Budget 2018: The retail sector

The retail sector has attracted headlines recently, with stories about the decline of the high street, major losses at venerable, well-known stores, and a range of measures in the 2018 Budget. Here we look at the current state of high street retail and what’s being done to revive it.

What was announced in the Budget?

In the 2018 Budget speech, the Chancellor said:

“… the High Street lies at the heart of many communities. And it is under pressure as never before as Britain adopts online shopping with greater alacrity than any other large economy. So, if Britain’s High Streets are to remain at the centre of our community life, they will need to adapt.”

The Government announced a new policy to address this issue – the Future High Streets Fund – which is outlined in a policy paper published alongside the Budget. The Budget also featured a one-third reduction of business rates for retail premises up to a rateable value of £51,000 in 2019/20 and 2020/21. (This Insight only examines the new fund; business rates are covered in a separate Library Briefing Paper.)

The Future High Streets Fund will be worth £675 million and will be awarded through a competitive bidding process. Local areas will be invited to submit proposals setting out the “overall vision” of how they will transform their town centres and high streets.

Bids will be assessed according to value for money, deliverability, fit with the overall aims of the fund and the areas’ ability to co-fund its proposals with the private sector. Each successful area is expected to receive an award of around £25 million.

Importantly, the fund will only make awards in cases where local areas have shown how they expect high streets to adapt to the changing retail environment. The fund will not make awards to local areas seeking to “expand traditional retail on their high streets”.

What can the fund be spent on?

The majority of the fund (around 90%) will be spent on capital projects such as:

  • Improving transport access to town centres
  • Improving vehicle and pedestrian flow in town centres
  • Infrastructure to relieve congestion
  • Infrastructure to facilitate new housing and office space
  • Projects that seek to substitute under-used and persistently vacant retail units into residential units.

The remainder will assist local areas to produce long-term strategies for their high streets, and will fund a new ‘High Streets Taskforce’ that will provide expertise and practical support to the successful bids.

The next steps towards rolling-out the fund are:

  1. A full prospectus launched by the Ministry for Housing, Communities and Local Government later in 2018.
  2. The High Streets Taskforce launched in early 2019 to support the local areas preparing bids.
  3. Stage 1 of the application process beginning in Spring 2019, with expressions of interest invited from local areas.
  4. Bids taken to Stage 2 of the application process working up more detailed business cases in summer 2019.

So, why has the Government taken these steps now?

Retail businesses have been failing

There is no official data on shop closures, but the Centre for Retail Research (which tracks large and medium sized chain retailers in Who’s gone bust?) report that in 2018 so far, 28 retail companies with multiple stores have ceased trading, affecting 2,085 stores.

This is a high number of affected stores compared with recent years, but not compared with the years immediately following the financial crisis of 2008 and 2009.

Retail company failures peaked at around 6,000 to 7,000 in 2008 and 2009, but have been lower in the years up to 2017. Failures have increased in 2018 with close to 3,000 up to September

(Note that some of the businesses that went into receivership may have recovered, been sold as ‘going concerns’ but changed their name, or ceased to exist. Therefore, these figures should not be interpreted as an accurate indication of number of stores that have closed.)

The rise and rise of internet shopping

As the Chancellor said in the Budget speech, British consumers have adopted online shopping with “greater alacrity” than consumers elsewhere.

Internet shopping is more popular with 82% of adults making an online purchase in 2017, compared to the EU average of 57%.

80% of UK residents made online purchase in 2017, higher than any other EU country

Internet sales account for 18% of retail sales, up from only 5% in 2008. This growth has disproportionately affected the retail sectors that traditionally populate high streets. Over the last year, internet sales by department stores have grown by 35% and internet sales by clothes stores have grown by 17%. In contrast, online sales by supermarkets and other food shops have grown (by 9%), but not as strongly as in other sectors.

Changing shopping habits

The rise of internet shopping has been accompanied by, and has sometimes provoked, other changes in consumer behaviour.

Increasingly, what attracts people to the town centre or shopping centre is not just the shops, but rather the leisure facilities they can access there, such as cafès, restaurants, cinemas and children’s activities. This trend could explain the fast growth of multi-use shopping centres that cater to these tastes, and the concurrent ‘hollowing out’ of town centres, which are often inhibited from adapting by planning rules or outdated infrastructure.

Another trend evident in recent years is that consumers have begun to make more frequent, smaller value shopping trips. Consumer preference has shifted in favour of single item purchases, rather than ‘multi-buys’. And, the trend towards increased online purchasing means that a large stock selection in store is no longer crucially important.

This has particularly affected the big four supermarkets (Tesco, Sainsbury, Asda and Morrison) who have seen their market share fall from 77% in 2011 to 68% in 2018. The established supermarkets have also been squeezed by the ‘no frills’ entrants to this market, particularly Aldi and Lidl, who’s combined market share was 13% in 2018, up from 5% ten years ago.

Other types of retailers also appear to be thriving because of current consumer trends. The Local Data Company reports that in 2017, barbers, beauty salons and nail bars all saw net increases in the number of open units, in contrast to the overall number of retail units which saw a net fall. The increase of beauty and personal service shops is indicative of the type of service that customers value and cannot get from the internet.

What next for the high street?

Online retailing has not resulted in the simple substitution of physical shopping for online shopping. Instead, successful physical stores have developed online services that are complimentary to their physical presence. Modifications include offering customers the option to browse goods in the store and then order them online, or pick up goods they have bought online in physical stores. Arguably, the role of physical stores will increasingly be that of a “shop window”, with customers browsing and collecting in person, with most transactions occurring online.

The Government’s strategy is to facilitate the conversion of surplus retail space into types of premises that are in demand, such as residential or office spaces.

Whether this succeeds in rejuvenating town centres remains to be seen.

Further reading

Retail sector in the UK, House of Commons Library.

Budget 2018: Where has the Chancellor’s money come from? House of Commons Library.

Autumn Budget 2018: A summary, House of Commons Library.

Chris Rhodes is a Senior Library Clerk at the House of Commons Library, specialising in industries, business and infrastructure.