High street retailers teeter on the brink

With every rent day, the threat of redundancy.

"Lady Day" might sound like a nice day at the races but traditionally it was the Feast of the Annunciation, and the first of the four traditional English quarter days. The "Lady" here being the Virgin Mary. Falling on March 25, Lady Day was even New Year’s Day up to 1752.

Every rent quarter day brings speculation that another retailer will go under, especially after the first quarter day on 1 January this year heralded the administrations of HMV, Jessops and Blockbuster. Yet there were notably fewer major administrations following the most recent rent quarter day at the end of March.

Of course, a rent day does not automatically trigger retail insolvencies. The high profile casualties we have seen since October, with the exception of fashion retailer Republic, have been retailers with a business model that has been challenged by the e-commerce market, such that the delivery method of their core products to customers has fundamentally altered. They cannot survive on the scale they operated in previously in a principally bricks and mortar operation. (Republic’s failure in February was because it was burdened by too many loss-making stores as customer’s buying habits became more budget focused, rather than being challenged by technology.)

In general, this isn’t the case of a fashion retailer buying the wrong ranges for a few seasons or failing to brighten up its stores. They face a technology competitor to their business model that is far greater than any business competitor. These challenges cannot be dodged and a rent day bill might just be the last straw, but is not the cause.

The number of stores closed by retail high street chains in Britain has soared over the past 12 months and the start of this year felt like the end of 2008 when Woolworths collapsed. According to research by the Local Data Company, there were a total of 7,337 store closures in 2012. It seems the retail world has just had another "clear out" this year.

Those are stark statistics but completely relatable when you factor in two big phenomena threatening the high street. The first is technology via the internet, the second, the significant expansion of out-of-town shopping centres, which has made it almost impossible for local high streets to compete.

The cost of parking is one reason the high street cannot compete with out of town shopping. Moreover, 30 years ago, high streets had butcher’s shops, greengrocers, off-licences, chemists and a range of clothing and fashion retailers. Retailers with financial clout have moved out to the shopping centres – and more will follow this year and next. The anchor stores are deserting the high street, as shown by the number of retail chains closing their stores there. This leaves the shops that remain in an even more difficult predicament.

Despite these challenges, high-street retailers can still prosper if they adapt. All too often in my job I see management sticking to what they know – what was once a successful formula – in the face of all the evidence telling them they need to change. Unfortunately, by the time we are called in, it’s usually too late. As individuals’ shopping habits change, retailers must too. That means multi-channel buying – not just static internet buying – but mobile shopping as well. Online does not have to be completely divorced from bricks and mortar. Shops and online can work well together. “Click and collect” has given a life line to stores such as Argos. John Lewis has excelled in using technology to get people into their shops.

Many stores have become too big and inefficient, unable to attract the footfall in relation to rent. Retailers can instead reduce the size of their stores and operate them like large vending machines. A customer can go in and put their card in a giant jukebox – where they can pick a film or return it for example. If they are late, it automatically charges their credit card. There are ways for retailers to continue to prosper with some restructuring.

Those shops that remain may benefit from the others’ decline and closure. Despite the headline cases, corporate insolvency rates remain historically low, especially when contrasted with previous recessions and periods of recovery. Low insolvency rates are good for employment, which is a key concern following the many retail administrations. In fact just under half of jobs in the major retail insolvencies survived the administration process in 2012.

However, while businesses exist in distress and corporate insolvencies remain low, the economy continues to stagnate. A healthy economy requires activity at both ends of the economic cycle – it needs business growth and expansion, as well as the recycling of capital following business failure. The high street can survive if it changes and adapts, and deals with greater challenges than the quarterly rent bill.

This story first appeared on economia

Photograph: Getty Images

This is a news story from economia.

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Why the Psychoactive Substances Act is much better than anyone will admit

Under the Psychoactive Substances Act it will not be a criminal offence for someone to possess for their own consumption recreational drugs too dangerous to be legally sold to the public.

From Thursday, it may be illegal for churches to use incense. They should be safe from prosecution though, because, as the policing minister was forced to clarify, the mind-altering effects of holy smells aren’t the intended target of the Psychoactive Substances Act, which comes into force this week.

Incense-wafters aren’t the only ones wondering whether they will be criminalised by the Act. Its loose definition of psychoactive substances has been ridiculed for apparently banning, among other things, flowers, perfume and vaping.

Anyone writing about drugs can save time by creating a shortcut to insert the words “the government has ignored its advisors” and this Act was no exception. The advisory council repeatedly warned the government that its definition would both ban things that it didn’t mean to prohibit and could, at the same time, be unenforcable. You can guess how much difference these interventions made.

But, bad though the definition is – not a small problem when the entire law rests on it – the Act is actually much better than is usually admitted.

Under the law, it will not be a criminal offence for someone to possess, for their own consumption, recreational drugs that are considered too dangerous to be legally sold to the public.

That sounds like a mess, and it is. But it’s a mess that many reformers have long advocated for other drugs. Portugal decriminalised drug possession in 2001 while keeping supply illegal, and its approach is well-regarded by reformers, including the Liberal Democrats, who pledged to adopt this model in their last manifesto.

This fudge is the best option out of what was politically possible for dealing with what, until this week, were called legal highs.

Before the Act, high-street shops were free to display new drugs in their windows. With 335 head shops in the UK, the drugs were visible in everyday places – giving the impression that they couldn’t be that dangerous. As far as the data can be trusted, it’s likely that dozens of people are now dying each year after taking the drugs.

Since legal highs were being openly sold and people were thought to be dying from them, it was obvious that the government would have to act. Until it did, every death would be blamed on its inaction, even if the death rate for users of some newly banned drugs may be lower than it is for those who take part in still-legal activities like football. The only question was what the government would do.

The most exciting option would have been for it to incentivise manufacturers to come up with mind-altering drugs that are safe to take. New Zealand is allowing drug makers to run trials of psychoactive drugs, which could eventually – if proved safe enough – be sold legally. One day, this might change the world of drug-taking, but this kind of excitement was never going to appeal to Theresa May’s Home Office.

What was far more plausible was that the government would decide to treat new drugs like old ones. Just as anyone caught with cocaine or ecstasy faces a criminal record, so users of new drugs could have been hit with the same. This was how legal highs have been treated up until now when one was considered serious enough to require a ban.

But instead, the government has recognised that its aim – getting new drugs out of high-street shop windows so they don’t seem so normal – didn’t depend on criminalising users. A similar law in Ireland achieved precisely this. To its credit, the government realised it would be disproportionate to make it a criminal offence to possess the now-illegal highs.

The reality of the law will look chaotic. Users will still be able to buy new drugs online – which could open them to prosecution for import – and the law will do nothing to make drugs any safer. Some users might now be exposed to dealers who also want to sell them more dangerous other drugs. There will be few prosecutions and some head shop owners might try to pick holes in the law: the government seems to have recognised that it needed a better definition to have any chance of making the law stick.

But, most importantly for those of us who think the UK’s drug laws should be better at reducing the damage drugs cause, the government, for the first time, has decided that a class of recreational drugs are too dangerous to be sold but that it shouldn’t be a crime to possess them. The pressure on the government to act on legal highs has been relieved, without ordinary users being criminalised. For all the problems with the new law, it’s a step in the right direction.

Leo Barasi is a former Head of Communications at the UK Drug Policy Commission. He writes in a personal capacity