What is City Talk? Info Info. Latest

Is the UK’s high street crisis a harbinger of wider economic doom?

Infinox Contributor
Christmas Shoppers Hunt For Last Minute Gifts
Is the UK’s high street crisis a harbinger of wider economic doom? (Source: Getty)

Is Britain’s retail sector in crisis? If the latest analysis from the law firm Linklaters is to be believed then yes, very much so.

It found high street stalwarts such as Debenhams, Marks & Spencer (M&S) and Morrisons are, quite literally, under attack from hedge funds who have, for the past three years no less, held short positions against them.

This should perhaps not come as a huge surprise. Recently the retail sector has seen the collapse of both the electronics chain Maplin and Toys R Us.

Meanwhile Mothercare, Debenhams, Moss Bros and Carpetright have all issued profit warnings.

UK retail sales were, to say the least, disappointing at the start of the year and things haven’t exactly improved in the months since January.

Long term retail woes

Restaurant chains are also in trouble, if the hedge funds are to be believed.

Both Greene King and The Restaurant Group - which owns Frankie and Benny’s restaurants among others - are on the list of shorted firms.

It would be devastating if any of these firms failed. A collapse of M&S, Greene King, Debenhams or Mothercare, would send a very icy chill through the heart of the UK economy.

But those who know the retail sector well will tell you that Mothercare has been in plenty of trouble before, as too have Debenhams and M&S

M&S’s financial results are regularly rescued by sales in its food hall. Women’s fashion, formerly a key area for M&S, has suffered for years.

Why these brands are in trouble is also not particularly hard to explain.

Most women below the age of 40, and many below the age of 50, see M&S as old fashioned, the place where their mother shopped for clothes and nothing the retailer has done to try to convince them otherwise has thus far worked. Men below 50 seldom shop for clothes in M&S.

Equally, Mothercare has been in trouble for several years, as has Debenhams. The profit warnings issued by Debenhams in January came in the middle of a turnaround project for the retailer, which unless you are Sport Direct’s Mike Ashley, should tell you all you need to know.

Meanwhile, it was revealed last month that Mothercare was in talks to raise the funds needed for a turnaround programme of its own - which involves the closure of nearly half of its 152 UK stores.

Adapt or die

The failure of these older established brands to adapt to the Internet also allowed disruptors to enter the market.

The younger generation are more likely to go to Asos for clothes, Amazon for books, music, games, actually just about anything, and anywhere else they think they can get a better deal.

For disciples of the free market this is simply, and perhaps correctly, the evolution of the market: adapt or die.

Debenhams, M&S and Mothercare have dominated the high street for years.

But precisely because they are in every single high street in the UK they are also bloated, costly and easily attacked by upstart retailers, who are online only, so don’t have hefty business rates and rents to worry about.

But there is something else going on too. It’s not just that younger people no longer shop in the same stores as their parents. They also go out less, which is one of the reasons restaurant and pub chains are suffering.

This is because they earn less than the generation that went before them, have much larger student loans to pay off, haven’t had a pay rise in years and perhaps - optimistically - are desperately trying to save for a deposit to buy their first home.

No wonder Deloitte’s survey of chief finance officers found on Monday that for the first time in two years they were more worried about weak domestic growth sapping demand for goods and services than they were Brexit.

Related articles