Mary “Queen of Shops” Portas will sit down with Tesco‘s UK boss Richard Brasher to discuss the state of the British high street. It will be a different conversation to the one Portas had in mind when she accepted David Cameron’s invitation to conduct an independent review of the state of the UK’s shopping centres last month.
In the intervening six weeks retailer after retailer has reported a plunge in sales as already-fragile consumer confidence has taken a fresh dive. The past week has been the worst of the lot, with some of the best-known names on the high street about to pull down the shutters for the final time. The jobs of thousands of retail employees are on the line, most of them women, many of them in part-time positions which allow families to maintain a decent standard of living rather than barely scrape by. More than 10% of Britain’s workforce is employed in the retail sector.
The current spate of closures is linked to last week’s “quarter day”, when shop rents became due. Stores which had been struggling to survive were forced to pay up, or throw in the towel.
But the crisis has been building for months, as nervous families have reined back their spending in the face of rising food and fuel prices, fear of unemployment, a moribund housing market and concerns about when interest rates will rise.
Consumer spending makes up two-thirds of GDP, and a third of that goes through shops. Even the mighty Tesco is feeling the pinch, andMarks & Spencer yesterday started its summer sale two weeks early in a bid to shift stock.
The squeeze on families is substantial. The latest Asda income tracker survey, which tracks the amount of cash households have left after paying for necessities such as mortgage or rent, gas and electricity, food and transport, is at its lowest point since the survey started in 2007. Average families are now £60 worse off a month than they were 12 months ago and have just £165 a week to cover all the other costs of living, from fillings to furnishings.
The cost of some staples, such as pasta and bread, is up more than 25% on a year ago. The cost of transport is up 8%, air fares 14% and petrol 13%, all the result of higher oil prices.
The real killer is that inflation is running at twice the rate of earnings growth, with families being forced to cut back by buying cheaper food. It is not just those in fear of their jobs who are cutting back. Low interest rates mean those who rely on their savings, such as pensioners, are also feeling the squeeze.
Some shoppers are finding it difficult to get credit, while many are determined to pay down household debt and spend only what they have. The proportion of shop transactions on credit cards has fallen 13% on last year, while debit card usage is up 16%.
As if the squeeze on consumers is not a big enough problem for retailers, many are also being squeezed by internet rivals with lower costs. And high street operators face the same hikes in transport and utility costs as shoppers, which squeezes profit margins even further.
What’s the outlook? Not good. Last week the Bank of England‘s monetary policy committee admitted that “current weakness of demand growth is likely to persist longer than previously expected”, while Ernst & Young’s highly regarded Item Club economic forecasters reckonsUK retailers face 10 years of poor sales.
One in seven shops on UK high streets is already empty. Portas has a massive job on.