- Toys R Us and Maplin went bust this week and restaurants like Prezzo, Byron, and Jamie’s Italian are all closing sites.
- The slump is down to high inflation and online competition.
- Analyst says there’s “a very good probability that more victims will fall.”
LONDON – A chill wind is blowing through Britain’s High Streets and not just because of the Beast from the East.
Shops and restaurants are closing across the UK as a Brexit-driven consumer crisis begins to take its toll.
Toys R Us and Maplin both fell into administration this week, putting 5,500 jobs at risk. Italian chain Prezzo announced it is closing up to 100 restaurants as it battles with poor trading. Trendy burger chain Byron has similarly been forced to close locations. And Jamie Oliver’s restaurant empire is slimming down amid similar pressure.
“This has been a brutal winter in more ways than one as the UK High Street,” Fiona Cincotta, a senior market analyst at City Index, said earlier this week.
“The High Street is being hit on two fronts. Firstly, the squeeze on the consumer thanks to elevated levels of inflation, combined with wage declines in real term, is causing consumers to rein in their spending on a damaging level.”
The pound fell to multi-year lows against both the dollar and euro in the wake of the June 2016 Brexit referendum and that has led to higher price inflation. Inflation is currently running at 3% while wages are growing at just 2.5%, meaning Brits are seeing their spending power shrink in real terms.
Cincotta said: “Secondly, this reining back in spending couldn’t have come at a worse time in the High Street’s history, as consumer habits change towards online shopping, favouring the likes of Amazon for their fast delivery and wider selection and more competitive pricing.”
While Toys R Us and Maplin are struggling, online retailers such as Boohoo and Eve Sleep are consistently growing by double-digit percentages. While they don’t all sell the same things, the comparison neatly highlights the difference in direction of travel between physical and online retailers.
Even the restaurant industry is feeling the effects of online competition – the popularity of Uber Eats and Deliveroo is spurring the creation of so-called “dark” restaurants while the real ones close down.
Commenting on Toys R Us and Maplin, Cincotta said this week: “It is very unlikely that these two retail giants will be the last casualties on the higher street, quite the opposite.
“With the online shopping revolution in full swing and tough economic conditions set to continue for the UK in the face of Brexit, there is a very good probability that more victims will fall.”
Strains are showing elsewhere. Carpetright, Mothercare, and Laura Ashley have all put out profit warnings in recent weeks. New Look, struggling under a £1.2 billion debt pile, is seeking an emergency deal with landlords to cut its rent bill by 60%. And department store Debenhams, long seen as one of the weakest big beasts on the High Street, is currently trading at an 8-year-low share price – a sign that investors are not optimistic after a profit warning in January.
Just after Christmas tends to be a crunch period for retailers as, having gone through their best period of the year, banks and other lenders are less forgiving if a shop is in a tight spot.
Retail analyst Richard Hyman told BI: “Retailers go from Q4, strongest trading and cash flow, to Q1, the weakest.”
“Much of the cost base stays the same and Q1 will expose the underlying trading weaknesses pretty quickly,” he said. “The quarterly rents due at the end of March is a looming challenge. There will probably be more distress emerging as end March nears.”
Spare a thought for poor old Sir Philip Green.
The Topshop tycoon is reportedly trying to offload his Arcadia retail empire to the Chinese at the moment, despite stringent denials from the man himself. The company, which owns Miss Selfridge and Burton as well as Topshop, has been struggling with the rise of online for years – the last thing it needs is a consumer spending crunch.
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