Structural economic change can be painful. The demise of Britain’s industrial base in the 1980s saw the domestic coal industry unable to compete with cheaper international rivals because it was uneconomic. The National Coal Board closure programme started with a hit list of 100 pits. The end result was that all the mines eventually closed leading to hundreds of thousands of workers losing their jobs. For the current generation, the impact of technology in the shape of online shopping is arguably having a comparable impact on Britain’s high streets.
When so many goods are cheaper online than in store, some retailers are finding that they too are becoming uneconomic and uncompetitive. Stores are closing at a record rate. According to the Centre for Retail Research, nearly 150,000 jobs were lost last year as almost 20,000 retailers and restaurants were forced to shut up shop. The trend continues unabated this year. The latest annual report from real estate adviser Altus Group anticipates that 175,000 jobs will be lost from Britain’s high street by the end of 2019 as shopping online grows inexorably.
With faltering sales, Tesco announced as many as 9,000 job cuts in January. The combination of aggressive online competition and high fixed costs has created a perfect storm as supermarket executives struggle to embrace the internet challenge.
One of the most prominent recent announcements has come from Marks & Spencer (M&S), once the blue riband of Britain’s high streets. To survive and thrive, M&S has devised its own hit list. More than 100 stores will now close by 2022 as part of a five-year plan, described by the retailer as “vital” for its future.
To date, 21 stores from the list have closed. Under the revised plan, M&S states that it wants a third of its sales to migrate online, accompanied by fewer of the big clothing and homeware stores which will be preserved in better, i.e. more affluent, locations. In addition to the cuts already made public, the updated plan requires a further 17 stores to be closed accelerating a reorganisation in which 30 store closures have already been announced, putting 1,045 jobs in jeopardy.
Retail discounters mount a serious challenge
The factors behind the M&S recovery plan are complex. Beyond the online threat, the pincer movement of Aldi and Lidl has seen the retail discounters mounting a serious challenge for consumer spending. Both are in continued expansion mode. To increase their market share, they too have announced plans – for expansion – opening hundreds more stores, upgrading existing ones, and rolling out multiple new product lines.
So can M&S thrive once again and will its current strategy guarantee long term survival?
Through a series of initiatives, the past twenty years have seen M&S make repeated attempts try to regain the retail dominance and recover the deft touch that it enjoyed in the previous twenty. The retailer’s latest attempt to get their stores back on track follows a sharp decline in annual profits from £1 billion to £580 million. The thinking behind its new strategy is existential: a clear intent to make M&S as relevant for today’s shoppers as it was for the previous generation. In practice, that means reacting to the myriad changes in consumer spending habits, as evidenced by the wider trend of large high street stores unable to compete through an unwieldy – and costly – bricks and mortar model.
Ironically, M&S intends to pull out of some of Britain’s most challenged towns, including places which were once heavily dependent on coal mines as major local employers. Their imminent departure from local high streets in these parts of forgotten Britain may lead to more of their high streets becoming ghost towns. An inevitable question arises: if M&S cannot survive in such places, how will anyone else?
Of course, M&S is not alone in its elusive quest for high street survival. Last year, House of Fraser, Evans Cycles, Maplin and Poundworld were among those multiple retailers which closed many hundreds of stores between them.
A white knight may have arrived in the form of Mike Ashley who has already ridden to the rescue more than once. Most recently, he put in a bid for the ever-troubled music chain, HMV. As a man who already owns Sports Direct, House of Fraser and Evans Cycles, it is not impossible that at the rate he is going, Britain’s diminished local high streets may soon become populated solely by Ashley owned stores.
More seriously, Marks & Spencer is right to be taking a proactive approach to the challenges facing it. Although not genuinely innovative, rationalising its retail network is nevertheless pragmatic. In adjusting to a changing economic environment when old methods are clearly no longer appropriate, we will have to wait and see whether the new M&S business model will work for the next generation.
Published in Financial Director – 28.2.19