More retail woes

During 2020 I had written several blogs on the sorry state of the British high street. The main problem then was the lockdowns, but inflation was low, people got paid, be that their salary and wages or under the government’s furlough scheme.

Fast forward two years and the situation is very different: inflation in the U.K. in October hit 11,1%, it’s highest level in 40 years, the furlough schemes have ended a long time ago and there are twice as many job openings as there are jobseekers. And yet the high street is suffering again.

While there were some popular retailers such as BHS, Debenhams or the Arcadia group going out of business in 2020, it is more obscure brand names such as Joules (a clothes retailer) and Made.com (furniture) that are entering administration now – but again jobs are being lost.

The high street is facing a double whammy of challenges now: supply chain issues due to COVID-related temporary lockdowns shutting down manufacturers in China, lack of shipping capacity from Asia but also long waiting times for freighters to clear their cargo in European ports and then finally the shortage of literally hundreds of thousands of lorry drivers across Europe to deliver the goods to our local shops.

The second difficulty is the consumer’s fast disappearing purchasing power: Energy and food prices have skyrocketed and already many households are cutting back on meals out and curtailing discretionary spending. Rising interest rates mean that many homeowners who are not or are coming off a fixed deal are seeing their monthly mortgage payment going through the roof. And spare a thought for the growing number of families who have to ask themselves whether to eat or heat this winter.

The autumn statement by Chancellor Jeremy Hunt did little to nothing to reassure. The frozen income tax thresholds are nothing else than a tax increase by stealth, not to mention the looming 3% to 5% hike in council tax sanctioned by government and the 12% increase in the fuel duty which will hit wallets of people who need their car to go to work especially hard. According to the Office for Budget Responsibility (OBR), real household disposable income will see the steepest decline in recorded history over the next two years, bringing incomes down to the same level seen in 2013.

This means that discretionary consumer spending is certainly going to drop further and hence more retailers, especially those on the high street, which have higher overheads than pure online shops, are likely to fall on hard times and may have to close or sell out to a larger, better funded competitor. For consumers this will ultimately mean less choice and eventually higher prices still due to lack of competition. The beginning of a vicious circle?