Yahoo Finance House of Fraser fall shows decline of UK high street
This year is shaping up to be the worst for retailers since 2008. The shutters have been pulled down on a roll call of household names and a string of others are taking desperate measures to keep the wolves from the door.
House of Fraser is preparing to shut 31 of its 59 stores after creditors last week approved its plan to renegotiate rents. The aim is to allow the shrunken chain to survive the carnage on the high street – but puts 6,000 jobs at risk and threatens to leave towns and cities without a store.
One earmarked for closure is the flagship Oxford Street. Its next door neighbours are also having a tough time: Debenhams has issued three profits warnings this year with its boss Sergio Bucher talking of “exceptionally difficult times in UK retail”.
And on Wednesday the focus turned to John Lewis – regarded as one of the survivors on the high street – which warned it would not make a profit in the first half of the year and that the industry was “going through a period of generational change”. It also announced it will close some Waitrose stores.
Standing outside the Oxford Street House of Fraser, Alan Spencer, head of central London retail at commercial agents Savills, sums up the situation: “You’ve got to get your offer right otherwise you will struggle. People have been talking about House of Fraser and others for a long time. We’ve seen rental growth, Brexit, occupational costs going up and it’s created a problem for those that haven’t been moving their turnover and sales to the same extent as others.”
The pain for retailers is not uniform. John Lewis is not planning to embark on mass store closures and will invest in its technology and service levels to differentiate itself from rivals. “Is it good John Lewis isn’t going to make a profit? No, but it’s not life threatening,” said Richard Hyman, a strategic advisor to retailers.
Selfridges at the Marble Arch end of Oxford Street is still a draw. Spencer, as he glanced up down the old Roman road, said: “As I look down the street I could tell you retailers that remain very profitable – Primark is an example. But there are other retailers that are passed their sell-by dates”.
US chain Toys ‘R’ Us collapsed into administration after failing to find a buyer. Photograph: Julio Cortez/AP
Retailers as diverse as Toys R Us, Maplin, and Warren Evans have run into trouble and the Centre for Retail Research warned in its recent report that “2018 looks to be the retail industry’s worst year since the recession”.
That research links today’s problems to a decade earlier. “Since 2008 consumer demand has been weak, price competition has been fierce, online retailing has been cannibalising sales made by traditional retail stores, and retailers’ costs have risen faster than price inflation.”
Profits are being squeezed between poor sales and higher costs – the apprenticeship levy, the Brexit-hit pound and business rates. The leases on stores – for 25 years and upwards only rent reviews – are also part of the problem.
Oxford Street seems to be able to weather the storm better than most. Even though it has suffered high profile closures such as BHS two years ago, and House of Fraser now, some 142 million visitors bustle along the road every year. That is not to say that some want to make changes although attempts to pedestrianise the road have been thwarted.
But it has also changed. Twenty-five years ago Oxford Street was dominated by smaller stores but as international brands wanted bigger outlets 50 sites were lost in the race to find bigger shop floors, according to Savills research.
Debenhams on Oxford Street: the department store is struggling to make profits . Photograph: Hannah McKay/Reuters
The names have also changed. In the 1990s, Oxford Street was home to Oakland Menswear, Jeans West, Kookai, Naf Naf and Ciro Citterio while Sock Shop had six stores.
Now new faces are coming – Microsoft has taken a prime slot on Oxford Circus while the collapse of BHS brought in Polish retailer Reserved and Swingers – a golf club.
House of Fraser could also be adapted. “As an agent we’d be very excited about the prospect of letting the House of Fraser. [We] might not put a department store of that size back in because that’s not the demand,” said Spencer. He would look for potential to convert parts into hotels, offices, foodhalls and for co-working space.
Being able to adapt is also important for high streets across the UK at a time when customers are changing too. “They shop around more than before and, for grocery, they shop more frequently rather than once-a-week at a large superstore. They still like shopping, but prefer destination retailing and having experiences like eating out, socialising, concerts, and travel which means they have cut their spending in retail outlets,” the Centre for Retail Research said.
Against this backdrop, Hyman warns of “vast overcapacity”. “Too many stores, too many websites, not enough spending. There is going to be three to five years of massive enforced restructuring.”
It will not be like in the 1950s and 1960s when, Hyman said, local butchers, bakeries and corner shops all shut down.
While no retailer will be immune, they will react in different ways, Hyman said. “Beware of ‘one size fits all'” assumption about what’s going on the high street, he said. “It’s not about what you do but more how you do it. It’s not about the end of the department store, or about being online or being a discounter. It’s about how you do it.”
The Centre for Retail Research report calls for government action and highlights the need for retailers to take action to save 150 high streets it fears face significant decline. “There is a danger that the average high street will spiral even further downwards as consumers look elsewhere – including online. We do not feel that the high street is doomed, but it will have to change.”
