Will the ‘debt of the high street’ cause the ‘death of the high street’?

The Great British High Street has long been a quintessential part of any village, town, or city – the roots of which can be found in Britain’s era of rural self-sufficiency when, even as early as the mid 17th Century there were an estimated 50,000 independent shopkeepers across the country – a figure which increased to an astonishing 170,000 by the 19th Century; giving birth to the phrase a ‘nation of shopkeepers’.

Scoot forward a few hundred years to the Modern British High Street, and some would say the death knell has been sounding its demise for many years. In fact, early reports can be traced back to the mid 1980’s when the out-of-town shopping experience really began to take off – which was a slow burn considering the first out-of-town retail parks and shopping centres emerged in the mid 1960’s.

I often wonder if the ‘death of the high street’ is simply journalistic hype and that the ‘evolution of the high street’ would be a more accurate turn of phrase. If you think about it logically, many if not all the principal factors that affect today’s high street have been a perpetual seam in the fabric of the retail sector for hundreds of years.

Technology: nowadays, economists endlessly debate the effects of the internet and the explosion of e-commerce on the high street but go back 150 years and it was the technological advances of the industrial revolution and the emergence of mass production that threatened high street retailers – introducing cheaper processes for manufacturing perishable goods at scale - literally making it far harder for the butcher, the baker, and the candlestick maker to thrive.

Global Crises: The global downturn that emerged in 2008 and the many ‘boom and bust’ cycles experienced by major industrialised nations over the past 40 years are neither new or unique occurrences and again, we only need to go back 100 years to see how the stock market crash and the great depression affected the health of the retail sector. And global pandemics... anyone heard of the Spanish Flu that infected one third of the planet’s population and killed upwards of 20 million?

Money: For some it’s the root of all evil, and you either have it or you don’t, but in business it is a critical component for success – and if you don’t have it but you do need it, then you can borrow it! The principle of lending has been around for over 3000 years - in fact interest rates were invented in 1754 BC. Remarkably, payday loans are also not a new concept with the first recorded instance of a payday loan being found in Ancient Greece in 400 BC!

Back to more recent times and it seems barely a month goes by without us hearing of yet another major high street brand signalling its woes and cataloguing its painful path into administration and then ultimate death through liquidation – with no ‘hail Mary’ buyouts on the table or last-minute ‘government support packages’ in the offing - despite the various tantalising media reports of them being on the ‘brink of a deal’.

Debenhams, Cath Kidston, Toys ‘R’ Us, Poundworld, Maplin and TM Lewin are among the high-profile retail chains who have largely disappeared from our high streets in recent years. Many pin the blame on the current pandemic and the rapid rise of online shopping while others point to high business rates and rents.

But, if you take a deeper dive behind these failed brands, as did Channel 4’s Dispatches reporter Antony Barnett, you will discover they all have one thing in common – they were all once owned by private equity firms.

While these types of investors can sometimes be a lifeline for struggling businesses by offering a vital source of cash, some critics accuse them of focusing too much on short-term profits and loading companies with debt. This starves some brands of the crucial investment or funds required to react adequately to shocks such as coronavirus or rapidly changing retail trends.

Dispatches studied the accounts of private equity firms behind 10 well-known high street retailers that floundered in the past three years and found that:

● Their private equity owners made nearly £1bn in profits from their broader portfolio of investments while these failing brands went on to accumulate millions of pounds in crushing debt.

● Together, they owed almost £50million to HMRC at the point of collapse.

● When Cath Kidston went under, the Government’s Insolvency service, a taxpayer funded body, had to pay £1million to cover staff redundancy payments.

● There was also a human cost with tens of thousands of jobs being lost when they entered administration or liquidation.

It’s clear that the debt of these high street retail chains was a key factor in their disappearance, but what’s happening at the other end of the scale? As we know, the traditional high street was born from independent traders – so how are they faring?...

Statistics indicate there are currently 5.9million small businesses in the UK, with approximately 150,000 of these being identified as independent retailers – less than 3% of all small businesses – and if we compare how today’s independent retailers serve the current population with figures from the mid 19th Century, the number of independent retailers per capita today has shrunk by a whopping 80% compared to the 1850’s.

Whilst mathematically speaking this indicates a continuous decline in independent retailers over the past 170 years there are many other factors that influence their existence: population distribution, mobility, urban planning, and a vast array of economic and bureaucratic factors. Taking everything into consideration, the UK’s independent retailers have been winning their battle for survival… so far…

But now, according to a report commissioned by former Iceland chief executive Bill Grimsey, a ‘tsunami of closures’ is set to threaten the UK high street after independent retail debt soars five-fold to £2.4bn because of the current pandemic. Shops, hairdressers, and small bars are all battling to survive after lockdown closures.

The report found that 68,000 small independent retailers have seen their collective debt rise from £250million to £1.23billion since the start of the pandemic. Another 56,000 small independent hospitality firms have increased their debt from £190million to £840million, while borrowings at 20,000 hair and beauty businesses have rocketed from £50million to £300million.

The report stated small businesses were forced to take on debt they could not afford to survive, which is tantamount to irresponsible lending. Grimsey said: “We’ve already seen the carnage of the failure of the bigger companies. Now our independents are struggling to manage a mountain of debt and need help.”

Despite the difficulties faced by high street businesses, with trading hit by staff and customers getting ill or self-isolating after encountering someone with Covid, the first repayments on government-backed loans recently began just as furlough payments also began to reduce. The report estimates at least a third of small businesses are now facing default, with a knock-on effect for high streets and town centres around the country.

And with such catastrophic failures being forecast, one cannot ignore the human side to this - around 200,000 jobs were lost in the retail sector last year, with another 200,000 expected to go this year as 20,000 shops shut for good.

Having digested these devastating facts it’s hard to imagine there could be any winners within the retail sector, but fear not, I bring tidings of joy for local convenience stores!

2020 saw spending at local off-licences, greengrocers and convenience stores rise 40%, according to research. This same research reported that 46% of consumers are more motivated to support local businesses due to the Covid crisis and 65% of people in the UK say they have a newfound appreciation of their local shops. Factors also contributing to this were convenience, less queuing than at bigger supermarkets and shorter travel time.

I began this article pondering the legitimacy of the phrase ‘death of the high street’ - but will the current ‘debt of the high street’ produce the last nail in the coffin for our beloved high street?

Despite their struggles, independent retailers remain the lifeblood of UK high streets, offering specialist products and services, knowledge, and passion for their community. Shopping at an independent retailer supports local traders and in turn, the local economy, enabling local businesses to prosper and grow.

Not only do people want their high streets to be places where they can go to find a uniqueness that can only be offered by independent retailers, they want to shop in a way that supports local communities.

For every £1 spent with a local, independent business, between 50p-70p circulates back into that local economy. Shopping online or in corporate, out of town retailers only generates around 5p back into the local community.

In the past, the government has moved heaven and earth to rescue some industries, but independent retailers are being driven towards failure. So, what can the government do now to stop the death of the high street by tackling the debt of the high street?...

Many of the UK’s large retailers received unprecedented levels of government support during the pandemic, and with many of these retailers being classified as ‘essential’ they were not hugely impacted by lockdown. This led to some of these retailers including Tesco, Sainsbury’s, and B&M handing back to the government £2bn in business rates relief funds.

This figure alone could be used by the government to write-off 80% of independent retailers’ current loan debt – a massively significant lifeline for the sector. They could further boost independent retailers’ prospects by giving those businesses that had previously been classed as ‘non-essential’ a business-rates holiday and allow them to defer both VAT and employment tax payments to survive.

The solutions are simple and, whilst they may be costly in the short term to the government’s coffers, the long-term benefits cannot be ignored.

The government needs to act now – debt breeds debt and whilst we are also seeing numerous reports of how the high street is ‘bouncing back’, consumer spending is not set to reach 2019 levels until the end of 2022.

Consumer spending alone will not enable independent retailers to dig themselves out of the cavernous debt hole they are currently sitting in. Without government support to remove the burden of debt many independent retailers will continue to struggle and fail.

‘Death of the high street’ or ‘evolution of the high street’, no matter what you call it, if we don’t tackle the ‘debt of the high street’ then the debate will turn from “what can we do” to “what should we have done” - at which time it will simply be too late for this Great British institution.