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 highstreet 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 highstreet 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
Digital Domination (from The Matrix)

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.

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
Inside Foyles bookshop

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.

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 exemployees. 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, selfcheckout 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.

Right to work protest

Young people demand jobs

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

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 'petrostates' 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. RELATED POSTS:
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