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Business leaders agree, UK high streets must change to meet social needs

The FT City Network is a forum of more than 50 financiers, business people and policymakers. This month, members were asked for their views on the collapse of Debenhams and how the crisis on the high street should be addressed.

Questions posed included: What is the problem — online competition, overleveraged private equity ownership structures, or anachronistic business rates and tax rules? Should our high streets be saved and if so, how? Below is a transcript of the responses from those who contributed.

Colette Bowe, BSB

The story of Debenhams is still being written. But it drives us to think about the wider picture of what is happening on the high street — and why it matters far beyond even the owners, employees and customers of some of our long established big retail businesses.

High streets up and down the land are increasingly marked by empty premises, or premises devoted to short-term, non-commercial uses. Does this matter? It reflects the rise of online; of different shopping patterns (years ago, my mother and her friends shopped for fresh food most days); of different ways of working — meaning we like long, but therefore expensive, opening hours. Is this all inevitable? Some of it is, and no bad thing: the availability of online retail coupled with to-the-home fulfilment has brought huge consumer benefits. And many businesses — eg banks — of course, have substituted other channels for bricks and mortar.

I believe it does matter. The vitality and variety of town and village centres, and of the shopping centres in our cities, matters for how we live; for safety of children; ease of access for older people who may want and need a physical place to transact; and for all of our sense of amenity. Or “place” as people now call this combination of factors.

Sir Win Bischoff, FRC

Is it inevitable? Yes, because the business model is changing. That happens to many businesses and it is up to management and boards to change with it. In a number of industries that has happened successfully if occasionally painfully. Even in retail, there are successful exceptions to doom and gloom.

It is happening with banks, with travel agencies on the High Street, to some extent news agents and mom and pop stores. The list can go on.

What is peculiar and worrying about this particular occurrence is the social hollowing out of a place which has for many years had social significance and familiarity for a lot of people.

What to do? Encourage speciality retailers, convenience stores, collection centres for goods ordered online and housing units and green spaces all made affordable by a gradual but compounding reduction of a major cost factor — rent and rates. The landlords will have had to adapt too, or face the worse outcome of empty premises and so will local and central government. A reason for collective strategy and planning by the private and public sectors.

Who knows? The high street may yet be resurrected to be a vibrant centre for young and older residents shopping on foot in speciality and convenience type stores and living in and creating fun neighbourhoods.

David Roberts, Nationwide

Over the past year I have travelled around the UK and seen at first hand the challenges on the high street in places as different as Morecambe and Newmarket. Statistics from the Centre for Retail Research show that last year 10,000 shops closed across our high streets, with a similar number expected to vanish this year. This pace is unsustainable; footfall is in decline up and down the country. But rather than business playing town crier in heralding the “death of the high street”, now is the time to convene and understand what needs to change.

Expectations of the high street are changing. No longer do consumers see the high street as the principal place to shop — this is being replaced rapidly by online provision. Now people want the high street to fulfil a social need — a place to shop at leisure, to get advice and to be a central meeting point for the local community, as well as fulfilling essential needs such as access to critical services, including cash.

We therefore need to rethink how we create a sense of community in our shopping centres. This cannot be achieved without turning them into places where people want to both live and work. Only by the private and public sector coming together and fundamentally reassessing how we create environments where people want to live, work and enjoy spending time can we make a true difference. At Nationwide Building Society, we are looking at how we can help convert empty shops into homes — they are quick to adapt and the cost is relatively cheap. But we desperately need the government to revise current permitted development rights regulation in order to support building real communities.

Finally, we can play our part. We are investing £350m in our 700 strong branch network over the next five years so they are relevant for today and tomorrow, and have promised that any town or city with a branch presence will still have a branch in two years’ time.

Paul Drechsler, London First

Let’s not prematurely announce the death of the high street. Changing shopping patterns, notably but not only the growth of online mean it will look different: it’ll be experience-led, multi-use and more compact; and many retailers are getting on with essential restructuring and building in flexibility to their offer.

But flexibility is expensive — running parallel omnichannel operations, investing in integrated systems, fighting for new talent, rebranding, refitting, retraining. So if we want change to happen with fewer casualties we need to tackle the big overhead barriers — bad taxes and archaic planning.

Business rates need urgent reform. London rates rose by an average of 23.7 per cent at the 2019 revaluation. That’s a drag on London’s competitiveness, not just on retail. We need the devolution of business rates, among other taxes, and annual revaluation — not the three-yearly recently proposed by the government.

And we need to abandon rigid, last century, planning rules based on a 9-to-5 high-street and enable the kind of vibrant live-work-eat-play, 24-hour places that consumers increasingly demand. The high streets that succeed in the future will be more compact, with a strong leisure offer and more housing in the immediate vicinity. Councils need to embrace the change their residents really want, modernise planning and, where necessary, use their powers to deal with fragmented ownership which can make change difficult. It’ll be the rumpus-embracing, commerce-friendly, early-adopting councils whose high streets thrive.

Anne Richards, Fidelity International

I agree, Paul.

We are of course witnessing a period of real challenge for traditional retailers stemming mainly from online competition and the pressure of high fixed costs impacting revenues. Certain retailers have been coping with this process well — such as Next, which has managed online migration successfully alongside cutting its rent costs by 30 per cent through lease renewals. It is also cleverly using its stores to maintain footfall thanks to “click and collect” and returns management. Others have not managed to get through to the other side.

But we’re not witnessing the death of the high street. Primark has just spent £70m on their new (and largest) Birmingham store. At the same time Jeff Bezos, much blamed for “killing the high street”, is moving in to the physical space being vacated across markets with the acquisition of Wholefoods and its cashless shops.

So it is definitely too simplistic to suggest this is a clicks versus bricks thing. What we are witnessing really is a new phase of retail, where companies have to dig deep to work out what their customers really want. Consumer habits have been changing rapidly over the last decade. Unlike baby boomers, millennials and Gen Z are more interested in experiences rather than ownership; and instead of owning a house, they are renting it, hence they don’t furnish it as their parents did. While with an ageing demographic, attracting the “silver pound” will be ever more important. All this change is putting extra pressure on the traditional retailers’ revenues.

However, the opportunities for the high street to become something different, where experience and community come together, are immense. Simply needing to buy something is no longer the reason to turn up, so give the buying public another one. Those companies doing this well, whether they be large or small, more local or niche, will be the winners. To get to this point we will also need to see property companies change themselves and consider different means of structuring rental contracts other than the historical “upward-only” approach. A more flexible approach from town planners on everything from use designation of premises to age-friendly accessibility to council tax and business rates will also be needed.

What this could all lead to is a much more vibrant array of businesses on the high street in the future, which could indeed be the start of a revival, quite the opposite of the doom that everyone is predicting.

Robert Swannell, UKGI

The world of retail has changed dramatically in the past two decades and will continue to do so. Without action, the effect on communities will be profound. There are no flashy short-term fixes. I believe the answer is locally driven, long-term planning and action based on the different needs of each individual community.

So far customers have been the biggest winners, in pricing and convenience, followed by the new online retailers, led by the all-conquering, profits-don’t-matter-for-now Amazon. Amazon’s near $1tn market cap comes at a price elsewhere. The losers are the legacy retailers and property owners. Whatever happens, there will be less retail space required as sales move online and store productivity falls. There is no escaping the massive cost for legacy retailers of simultaneously having to build online and warehousing/delivery capability combined with huge restructuring of their store estates, much of which is subject to inflexible leases. It is not very complicated and that, along with fierce competition in mid-market clothing, is the story of Debenhams, House of Fraser, New Look, etc, etc.

There is a similar story of reduced profitability playing out, more slowly and less dramatically, for legacy food retailers who make miserable returns in their online food business and made matters worse by a physical space race of epic proportions ahead of the online challenge.

25 year, upward-only leases might have been a reasonable structure when conditions were relatively stable, but make no sense now and are a huge impediment to the flexibility required to compete and survive — recognising this early has been one element of Next’s standout success. Ultimately this new reality will work through. Fixed/rising property costs on long leases will push many retailers with declining store productivity into administration/CVA. They will then close stores or renegotiate their leases. With a glut of space, viable retailers will simply refuse to sign up to new long leases. At least in the medium term, rents will fall, leases will shorten and valuation yields will rise. The resulting triple-whammy on retail property values will be dramatic and, in my view, isn’t yet fully apparent. This is the tsunami still to come.

The balance between the convenience of online and the pull of the experience in stores is still a long way from equilibrium. This will depend in part on how quickly retailers adapt to inspire and excite customers in their stores — the fightback of booksellers gives a bit of optimism here. It will be painful for legacy retailers and landlords as they share the cost of this change. As a parable for the issue, walk down Oxford Street past the flagship stores of House of Fraser, Debenhams and John Lewis all in a row and ask yourself how much of that retail space is required by each of them now, let alone in five years’ time?

I am an optimist by nature and I believe we will recognise the threat to our communities and act, but locally not by central diktat. This isn’t the first retail revolution to be navigated. We adapted when the growth of the supermarkets wiped out most local butchers, bakers, grocers and fishmongers from the 1960s onwards.

The only reason to be pessimistic is if you believe humans lack imagination. They don’t, particularly when enlightened self-interest means answers have to be found. Local authorities and landlords with vacant properties and run down neighbourhoods will face Armageddon if they don’t act now, so there is plenty of incentive. Retailers will also be forced to up their game to entice customers. Local communities can’t be indifferent either if they want safe, pleasant environments; we all need to play our part in agitating for change.

There is no need for further reports from experts or celebrities telling us the obvious or suggesting yet another new scheme. We have had them all in profusion. Local politicians, landlords, retailers and local people need to come together to plan locally for the long term and decide how to repurpose the shrinking retail space requirement and base their strategy on their communities’ needs. Local communities will know what they need — residential, services, leisure and specialised, niche markets will be part of the answer, as will a rediscovery of the theatre and curation of great shopkeeping.

In inner London a number of major estates have shown that, by taking a long-term view and understanding their communities, they can produce vibrant, growing, improving districts — the Crown Estate in Regents Street etc, the Portman estate in Marylebone and Land Securities in Victoria are just three examples. Of course many areas won’t have concentrated ownership like this (with deep pockets) so co-ordination is much more difficult. Isn’t this where Business Improvement Districts were meant to address the issue with local people addressing local issues? There is an active one in Victoria and the New West End Company does the same in prime West End London. If this concept has shown it can work then lets stick with it, build on successes and improve it with experience.

Let’s stop having endless different initiatives and flashy announcements and stop pretending these issues can be solved quickly. Consistency and a long term outlook is what is required. I don’t believe that reduced business rates, although an important component, are the silver bullet; local services have to be funded by someone. That said, I don’t believe that online retailers are paying anywhere near their fair share of their cost to society.

Elizabeth Corley, Allianz Global Investors

High streets are much more than a random collection of retail outlets and always have been. However, they can no longer rely on physical shopping trips as a must-do leisure activity that will draw people to them.

In research completed by IPM (Institute of Place Management) as part of the ESRC funded High Street UK 2020 project, there were many things that people looked for in their high street including: easy convenience; a place that has a sense of community; an offer of services and experiences that are not available online among others.

Features such as accessibility (parking, public transport links), visually appealing public areas, proximity to well-planned residential and commercial areas added to potential high street attractiveness, as did creative use of space and activity hours that extended into times when the local population wasn’t working.

There is a huge opportunity to revitalise high streets across the UK, helped by the Future High Street Fund announced by the Government last year, which will be deployed during 2019. Many councils have already applied for grants from this fund and have ambitious plans.

But to change the outlook for high streets requires not only money. It will take vision and leadership to pull local residents, employers, councils, social enterprises (27 per cent of around 100,000 social enterprises are focused on selling to the public) and others into community focused plans that will attract people back.

Working together at a community level will be vital to sustain success beyond the period when additional money may be available. This is particularly true in areas that might be struggling for other reasons and therefore be less able to adapt. Businesses with presence across the UK can really help — by listening to their local employees and other town influencers and getting involved in plans for reinvigoration

Source: Financial Times

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