What Next For The High Street?
Our high streets have become the victims of many circumstances coming to bear at the same time.
This article is the second part on the situation facing our high streets in the UK. You can read the first part here.
When I say high streets I mean our towns. This is important because so much of our identity is tied in the state of our towns. If they’re neglected then we feel neglected. If they’re abandoned then we feel abandoned. Or, to use the language of the day:
If they’re left behind, we feel left behind.
As pointed out in Palaces for the People by Eric Klinenberg the Broken Glass Theory of law enforcement completely skipped a vital first phase - the neglect of the buildings in the first place.
We criminalise graffito and the petty crimes that occur in neglected areas, but we don’t criminalise the initial neglect.
I feel strongly that a lot of our national sense of abandonment right now comes from this feeling of neglect and being left behind from the economic growth others benefit from.
It’s like a mined land, once all of the resources are gone, there’s just a void.
Making an Asset Out of You and Me
Gentrification creates value for the wrong folks - the renters who animate an area and create the attraction don’t see the benefit when the asset values increase and they’re faced with a hiked up rent as their only thanks.
The more this happens, the more people are pushed to the fringes as they’re deemed unwelcome, but equally their voices continue to go unheard in the strategy of town planning.
Communities, and entrepreneurs, create and support the businesses that create the welcoming culture in their neighbourhood and are then booted out as being unwelcome when everyone else wants a piece of the action.
There’s little security for those who feel the volatility of a fickle rental housing market.
What is the Value?
This has been in part created and amplified as a result of historic success.
As our high streets thrived in the 20th century and into the early noughties these assets became much sought after value creators for pension funds across the world. They consistently delivered good returns through strong rent, valuation growth and strong covenants (I’ll talk more about that in the future).
This accelerated in the mid-noughties as big chains and high-street banks started to sell off their property portfolios and cash in.
They committed to long leases, some as long as 20 or 30 years, taking the cash from funders happy to take the assets. The long leases gave security, it was a win win for all parties.
Except, of course, for the local community.
Now, we have teachers’ pension funds from America owning shopping centres in towns they’ll never visit, Norwegian sovereign funds in business centres, and family funds owning social housing projects.
This is fairly unique to the UK. There are some nations that permit foreign nationals to buy property without permanent residency status but you can’t automatically do this in countries like Denmark, India, or Nigeria.
In Vancouver, any foreign national has to pay an additional 20% property tax to make an investment in five districts.
It’s hard to imagine policies like these getting passed in the UK anytime soon.
But the UK market has a few other advantages besides just being accessible, which lead to good yields.
It has scarcity built in as a densely populated island, and pre-existing generational habits of market town centricity established over centuries.
There’s good regulation, low corruption, and until recently a very stable economy. There’s a lot that’s been attractive about the UK market for a long time, but it's no longer quite so simple.
Eight Contributors to the Downfall
These qualities have sustained a healthy market until the last two decades and eight major disruptions:
E-commerce
Experience
Individualism
Traditions
Hypermarkets
Neglect
Growth reliance
Covid
1. E-commerce
Apparently, the UK is the leading nation when it comes to shopping online. E-commerce makes up 30% of the total UK retail market and this has increased from 20% in 2020.
30% of the e-commerce revenue goes to three places alone: Amazon, Tesco, and Argos, and 60% of the transactions happen on a smartphone, often while out browsing the high street.
£95bn per year is spent online shopping. This might come partly from growth, but e-commerce is eating high street retail’s breakfast and lunch.
We are a nation of online shoppers. This presents opportunities but also obvious consequences for traditional retail.
2. Experience
It has been estimated in research that if Amazon took one extra second to load then they would lose $1.6bn in revenue every year.
If a website takes more than 3 seconds to load then 53% of mobile visitors give up.
High street retailers can’t compete with this level of convenience. The best retailers in the world aim to control every aspect of the user experience.
Apple’s packing design team spent months locked in a room just opening boxes to achieve the end result of the wonderful boxes that iPhones, AirPods and MacBooks now come in.
The finest boutiques and small businesses on the high street can’t control the council’s parking policies, and can’t shave down the purchasing experience to under six seconds.
Consumers value their time. Browsing with the hope of potentially finding something good now feels like a completely inefficient and futile task.
Very few independent retailers have cracked the “clicks and bricks” puzzle and as retailers become more data driven, retail outlets feel more and more unscientific and disengaging.
To run a good retail outlet, it’s more important than ever to have good POS and shop-dressing skills.
3. Individualism
One thing that e-commerce has given us is the ability to express ourselves in more unique ways.
I’m old enough to remember the awkwardness of going on a night out in Wrexham in my early 20s and bumping into all the people who bought the same shirt from the only cool place to buy something “unique” in town.
The internet has enabled us to find our tribes in ways previously unimaginable. Memetic ideas that resonate deeply with a narrow audience highlight niches that were previously invisible and perhaps still hard to define. You just need to look at the range of subreddits to see this in action.
Now these memes are shorthands for big ideas and a massive part of our culture. You can’t serve that breadth if you’re a 200ft2 boutique in a small market town.
Another perhaps invisible “unexpected consequences” element in this is the secularisation of our society since the 1960s.
Stick with me here.
When the values clarification approach really built momentum in the 1960s and 1970s it created a gap in our cultural compass and understanding of “good character” that I think we’re still living through the turbulence of.
The culture wars are the battlegrounds where tradition meets progress and our deeply held worldviews struggle to process the raft of conflicting and slightly differing perspectives.
This all contributes to the death of the high street, as you’re also having to tell stories to appeal to different audiences. Do you promote your ethical stance or does that make you come across “woke” and upset the “go woke, go broke” noisemakers? Does any of that matter?
In the space of cultural identity as we become a homogenised mass the brands we choose are the modern religions.
I was quite distraught when I realised how much of a cliched “Patagonia Dad” I had become. But if a retailer knows that I’m a “Patagonia Dad” and wants my cash then they can target me accordingly. “Patagonia Dads” have predictable interests and buying habits, but marketing to and serving all of that demographic at a national level is more valuable than in a smaller town.
If we’re seeking new ways to express ourselves, do we feel confident we can get this on our doorsteps, and do retailers feel brave enough to stock niche items?
4. Traditions
Why do we even have a high street? Does its history dictate that it must exist in the future?
If we have changed the way we are, do we need to accept that?
I don't want to get too meta, but we have to make a conscious decision about this and not assume we have to get things back to how they always were.
People are leaving provincial towns to move to cities. We call this the brain drain but it isn’t a new thing.
Is this survival of the fittest? If our towns are no longer up to it then should we keep them on life support?
Are we making them so attractive by providing the type of amenities that would attract those back who have moved away?
Do we need to be able to drive directly into the town centre, to the door of the shop we want to go to? Is this the market deciding as people vote with their feet?
It’s not my place to say either way, but we have to acknowledge that which requires extra energy to push against the current tide.
5. Hypermarkets
Hypermarkets and out-of-town shopping centres have inflicted more obvious damage to footfall, but the views of those who protested their existence decades ago have been forgotten.
The real issue here is around convenience and service.
It is our instinct to continue to find ways to save time and be more efficient.
Everybody you ask will tell you they’re busier than ever, whether to keep up appearances or because it really feels true (I’ll write about the Don’t Worry Club in a future post).
As our lives are in theory made more efficient through technology, we don't see the benefit.
This was really obvious during lockdown. Although we gained 250+ extra hours a year by booting the commute it certainly didn’t feel that way.
This is the way it is, the Jevons paradox dictates it to be so. In 1865, William Stanley Jevons wrote: “it is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth.”
Jevons observed that when steam trains became more fuel efficient the use of coal counterintuitively increased as it led to steam engines being used in more industries.
When things become more efficient, we don’t use less energy. When we regain time, we just fill it up with something else.
Hypermarkets are objectively good, and arguably essential if we believe that we don’t have time. They can increase access to products that might otherwise be out of reach, and save us from having to make time to go to multiple retailers to get everything we need for the week.
They’re designed to be convenient, they have massive car parks, they’re on major routes in and out of town, they have everything, and they’re gamified to the hilt to make shopping in a single store more rewarding than spreading your spend across the town centre. They have the resources to throw at making their business better and more competitive.
They are now an important piece of social infrastructure that we rely on and take for granted.
But the opportunity cost is clear. It isn’t realistic for a single parent on a low wage to do their shopping in a traditional town centre with the butcher, baker, and greengrocer. Especially if they all close at 5pm and are not between the bus stop and the after school swimming lesson.
I mentioned earlier that e-commerce represents £95bn of spend per year, shopping at supermarkets and hypermarkets is estimated to be £167bn per year.
That doesn’t leave much change (or space) for traditional small businesses on the high street.
6. Neglect
As high streets start to feel more neglected, people feel less inclined to visit. You don’t need to be a member of too many “Town Centre Matters” Facebook groups to see evidence of this.
Supporting locally-owned “independents” has become a hobby and more and more an act of charity than the default easy and best option.
This issue perpetuates, and as people witness things that makes them uncomfortable they’re less likely to rush back.
We had this in Wrexham in a big way. National news outlets portrayed Wrexham as “spice town” due to the prevalence of the synthetic drug. I had one incident where I found a guy lying face down in the middle of a junction in the town centre. After 20 minutes on hold to our local police station - missing our booked table for dinner - the outcome was being told that they’d “get around to it”. They were so used to this scenario that it just wasn’t a priority.
Fortunately, this situation is better now than it was, but it will take a lot longer to change peoples’ perceptions.
Levelling up could fix this, but this is a very complicated issue with diverse ownership, no way of knowing who those owners are or direct contact, and little leverage to get them to engage.
I mentioned the well known Broken Glass Theory example from Palaces for the People at the start of this piece. I remember a big event in Wrexham once where we invited up some senior team members from one of the largest UK landlords (before Rob and Ryan were on the scene) and the feedback I got was that they had only ever seen towns like Wrexham on spreadsheets.
We have learned to feel helpless for the way that things are and with good reason. I remember a holiday trip to Holyhead and on a particularly abandoned town centre street there were only agents boards with 0151 (Liverpool) and 0161 (Manchester) area codes.
If you’re a new entrepreneur with a micro business idea you’re not going to convince the suits from the city to make the trip down the A55 to show you around a long-empty unit.
There is more sense in sitting on a dilapidated asset in a location like this than bothering to burn cash on bringing it back up to spec only to fail to get a new tenant in.
This is even easier to ignore if you’re not the one walking past it every day. Out of sight, out of mind.
Another example of this is banks closing branches in communities that are already being gutted. There’s no commitment or strategy to make these assets accessible to the people who sustained their branches for so long.
These buildings are traditionally significant and important to communities, but once those doors close there’s no ongoing relationship.
7. Growth Reliance
There’s an inconvenient truth in all this that by merely mentioning it tends to get people following their crowd. You either think anti-growth ideas are completely logical or batshit crazy.
Jonathan Haidt highlighted this dichotomy very well in his theory on the three stories on capitalism (see these two videos: capitalism is exploitation, capitalism is liberation).
By only focusing on growth we don’t see the wider valuation creation. If we have landlords and property owners who do not feel it is their duty to repay the town then we have a problem. We need property owners who recognise their role as custodians for future generations.
This hit me hard when I saw the state of an abandoned British Home Stores unit in a town in the north of England. This beautiful old building was a perfect symbol of value extraction, and what was left was an asset that was far beyond economic recovery. It would never repay what it would take to get it back up to standard.
We need sustainable growth, and those who benefit from the local economy need to pay their way fairly to ensure there’s an economy left behind that has an opportunity to perpetuate.
And if you don’t believe in sustainable growth then you might have an argument to share in the comments which helps folks to see this important perspective.
8. Covid
I was talking with a friend recently about how bad the customer experience is when you visit somewhere for food and they expect you to place the order on your own phone.
The best example of this working well is actually Wetherspoons. They committed before Covid and it was a long-term plan that they did intentionally.
The restaurants, bars, and cafes that were reacting to Covid and trying new tools were never bought in and as a result it has created a terrible customer experience.
The truth is that the lasting impact of Covid is not a long memory in the best way, but is a longer term drag.
Many companies who fought through and survived are still paying the cost, literally. Those who took out loans to survive are still repaying them, in a difficult market.
There’s no obvious reward for riding out the Covid storm, it’s just left a messy wake only to be hit with massive energy cost hikes and an uncertain market as a reward to sticking it out.
Other Factors
There are many other factors at play here, and I want to write plenty more about covenants, our planning system, the role of new developments, and saving important cultural assets, but so as to not alienate the majority of you who don’t necessarily care solely about this topic I’ll save you the pain and maybe come back to this topic again one day.
Next week we have an article coming up on storytelling, and the week after on framing your thoughts, but as always please do let me know if there are any topics you'd like me to go into in more depth.
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