10/15/23, 1:53 PM MoneyWeek - 2023-10-13
22 Analysis
Value on the high street
The demise ofWilkois the latest sign of the challenges facing Britain’s general retailers. Butwhile the
sector’s woes mayyet worsen, there arestill stocks worth buying, says David J. Stevenson
It’s only when you walk past the suddenly empty
windows – maybe already boarded up – that it fully
sinks in. This shop was one of your regular haunts.
Now it’s gone. Stores on Britain’s high streets have
experienced years of tough trading. More and more UK
non-food retail outlets are shutting down.
The most recent high-profile chain-store failure was
the 93-year-old, 408-outlet, hardware and general
merchandise retailer Wilko. It entered administration
on 10 August 2023. Most of the stores will be
closed, making this the biggest retail collapse since
Woolworth’s in 2008. Indeed, 2023 has seen “lots of
problems in the retail sector, but particularly in areas
which looked to have high demand and plenty of well-
heeled customers – prestige fashion and sports cycling”,
notes the Centre for Retail Research (CRR).
Recent years have seen the failures of shirt maker
T M Lewin, camera dealer Jessops, stationers
Paperchase, department stores Debenhams and Beales,
clothing retailers Arcadia, Bonmarché, Edinburgh
Woollen Mill, Jaeger, Joules, Laura Ashley, M&Co,
Peacocks, Petar Petrov, Harveys Furniture, Sofa
Workshop, builders merchant Tile Giant and off-licence
chain Oddbins.
Even landlords haven’t been immune. Intu
Properties, owners and managers of some of the
country’s top retail malls, entered administration in
June 2020 as many of its retail clients couldn’t pay their
rent bills, leaving Intu unable to service the interest
payments on its £4.5bn debt mountain.
Almost 18% of shopping-centre units were vacant
in this year’s second quarter, according to the British
Retail Consortium’s (BRC) Local Data Company
(LDC) Vacancy Monitor, while 14% of high street
outlets were lying empty.
Battling strong headwinds
What’s been the problem? Starting from the opening
of the Brent Cross Shopping Centre in 1976, the
emergence and growth of out-of-town malls and retail
parks has taken trade away from the high street. But
that’s old news, and many retailers have since hedged
their bets by operating outlets in both locations.
The real issue isn’t just about Britain’s high streets,
it’s with UK “physical” non-food retailing overall.
 Another major threat has emerged in recent years: the
internet. Online sales represented 26.5% of overall UK
retail revenues in 2022, according to data compilers
Statista, more than double the level of ten years earlier.
Then there has been Covid. In 2020, the fallout
from government-imposed lockdowns had the effect of
increasing UK internet-generated retail sales by almost
50%. This devastated UK physical non-food retailing:
2020 saw the largest number of failed retail businesses
since 2012, while the number of stores affected was the
“Almost 18% highest since 2009, says the CRR.
of shopping- Of course, as soon as Covid concerns waned, then
Russia invaded Ukraine. Energy prices soared, lifting
centre units food costs and overall inflation, and leaving less money
were vacant for spending in the shops. That’s despite the UK’s
economy performing better since the pandemic than
in the second initial estimates had suggested.
quarter of UK real (inflation-adjusted) household disposable
income per person has hardly grown since 2008,
2023” according to the Office for National Statistics (ONS)
13 October 2023
https://www.yumpu.com/news/en/issue/166066-moneyweek-2023-10-13/read?page=23
and the Office for Budget Responsibility (OBR). With
increasing competition for consumers’ cash, many
retailers have struggled to lift their sales levels to offse
their rising cost pressures.
Certainly, UK average weekly earnings growth in
the three months to July rose to 8.5% year on year.
That was a new high, excluding distortions during
the Covid-19 pandemic, in records dating back more
than 20 years, says the ONS. The flip side, though, is
that more working from home is reducing shop visits.
Unemployment, meanwhile, is rising as companies ac
to offset the impact of rising wages on their costs.
“Britain’s workforce is shrinking at the fastest rate
since lockdown as demand slows and surging wage
bills put pressure on hiring budgets,” reports The
Telegraph. “Companies are reducing head counts at
the fastest pace since January 2021 when the UK was
in the throes of its final lockdown, according to the
S&P Global purchasing managers’ index”, a gauge of
economic activity.
So the immediate outlook for the UK’s general
non-food retailers may be even worse than the recent
past. Rising interest and mortgage rates, along with
an energy cost resurgence as oil prices rise again, will
squeeze disposable incomes further. The cost-of-living
crisis is set to last for almost another year, according t
a recent report by consultancy Retail Economics and
accountancy firm Grant Thornton.
“Wages trailing sky-high inflation and higher
borrowing costs have swiped £50bn from pay packets
meaning an additional £15bn of pain is to come by ne
May,” says City AM. “By the time the living-standard
crunch ends, it will have lasted 19 months, amounting
to a cumulative £65bn hit to household budgets. That
would mean the typical British family will be £2,300
worse off when the crisis finishes.”
Recession looms
Granted, UK consumer confidence has been rising in
recent months. And the pace of store closures is slowin
However, this improving trend may not continue, as
the economy could well be entering recession. July rea
GDP fell by 0.5% month-on-month. “There is an air
of underlying weakness,” says Paul Dales at Capital
Economics. “Other indicators... are also pointing to
recession.” In short, more Wilkos are likely.
However, the longer-term situation in non-food
retailing may not be a bad as it might appear. Amid th
extensive list of failed stores, rescue packages have bee
launched for many of the businesses that have gone
into administration. In other words, there are strategi
players around who want to invest in general retailing
long-run potential.
Furthermore, looking beyond next year, there are
reasons for optimism. Whereas landlords once held
sway, current vacancy levels mean that’s no longer tru
A growing surplus of retail property means that more
owners will be forced to offer their tenants better deal
Expect lower rents and more frequent break clauses
(opportunities to terminate tenancies before leases end
Business rates have been a major problem for
retailers. They are a tax on the right to occupy
commercial property and typically equate to around
50% of annual rent, according to Knight Frank,
making them one of the largest business costs.
moneyweek.c
1/2
10/15/23, 1:53 PM MoneyWeek - 2023-10-13
22 Analysis
Value on the high street
The demise ofWilkois the latest sign of the challenges facing Britain’s general retailers. Butwhile the
sector’s woes mayyet worsen, there arestill stocks worth buying, says David J. Stevenson
It’s only when you walk past the suddenly empty
windows – maybe already boarded up – that it fully
sinks in. This shop was one of your regular haunts.
Now it’s gone. Stores on Britain’s high streets have
experienced years of tough trading. More and more UK
non-food retail outlets are shutting down.
The most recent high-profile chain-store failure was
the 93-year-old, 408-outlet, hardware and general
merchandise retailer Wilko. It entered administration
on 10 August 2023. Most of the stores will be
closed, making this the biggest retail collapse since
Woolworth’s in 2008. Indeed, 2023 has seen “lots of
problems in the retail sector, but particularly in areas
which looked to have high demand and plenty of well-
heeled customers – prestige fashion and sports cycling”,
notes the Centre for Retail Research (CRR).
Recent years have seen the failures of shirt maker
T M Lewin, camera dealer Jessops, stationers
Paperchase, department stores Debenhams and Beales,
clothing retailers Arcadia, Bonmarché, Edinburgh
Woollen Mill, Jaeger, Joules, Laura Ashley, M&Co,
Peacocks, Petar Petrov, Harveys Furniture, Sofa
Workshop, builders merchant Tile Giant and off-licence
chain Oddbins.
Even landlords haven’t been immune. Intu
Properties, owners and managers of some of the
country’s top retail malls, entered administration in
June 2020 as many of its retail clients couldn’t pay their
rent bills, leaving Intu unable to service the interest
payments on its £4.5bn debt mountain.
Almost 18% of shopping-centre units were vacant
in this year’s second quarter, according to the British
Retail Consortium’s (BRC) Local Data Company
(LDC) Vacancy Monitor, while 14% of high street
outlets were lying empty.
Battling strong headwinds
What’s been the problem? Starting from the opening
of the Brent Cross Shopping Centre in 1976, the
emergence and growth of out-of-town malls and retail
parks has taken trade away from the high street. But
that’s old news, and many retailers have since hedged
their bets by operating outlets in both locations.
The real issue isn’t just about Britain’s high streets,
it’s with UK “physical” non-food retailing overall.
 Another major threat has emerged in recent years: the
internet. Online sales represented 26.5% of overall UK
retail revenues in 2022, according to data compilers
Statista, more than double the level of ten years earlier.
Then there has been Covid. In 2020, the fallout
from government-imposed lockdowns had the effect of
increasing UK internet-generated retail sales by almost
50%. This devastated UK physical non-food retailing:
2020 saw the largest number of failed retail businesses
since 2012, while the number of stores affected was the
“Almost 18% highest since 2009, says the CRR.
of shopping- Of course, as soon as Covid concerns waned, then
Russia invaded Ukraine. Energy prices soared, lifting
centre units food costs and overall inflation, and leaving less money
were vacant for spending in the shops. That’s despite the UK’s
economy performing better since the pandemic than
in the second initial estimates had suggested.
quarter of UK real (inflation-adjusted) household disposable
income per person has hardly grown since 2008,
2023” according to the Office for National Statistics (ONS)
13 October 2023
https://www.yumpu.com/news/en/issue/166066-moneyweek-2023-10-13/read?page=23
and the Office for Budget Responsibility (OBR). With
increasing competition for consumers’ cash, many
retailers have struggled to lift their sales levels to offse
their rising cost pressures.
Certainly, UK average weekly earnings growth in
the three months to July rose to 8.5% year on year.
That was a new high, excluding distortions during
the Covid-19 pandemic, in records dating back more
than 20 years, says the ONS. The flip side, though, is
that more working from home is reducing shop visits.
Unemployment, meanwhile, is rising as companies ac
to offset the impact of rising wages on their costs.
“Britain’s workforce is shrinking at the fastest rate
since lockdown as demand slows and surging wage
bills put pressure on hiring budgets,” reports The
Telegraph. “Companies are reducing head counts at
the fastest pace since January 2021 when the UK was
in the throes of its final lockdown, according to the
S&P Global purchasing managers’ index”, a gauge of
economic activity.
So the immediate outlook for the UK’s general
non-food retailers may be even worse than the recent
past. Rising interest and mortgage rates, along with
an energy cost resurgence as oil prices rise again, will
squeeze disposable incomes further. The cost-of-living
crisis is set to last for almost another year, according t
a recent report by consultancy Retail Economics and
accountancy firm Grant Thornton.
“Wages trailing sky-high inflation and higher
borrowing costs have swiped £50bn from pay packets
meaning an additional £15bn of pain is to come by ne
May,” says City AM. “By the time the living-standard
crunch ends, it will have lasted 19 months, amounting
to a cumulative £65bn hit to household budgets. That
would mean the typical British family will be £2,300
worse off when the crisis finishes.”
Recession looms
Granted, UK consumer confidence has been rising in
recent months. And the pace of store closures is slowin
However, this improving trend may not continue, as
the economy could well be entering recession. July rea
GDP fell by 0.5% month-on-month. “There is an air
of underlying weakness,” says Paul Dales at Capital
Economics. “Other indicators... are also pointing to
recession.” In short, more Wilkos are likely.
However, the longer-term situation in non-food
retailing may not be a bad as it might appear. Amid th
extensive list of failed stores, rescue packages have bee
launched for many of the businesses that have gone
into administration. In other words, there are strategi
players around who want to invest in general retailing
long-run potential.
Furthermore, looking beyond next year, there are
reasons for optimism. Whereas landlords once held
sway, current vacancy levels mean that’s no longer tru
A growing surplus of retail property means that more
owners will be forced to offer their tenants better deal
Expect lower rents and more frequent break clauses
(opportunities to terminate tenancies before leases end
Business rates have been a major problem for
retailers. They are a tax on the right to occupy
commercial property and typically equate to around
50% of annual rent, according to Knight Frank,
making them one of the largest business costs.
moneyweek.c
2/2