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Analysis

Is New Look right to close up shops?

With more than 13,000 UK high street stores having closed in 2024, according to the Centre for Retail Research, the landscape is changing at an alarming pace

The tax increases unveiled in the October 2024 budget have further complicated the outlook for retailers in the new year. One such high street retailer, New Look, which has managed to narrow its pre-tax loss to £21.7m in the year to March 2024, now faces the difficult task of balancing its omni-channel strategy with the realities of nonviable physical sites. 

It was revealed last week that New Look could permanently shutter roughly a quarter of its 364 stores when leases expire, as a result of mounting economic pressure that is due to hit from this fast-approaching April.

While New Look has already restructured its store portfolio twice in the past six years and downsized from 600 UK stores in 2018, it was still not enough to offset the coming tax increases. Employers’ National Insurance contributions are due to rise from 13.8% to 15%, with the threshold also lowered to £5k. Additionally, a further increase in the minimum wage of 6.7% to £12.21 an hour will add £140m to the retail industry’s business rates bill. 

Charlotte Sallabank, tax partner at Katten Muchin Rosenman LLP, said that these pressures are creating a no-win scenario for many retailers. She noted that these conditions could dampen hiring incentives, as well as force businesses to pass costs onto consumers. 

“Without a recalibration of the cumulative tax burden, high streets may continue to decline, weakening the very foundation of local and national economies,” warned Mark Tan, international corporate tax partner at Spencer West LLP. 

He also called the additional £7bn in projected tax costs for 2025 “a tipping point” and suggested that supply chain restructuring and proactive policymaker engagement could mitigate some of retail’s current “existential” risk.

But what if continuous restructuring, of the kind that New Look has engaged in, leaves retailers in a worsening state? Although New Look’s pre-tax losses narrowed to £21.7m, that did not come from a healthy uptick in sales; in fact, sales for the year to March 2024 dropped by 8.9%.  

Peter Ahye, CEO of Hexagon Consultants, believes New Look’s situation is far from unique, saying: “Unless a retailer has exceptional and standout appeal, it will be increasingly difficult for brick-and-mortar stores to survive.”

Meanwhile, Nick Drewe, retail expert and founder of Wethrift, traced New Look’s struggles to a combination of long-term debt issues, the cost-of-living crisis, and changing shopping habits. 

“Closing stores is never an easy decision, but a strong online presence might help them survive in the long run,” Drewe said, adding that brands must work even harder to stand out in the increasingly crowded digital market.

The challenges facing New Look echo across the industry. BRC chief executive, Helen Dickinson, pointed to weak sales growth in the 2024 Golden Quarter, which saw only a 0.4% increase compared with the previous year, as a casualty of poor consumer confidence. 

In light of such a poor Christmas performance, Dickinson also predicts that many retailers will have no choice but to respond to rising costs by increasing their prices and paring back investments – in turn exacerbating the decline of high streets. 

“Retailers must have the ability to invest in growth and jobs to sustain the high street,” Dickinson urged earlier this January, emphasising the need for government action of business rates reform. 

As Ahye pointed out, the government’s High Street Rental Auction initiative was a step towards revitalising high streets but cautioned that it is “unlikely” to bring back the traditional retail presence. With more than 13,000 UK high street stores having closed in 2024, according to the Centre for Retail Research, the landscape is changing at an alarming pace. 

The competition from e-commerce giants like Shein and Temu further compounds the challenges. Craig Smith, UK&I country manager at SCAYLE, stressed the need for traditional retailers to rethink their strategies, saying: “Think about how you can connect your store-first approach with the digital world to create an engaging experience – no matter where your customers are.”

High street shopping’s future may lie in repurposing empty storefronts, with real estate expert Lucy Bradban suggesting that mixed-use developments, community spaces and pop-up shops could breathe new life into abandoned areas. 

That said, Bradban observed that the challenge lies in “creating spaces that serve evolving community needs while fostering economic growth”.

As New Look – along with other household-name retailers of the high street – navigate this challenging period, its struggles reflect the fragility of traditional retail in a digital-first world. Rising costs, evolving consumer behaviour, and economic pressures are forcing retailers to rethink their strategies. While innovation and adaptation may help some brands survive, the decline of brick-and-mortar stores risks leaving communities and local economies to grapple with the fallout. 

Without substantial support measures and creative approaches, the UK high street faces an uncertain future.

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