The RSMR Weekly Broadcast - the precarious high street: shopping bags at dawn for the grand re-opening?

16/02/21

The RSMR Weekly Broadcast - the precarious high street: shopping bags at dawn for the grand re-opening?

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The pandemic has hit us all hard but high street retailers are really suffering. The combination of the rise of internet providers, lockdown closures and people working from home has been potent and lethal in the demise of so many outlets. Non-essential retailers were forced to close their doors to the public for a total of 18 weeks in 2020 and we’re now six weeks into the third national lockdown with no clear indication from the government as to when restrictions will be lifted.

Even before the pandemic hit, many retailers were already struggling with online competition and crippling business rates and over the last year there seems to have been a never-ending stream of announcements about retailers going out of business. Debenhams, and Arcadia group (owner of brands like Top Shop and Burton) are some of the latest high-profile businesses to hit rock bottom.

Ted Baker recently announced a fall in revenue of 47% in the 13 weeks prior to 30th January this year, mainly due to the forced closure of its UK stores and international outlets. The company has a significant online presence, but people are spending less, particularly on higher-end party wear. With no prospect of heading out for a big night anytime soon, there doesn’t seem much point in investing in a show-stopping outfit! Saving is also a theme, economic uncertainty is making people cautious and curbing spending, people feel they need reserves right now and aren’t committing to unnecessary spending.

Springboard collects data to measure footfall in retail stores, shopping malls, and high streets using sensors, artificial intelligence, and computer vision. Recent research found that retail footfall dropped to the lowest level on record last year as the pandemic hit the high street. Footfall was 39.1% lower in 2020 than it was the previous year and fell by 75% in the week after the first lockdown in March, a level never previously recorded. From March 23rd to mid-June 2020, during the first lockdown, footfall declined across all UK retail destinations by a staggering -71.4%. The impact on bricks-and-mortar businesses is clear and the rise in the vacancy rates in towns and cities across the UK is a symbol of the sad decline of our high street.

How are retailers staying afloat? By reorganising their operations, assessing the balance sheet, focussing on profitable and non-profitable stores and revamping product ranges. Retailers with a strong online presence and a successful and agile brand are managing to balance the books and are swallowing up some of their weaker rivals. Despite the economic uncertainty, online spending in 2020 increased by 20% compared to a decline of 3% in 2019.

How will the public respond to the reopening of the high street? Will it be shopping bags at dawn to get the best bargains? Or will people be cautious about returning to populated areas? Footfall rose by 40.3% in week one after the first and second lockdowns with consumers making a dash for the shops to scratch that deep-rooted itch. Let’s be honest, shopping isn’t just about shopping, it’s a social experience where we meet up with friends and treat ourselves. We’ve been denied this experience for long periods, multiple times over the last year and a surge in demand for shopping once we start unlocking the country seems highly likely. More and more people have immunity, either from having had the virus itself or from the vaccine, and the protective blanket over the population will gradually cover us all to a point where even the most cautious will feel comfortable being in a busy space. The retailers left standing will benefit from the unfortunate closure of their rivals and the recovery of the retail sector could follow a gradual curve after the initial bounce back.

The suspension of property funds is nothing new, uncertainty following the Brexit vote sent investors running for the hills and the big liquidity issue reared its head. Insufficient funds meant that redemptions couldn’t be met, and they had no choice but to close their doors. Property funds are struggling now for different reasons, it’s more an issue of valuation as its unclear what these assets are worth in today’s economic climate. So, property funds with significant exposure to retail outlets and office space, another sector badly hit due to the change in working patterns, remain suspended as a price tag can’t be placed on the assets that they hold.

What’s the future looking like for these funds? There’s a lot of negativity and pessimism right now in the retail sector so investors will be cautious about putting their money into funds that have a high weighting to retail. A lot of bad news has potentially been factored in though and some companies within the retail sector that have been priced to fail won’t, and could be set for a recovery once the economy reopens, but this doesn’t help raise the appeal for an investor. It’s not all doom and gloom though, there are areas in commercial property such as warehousing where there’s been significant growth over the last year as companies go all out to meet the extensive demand for home deliveries.   

With the vaccine now being successfully rolled out across the UK, there is hope for retailers who have survived the devastation caused by the pandemic. We all have a need for human interaction and sensory satisfaction, and we crave fun experiences. Visits and spend in stores and destinations will be driven by these needs and hopefully we’ll see a return to the good times for retailers and consumers.

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QUIZ QUESTION: How much did the British public spend on clothes in 2019?
LAST WEEK'S ANSWER: The average UK property value has trebled since the turn of the millennium.
 
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