The UK retail sector is currently undergoing possibly the biggest transition period since retailing began. Everywhere we look in the media we see the headlines of 50% rises in online spending and another high street chain closing due to a fall in sales. Since the arrival of Sunday trading in the UK there has been an upward shift in rents for retail units and combined with a stronger retail sector post Millennium the result has been an enormous increase in rates over the past 5 years leading many retailers to shut up shop as they simply can’t be profitable any more. On the one hand shopping centers will want to maximize their revenue as they are a business and businesses seek to maximize their profits but do we not have a duty to at least support shops in the high street.
Nobody would like to see a situation whereby they are forced to purchase some goods online as they simply can’t purchase them on the high street as they were unprofitable for the retailer in question. We also have a situation where many online businesses are yet to return a profit on their operation yet this is not pointed out by many in the media. The Internet is most certainly a good thing, it opens up avenues of price competition like we have never seen before and it also gives people incredible choice but the ability to be able to go and try some jeans on or get consumer electronics advice from a specialist retailer is something that we should all be keen to keep at our disposal.
Shops are also having to look at their margins and say that whereas before when their rents and to a lesser extent labour costs were lower they could get by no problem on 40% margin now they simply can’t operate at those levels and so we are seeing an enormous increase In the number of own brand chain stores who produce their own clothes often in the developing world and sell them through their own stores in order to make larger profit margins and keep their businesses profitable. For the consumer who wishes to buy recognized brand and have a large selection at their disposal this is certainly not a good situation to be in. It also makes it harder for the new entrepreneur entering the retail sector who wishes to provide a nice ambience in which to shop combined with good servie and good price selling brand names, he may find it impossible to make enough to survive let alone build a successful retail group.
It will be interesting over the next 5 year to see how the UK retail sector goes, will we see the high turnover of tenants that we currently see with new shops coming or going or will we see a relaxation in the growth of rates perhaps allowing retailers to catch up and start to be more stable and profit making, it will certainly be an interesting emergence to watch!
Nick Segrue is the Founder and Managing Director of
http://www.mp3additions.co.uk/ One of the UK's Largest Online Retailers of iPod Accessories and is a Keen Economist.
