The state of the high street isn’t to blame for the closure of shops and growing number of UK retailers entering into Company Voluntary Administration (CVA) schemes. It’s a trend of ‘Ostrich Shops’ which is killing high street retail.
It’s all too easy to read about struggling high street shops. Just last week, Retail Sector reported the administration of department store Beales. This is against a backdrop of numerous other headlines about failing stores. The struggles of Clintons, Links of London, The Book People and Mamas and Papas have all been in the news in the past few weeks.
And, sure enough, when we read reports from failing retailers, we hear about poor performance and sales being blamed on the demise of the high street. Beales is a case in point. The store’s CEO has criticised high street business rates, unhelpful councils and the ever-changing and challenging retail market.
These factors make for a checklist of overused excuses, which have become the go-to repertoire for stores bringing down the shutters for the final time or trying to pull together rescue deals. These retailers are seriously misguided and effectively burying their heads in the sand. They are ‘Ostrich Shops’.
Analysis of around 130,000 UK retailers by financial risk firm Red Flag Alert shows five out of 10 high street retailers are Ostrich Shops. These shops are experiencing a downward trend of deteriorating performance, with no signs of improvement. However, the analysis also shows for every ‘Ostrich Shop’, there’s a high street retailer showing strong, healthy financial performance.
Think about fashion retailer Bonmarché and then consider Primark. The former entered administration in October, owing creditors almost £24m, whilst Primark has seen sales in the past three years rise from £2.9bn to £3.3bn.
Similarly, we can see polar opposites when looking at John Lewis and Selfridges, as well as M&S and Next. M&S is midway through plans to close 100 stores by 2022, while John Lewis is looking at ditching its annual staff bonus for the first time in 67 years, as sales and profit slump. Whereas Next and Selfridges are posting strong sales and operating profits.
Next is seeing an upward trend in turnover and consistent operating profit holding strong at around £800m. This is in complete contrast to operating profit at M&S, which has dropped from around £700m in 2015 to current levels of about £200m.
All of these retailers are neighbours, putting the so-called state of the high street into perspective and highlighting that performance problems run much deeper.
‘Ostrich Shops’ must stop obsessing about high street versus online, whether that’s business rates or changing shopper behaviour. Instead, they need to focus on evolving stores to create experiences shoppers want and can’t get sat in front of a laptop.
Selfridges and Primark are doing exactly this. A revamp of Selfridges’ flagship Oxford Road store includes a 14-seat circular bar, a Japanese flower market and even a skateboard bowl. Next stores now feature bars and coffee shops – the Manchester store has a pizza and prosecco restaurant.
Primark has proved its high street success isn’t just down to its discount model. It has enhanced its in-store experience by opening hair salons and beauty bars, as well as photo booths for shoppers to share photos of their outfits via social media.
These high street retailers are creating locations which are more than simply places to shop – they are stores where people can meet, eat, drink and socialise. By blaming the high street, retailers aren’t realising how they can adapt to the changing retail environment. Next has done this by effectively merging on and offline shopping.
Well renowned for its high street sales, Next now uses digital channels to reward customers with VIP passes to queue-jump the sales at its shops. The retailer also enables customers to order online and then collect and try-on items in-store. This embraces the convenience of online shopping, while also addressing one of the biggest ecommerce gripes; returning items.
The top performing high street shops that are analysed in the Red Flag Alert report are running healthy margins of between 10% – 17%. This shows why retailers must stop using the high street as an excuse or we run the risk of seeing more ‘Ostrich Shops’, which will mean more empty units in the near future.
Our analysis shows there’s been a 56% increase in ‘Ostrich shops’ in the past five years – if retailers don’t pull their heads out of the sand, they’ll be the death of the high street.
Mark Halstead is a partner at financial risk analysts Red Flag Alert