check-out services, offered by the likes of Mishipay.
“No matter how efficient online shopping becomes, there will always be a need for brick-and-mortar retailers,” says Kris Hiiemaa CEO and founder of Erply, a retail software supplier, on the firm’s blog. “Even when same-day delivery becomes the norm for online retailers, there’s still one advantage that traditional retailers have over e-commerce: instant gratification.
“According to a consumer study conducted by Retail Dive, nearly half the people surveyed admitted that they prefer brick-and-mortar stores simply because they don’t want to wait to have an item delivered. Moreover, 62% of the customers surveyed admitted that they prefer the experience of going to a store and looking around over ordering products from home.”
Shopping ‘Experience’ Still Important
Indeed, the reality of the bricks and mortar shopping experience is something that online outlets have yet to be able to replicate, says Adam Ozimek on Forbes.com.
“I think it’s important to recognize that shopping is often experiential, and it is unclear yet whether virtual reality will be able to replicate this,” he writes. “Think of it this way: why are there retail stores in Disneyland? Here you are in the official ‘Happiest Place on Earth,’ surrounded by a million ways to entertain yourself and we have tons of… retail?
“People like to shop, they like to browse, they enjoy the experience. Perhaps this is our hunter gatherer nature. If this were not true, then every store would be extremely utilitarian like Aldi’s and certain warehouse grocery stores… brick-and-mortar is not going away anytime soon.”
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