What Is Really Killing Our Town Centres?Ian R Thorpe

1st Feb 2013

Only one month in and already 2013 becoming a nightmare for Britain's high-

street retailers, as three major chains go into administration within the first three

weeks.

As three prominent national high-street chains declare themselves bankrupt in just

two weeks, t it is time to take a close look at what is going on in our towns and the

real reasons one in four (and in some places up to one in three) shops are empty and

boarded up. And it it is not only the internet that is to blame.

First to declare itself bankrupt was photographic retailer Jessops, which was founded

in 1935. The company went into administration - a form of corporate insolvency that

allows orderly winding up or restructuring rather than creditors sending in a bunch of

heavies to grab what they can - on Wednesday, 9 January. Just two days later

accountancy firm Price Waterhouse Coopers decided that Jessops could not continue

as a going concern, so it closed the chain. As a result, 187 stores were boarded up,

with 1,370 jobs lost.

The second chain to enter administration this year is music and entertainment

retailer HMV, famed for it's iconic logo which made the business a household name .

Its landmark store in London's Oxford Street was opened by Sir Edward Elgar on 20

July 1921. HMV appointed administrators on Monday, 14 January 2013.

One piece of good news is that HMV's administrators Deloitte are keeping the

group trading as buyers circle for scraps. This could mean the sale of some of HMV's

238 worldwide outlets to save at least some jobs among the workforce of almost

4,500.

Two days after HMV, video rental chain Blockbuster went under. The business has

528 stores and employs 4,200 staff in Britain. Lee Manning, a partner at

administrators Deloitte, said they were hoping to save as much of the business as they

could. "We are working closely with suppliers and employees to ensure the business

has the best possible platform to secure a sale, preserve jobs and generate as much

value as possible for all creditors.” His words are filled with optimism but it is

difficult to see how Blockbusters can fit into a market reshaped by the digital

revolution.

Another major retailer, Comet electrical narrowly missed qualifying for the

January catastrophe when the group stores closed for business in the dying weeks of

2012 with 6000 employees getting their redundancy notice instead of a Christmas

card.

The recession and the internet are

the reasons offered most frequently

for these firms’ collapse, as usual if

we look at the bigger picture we see

many other factors at work. While

these and other less well known retail

businesses have failed, some high

street chains – both new and old -

have seen their fortunes soar.

The John Lewis Partnership (owners of John Lewis department stores and

Waitrose, the posh peoples' supermarkets) proudly announced record sales over the

recent festive season, with Waitrose's sales up 5.4% to over £300 million in the last

two weeks of 2012.

John Lewis is not the only British retail chain to be doing well in troubled times.

Halfords is also thriving in this era of austerity, as squeezed incomes drive spending

on bicycles and DIY car maintenance. On Tuesday, Halfords' trading statement

revealed that sales at its Autocentres surged by an eighth (12.4%) in the 15 weeks to

11 January.

So why do some retailers thrive, while others dive or merely survive? Here are a

few reasons that separate high-street winners from losers:

Death by Technology

With strong growth of high-speed broadband over the past decade, online sales

have exploded and that has played a major role in the decline of town centre retailing.

In 2011, we Brits spent over £68 billion online, with Amazon at the forefront of this

retail phenomenon.

For some retailers, notably giant supermarkets such as Tesco, Sainsbury's and

Asda, the online revolution has opened a new channel for extra sales. Online ordering

and 'to -your-door' delivery have proved popular with families in which both parents

work. For other business, it had spelled death, crushing sales of recorded music, both

singles and albums in favour of digital downloads. With the demise of HMV most

towns are without a shop selling recorded music unless there is a niche retailer tucked

away in some dark alley making a living from selling specialist and collectible titles.

With the supermarket giants having muscled in and by heavy discounting taken

the sales of chart hits and popular artist's back catalogues away from independents

and specialist chains, what is left for those outlets now they cannot compete with the

billions of tracks downloaded each year from Apple's iTunes store or challenge

Spotify, which has taken music listening and downloading by storm?

Likewise, a tsunami of free, but illegal 'pirate' downloads has collapsed high-

street sales of these items. I have been called a dinosaur and told I am resistasnt to

change because of my articles condemning the practice of collecting music via illegal

file sharing. This is a typically petulant reaction from web worshippers, I happen to

believe musicians, like writers and artists, deserve to be paid for their work.

Obtaining copyright material free is no different to stealing the livelihood of

musicians and performers and though the biggest names in popular and classical

music make obscene amounts of money most musicians make quite a modest living

from a sill that takes years to perfect.

These points are just as true for films – Netflix and Lovefilm can deliver via

broadband the latest movie blockbusters without customers having to go to a video

rental store like Blockbusters and again pirate downloading erodes the available

revenue. Combined with that, a digital televisual revolution means people can now

see films on free “catch-up” services or record them on “+” boxes and surf more than

50 channels.

As things stand now the future of

entertainment is clearly online and digital

though some people in the entertainment

business report a revival of interest in live

shows. With the right support from

government, not in the form of financial

subsidies but a clearing away of bureaucratic

obstructions live entertainment can take up many of the jobs lost. There is not

however a lot of incentive for venue owners to put on a music gig or comedy night

when complex health and safety regulations necessitate the employment of a lawyer

to hack a path through licensing applications and a clerk to fill in a separate, twenty

six page risk assessment for every event.

2. Muscle Markets

Another structural issue for the likes of HMV and Jessops along with electrical

retailers and in particular book shops has been supermarkets muscling into their

territory.

Digital Domination (from The Matrix)

Supermarkets diversified into new product ranges, as well as food and household

goods, electrical and electronic goods and furniture appeared in-store and on their

websites. Records, books, clothing and all found their way into the hypermarkets,

putting even more of a squeeze on high stret independents. Thanks to their huge size

and purchasing clout, these retail Goliaths can undercut specialist rivals on price,

snatching business for fast moving lines away from what were once market leaders in

niche sectors.

3. Exporting production

When competition is not intense companies active in a particular market find it easy

to make cosy arrangements that carve up the trade, ensure prices stay high, retail

margins stay fat and healthy profits are made. However, online retailers operating out

of big shed developments or business parks as they are known ignited a price bonfire

that continues to this day, especially in the field of consumer electronics. Not only did

the new way of doing business save online traders the expense of renting, servicing

and staffing small units in every major town's shopping centre, it removed from the

buyer's decision making process things like build quality, attractiveness of the

presentation and brand snobbery. Almost all electrical and electronic goods, wahtever

the badge says, come from a few manufacturers in the far east and are badge

engineers for western markets. Furthermore those manufacturers source components

from the same feeder factories. Supporters of the new way of doing business may

rave about the increased choice it offers but in reality there is very little choice. You

can have a white box, a grey box or a black box. The gubbins inside will be the same.

Writing on his personal blog, Edmund Conway, economics editor of Sky News,

revealed that while the cost of living is rising, the price of audio-visual goods has

plunged. In fact, these goods today cost a mere fifth of their cost in January 1996,

causing massive price deflation for electronics retailers and simultaneously squeezing

the profits of independent retailers. With real prices dropping by four-fifths (80%) in

15 years, it's hardly surprising that so many retailers in this sector are dying out.

A knock on effect of this trends is the disappeance of the small local repair shop.

Electronic goods are now so cheap that when they fail it is simply not economically

feasible to get them fixed. They are scrapped and new goods bought and damn the

environmental consequences as well as the thousands of one man business TV, audio

and electrical repairers who are now out of work.

Ironically the same people who cheer most wildly for 'progress' are the one who

wail the loudest about the degradation of the environment and the plight of the long

term unemployed.

4. Rapid product evolution and innovation

Thanks to innovation, PCs, smartphones and tablet computers rapidly evolve. New,

more advanced versions of 'must have' products are constantly being launched,

leaving traditional retailers struggling to manage stock levels. On the other hand,

online retailers with streamlined systems and superior stock control gain a

competitive advantage when replacing stock that is due to be superseded by new

generations of product lines.

5. 'Super' stores

As well as promoting lower prices, online retailers have huge warehouses full of

stock. Instead of offering, say, 5,000 to 10,000 different products, their product

ranges and stock levels are magnitudes greater. For example, Amazon has 1.5 million

different books for sale – a range that cannot be matched by any high street outlet.

Even Foyles, reputedly the world's biggest bookshop in London's Charing Cross

Road, can only stock 200,000 titles on it's 30 miles of shelving.

6.

Stores also suffer from

'browsers' – consumers who

visit shops to compare goods,

only to return home to buy their

goods online at lower

prices.Also, given the lack of

crowded aisles, checkout queues

and busy car parks.

Brainwashed by the idea that

life must be conveniesnt

consumers are seduced by public relationsh propaganda put out by internet retailers

into choosing online shopping rather than wandering around crowded shops.

Personally I enjoy a trip to the shops and like nothing better than browsing around a

bookshop but I have reached that age at which work no longer encroaches on my

time.

6. Tax Refugee Corporations

A bricks-and-mortar business costs vastly more to run than a website. Thanks to

high rents (payable quarterly in advance), business taxes on property and profits and

staffing costs, traditional retailers operate at a competitive disadvantage to nimble,

web-based rivals. In addition, family run high-street shops whould have a lot of

difficulty restructuring to relocate their headquarters offshore and by exporting profits

to a parent company that is really no more than a pigeon hole in a tax haven mail

drop address, pay almost zero % tax on profits and Value Added Tax as Amazon and

Starbucks have recently been caught doing.

Inside Foyles bookshop

7. Death by debt

By becoming 'leaner and meaner' through cost-cutting some high-street retailers

have managed to overcome declining sales, lower margins and reduced cash flow.

However, those who fail to cope with the changes forced on their business by

circumstances have generally been brought down by their banks when the lenders

lose patience with rising debt levels.

In fact, thanks to a credit famine and rising borrowing costs, excessive debt is

probably the single biggest killer of British retailers – as the likes of HMV (with

debts exceeding £176 million) will confirm.

It is not just the excessive debts of struggling companies that are damaging the

high street, the personal debts piled up by consumers are constraining people's ability

to spend. Everybody is cutting back, looking for bargains, waiting for the sales. And

with unemployment so high and many people being forced into working part time

because full time jobs are not available there juse aren't the number of free spending

customers as in 2007, before the financial crisis.

It is not just the shareholders, creditors and employees who suffer when

businesses fail. Every person in the national economy feels the pinch when big

businesses fail.

Taxpayers pick up the tab for redundancy pay, pay in lieu of notice and accrued

holiday pay for workers laid off by insolvent firms. For example, Comet's collapse

left our Government with a £23.2 million bill for outstanding pay for nearly 6,900 ex-

employees.

Workers who lose their jobs and their families are hardest hit and it is not just the

people who are numbered on the payroll, when a big business goes dow it takes many

small businesses with it because they rely on the work that foirm gave them. One of

the great deceptions of the good years when governments were spending money like

it was going out of fashion was that as planning permissions for out of town

hypermarkets were rushed through, media news bulletins would talk of “the new

supermarket will create 450 jobs” but never made any mention of the number of

livelihoods that would be lost in the catchment area. The new, supported by

government (with incentives and tax breaks) employers were not a good thing, they

were destroying at least as many jobs as they created.

Put that on top of the jobs lost due to industrial and employment policies that

encouraged the export of manufacturing to low labour cost economies and as we have

found, the only employer expanding it's payroll is the government. And eventually

taxpayers must underwrite their wage bill too.

Of course, banks and other lenders lose out when businesses fail, as bad debts

batter their balance sheets. Inevitably, these losses are passed on in the form of higher

interest rates, charges and fees to both corporate and individual borrowers. The

government's welfare bill increases and that must be funded by higher taxes, And of

course as competition for the few jobs available intensifies, employers traditionally

offered lower wages but in this era of a statutory minimum hourly rate can simply cut

the hours of work offered. A full time employee who worked a five day, 37 hour

week will often be replaced by somebody working a four and a half day, thirty two

hour week.

It is not only the internet that can be blamed for the decline of the high street, a

host of factors are involved and many of these relate to Emperors New Clothes

syndrome. Politicians and business leaders, not wishing to appear behind the times

are not willing to point out the social consequences of a too rapid rush to adopt new

technologies and forget that everything has consequences.

The internet is an easy target because politicians of all party were eager to join

techno – evangelists in trumpeting the miracles of the internet, digital technology and

they new economy that would create jobs for everybody and usher in an age of never

ending prosperity.

On November 4th, 2010, the Prime Minister spoke about an internet hub that has

grown up in Shoreditct East London. "Silicon Roundabout" as it became known,

more recently adopted by the government under the name of "Tech City":

“The world of business is changing at an astonishing rate. Insurgent companies

are taking advantage of thousands of new innovations and millions of new consumers

to generate billions in revenue within a matter of years. This is where so much of the

promise of new jobs and opportunities lie.

Thousands, millions, billions – impressive numbers, and in these straitened

economic times, they hold out a promise of creating jobs that the country desperately

needs. Indeed, if we are to believe David Cameron or any number of politicians and

entrepreneurs, one way we could climb out of this recession is by innovating and

creating more of the cutting-edge technology companies that we all hear about in the

news. Imagine if the UK had a Facebook or a Twitter or an Apple – surely they'd

provide a massive boost to the country's employment?”

Thus David Cameron followed his predecessors Tony Blair and Gordon Brown

down the road to idiocy by revealing his ignorance of the internet and digital media.

Twitter has a valuation of around $8 billion – sizeable enough that one might think

it'd be a real job creator. But the company has only 650 employees. Compared to it's

stock market valuation Twitters earnings are risible. Maybe as a potential investor

you'd think that Twitter is overvalued, and want to look at a technology company

that makes a serious amount of money, like Facebook's estimated $1 billion profit this

year. It's undoubtedly a sum that would be more than welcomed by the government,

but Facebook employs only 3,000 people.

Then there's Apple, the world's most valuable company with $14 billion in profits,

$65 billion in revenue, and $75 billion basically sitting in the bank. Of course, at

those levels we're finally reaching bigger numbers, and indeed Apple employs a

respectable-sounding 60,000 people. Yet while Sainsburys, Brtains fourth largest

supermarket chain has less than half the revenue and less than a tenth of Apple's

profits, it employs almost three times as many people – some 150,000. We have 2.6

million people unemployed in the UK – fifty Facebooks or a hundred Twitters could

not solve the problem.

Innovation has always been about solving problems faster, cheaper, and better.

You don't see IBM boasting that their new AI supercomputer Watson is so inefficient

it'll generate the need for thousands more jobs. On the contrary, the excitement

surrounding Watson is not about how it's a Jeopardy quiz show champion – it's about

its ability to process natural language in a way that could save millions by eliminating

tens or hundreds of thousands of customer service positions like entry-level call

centre jobs (It must be said here, in spite of IBM's claims Watson cannot pass a

Turing test, throw it something ambiguous or needing interpretation and it faslters.

Amazon, powering its way towards becoming the world's biggest retailer is

unsurprisingly coy about revealing how many people it employs and positively

taciturn when asked about employment policies that tie workers into contractual

conditions not far off slave labour?

For every technological advance, from mobile phones to online shopping, self-

checkout tills, and driverless cars, we eliminate hundreds of thousands of jobs

elsewhere. Inventions are traditionally about doing more with less, allowing people to

become more productive, and over time, the newly unemployed move into more

productive sectors. From making stagecoach wheels to repairing cars, for instance.

So perhaps we should be comforted by the belief that, as in the past, everything

will work out just fine in the long term and everyone who's lost their job will retrain

to become a computer programmer or someone who provides services to

programmers: to think otherwise would be to cast yourself as a Luddite.

Calling somebody a Luddite has become one of the stock insults of techno –

evangelists but those eighteenth and nineteenth century machine wreckers had a

point.

Luddites may have the last laugh, as suggested by The Economist's Babbage; in

short, whereas the technological advances of the past improved productivity while

Right to work protest Young people demand jobs

still requiring decent numbers of human operators, the advances of the future – most

notably in artificial intelligence – could start permanently removing human operators

from the loop. And what would that do to the already soaring welfare bill and the

public sector deficit that is so closely linked to it.

All this makes the current political rhetoric surrounding unemployment

particularly unhelpful. While it is easy to dismiss the predicament of the jobless as

being that of (take your pick) deep-seated moral failings, lack of university places,

the EU, lack of state funded childcare, a lack of consumer demand, the result of

globalisation, the reluctance of banks to lend to customers who clearly cannot repay,

the advance of technology, lack of investment in new technology, too few science

graduates, too many science graduates or all of the above, it's clear that there are deep

structural changes coming very soon to the very nature of work and employment, and

that innovation is not going to solve the problems it's created but is rather more likely

to exacerbate them.

Lest you think this is all pie-in-the-sky

nonsense, it's a safe bet that driverless cars

will be on our roads in next 20 years or so;

not only do have Google and Mercedes Benz

developed cars that have safely driven

themselves for over 160,000 miles without

incident, but next year you'll be able to buy a

Mercedes that can fully drive itself on public

roads below speeds of 25mph (speed

merchants such as several members of my

family are going to love getting stuck behind

one of those on a quiet country road). But think beyond the “Ohh, isn't science

wonderful / FFS where's the fun in that” knee jerks. There are hundreds of thousands

of people employed as drivers in the UK; what happens if they become surplus to

requirements? Are we so sure that they'll all be able to find work in different areas?

Call centres maybe, or as sex workers (UK Government job centres now advertise

Call centre droids

vacancies for sex workers to man chat lines) Likewise, supermarkets' adoption of

home delivery and self-checkout tills demonstrates that they have no particular

commitment to human employees when it comes to maximising profits.

It is worth comparing this potential future with the very real present in 'petro-

states' such as Iran and Saudi Arabia. The massively profitable oil industry that keep

these states afloat simply doesn't generate many jobs; it's capital-intensive, but not

human-intensive. The resulting lack of employment is toxic for both their people and

for the entire world.

In our own country, we could do with a little less naïve, myopic, science

worshipping and self-serving promotion of the digital sector and its ability to create

jobs, and a little more thought on exactly how many jobs that sector destroys for each

one it creates.How are we are going to create millions of jobs in the future to provide

meaningful work for millions. Or are we happy to see societies in the developed

world become dominated by morons filling their time by consuming recreational

drugs, television, pornography and junk food?

Don't get me wrong at my age I can foresee a time when a driverless car would be

most welcome, I may not have a smart phone (because I don't need one) but I do have

top end computers to do clever things with and my wife is really pissed off that the

housework robot she was promised by 2000, back in the 1970s has not materialised.

The problem is that we can't all work in Google and Facebook or as Rock stars,

professional athletes, television presenters, models, actors and 'celebrities', and we

don't want all want to work in supermarkets or as burger flippers either – assuming

that they will still need to employ people. It's no good having a strong economy if we

still have millions unemployed and prowling among the boarded up shops of

abandoned malls like zombies like, in search of living things.

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