High Street Flop: COVID-19 and Retailers

“A nation of shopkeepers” – the description given by Napoleon regarding the British people is still highly relevant in the 21st century. Indeed, the high street of the United Kingdom is an institution in its own right, with family stores and retailer conglomerates having provided the British people with goods and services for generations. However, the British high street faces its darkest hour. Retailers are being outcompeted by online stores, with there now being a 22% market penetration of retail-centric online stores. This number is expected to further increase within the next decade, illustrating the shifting of consumer habits away from the high street.

In addition to this, unfortunately, the continued lack of footfall for retail stores, which refers to the number of people entering a shop or shopping area at a given time, has put these retailers under even greater financial pressure. The national COVID-19 lockdown and tiered restrictions have caused the retail sector to suffer massive losses, with a national comparative 60% and 50% decrease in the number of people entering a shop or shopping area in a given time in November and on Boxing day respectively. Consequently, some shops are reporting that they expect a 100% decrease in profit in 2020 compared to 2019. As of November 2020, 15,000 shops shut down across the country, with more to come as a result of the current national lockdown. Fortunately for those that have survived this culling, the Coronavirus Act 2020 and the Corporate Insolvency and Governance Act 2020 have provided some form of respite, creating various ways that companies can renegotiate their loans and existing debts to avoid bankruptcy.

However, rather than help retailers, it is quickly becoming apparent that this may be warping the relationship between retailers and their landlords, creating an antagonistic relationship between them at best, or an exploitive one at worst, further accelerating the decline of the high street.

The Parliamentary Acts: A Bull In A China Shop

In an effort to save jobs and businesses, the Corporate Insolvency and Governance Act moratorium, which will last until March 2021, has created a variety of procedures to temporarily prevent liquidation procedures such as Winding-Up petitions. Solicitors around the country are now advising their clients to utilise this breathing space and pursue Company Voluntary Arrangements (CVAs). CVAs are utilised as a form of restructuring when a company goes insolvent, meaning that the company’s liabilities exceed its assets. A CVA is a procedure designed to alter and settle these debts by paying only a proportion of the amount owed to its creditors. The COVID-19 situation has led to an onslaught of CVAs in the retail sector, with dire financial implications for landlords. Companies such as New Look, Boots and Clarks, all enormous retail conglomerates with a sizable number of stores in the UK, have all entered CVAs, their main restructuring plan revolving around rent freezes or altering the rent due to be on the basis of the turnover of the store.

Of course, the landlords agreed to these, being part of the 75% creditor approval required for a CVA to pass. However, there is something very underhanded in the way that the CVAs have been rushed out of the door. This can be seen in the growing anger around Poundstretcher, in which half of their landlords have expressed concerns over the fact that their CVA would cut the tenant’s rent by 30-40%. It can further be seen by the recent landlord disquiet over Café Nero’s CVA, who are attempting to challenge the passed CVA, as a takeover from another conglomerate would be more favourable for them. This is telling, as there is a sense that landlords are being pressured into CVAs because of the Coronavirus Act. The Act has barred business evictions and forfeitures until March 2021, forfeitures being the legal term for a landlord changing the locks of a property to bar the tenants from entering. The moratorium is essentially designed to ease the pressure on tenants and allow them to come to an amicable rent agreement with their landlords. However, as stated above, any CVA is very damaging for the landlord as rent freezes and turnover based rents are being frequently utilised. The excess of CVAs of this variety has created a predicted loss of £5.4 billion in rent throughout the next four years. As there is no option to evict or forfeit the tenants, who are very unlikely to pay their landlords in the first place, it seems apparent that landlords agreed to these CVAs as their only option, which has severely impacted them financially. Consequently, the landlords may cut their losses and evict the retailers as soon as the moratorium is over, sounding the death knell for the tenant retailers and the high street as a whole.

What Does The Future Have In Store?

The Financial Times reported in 2019 that the UK has 30% more commercial property space for retailers than it actually needs, on account of mass shop closure from the competition of online stores. There is now a record number of property conversion from retail into other commercial property types such as offices. Last year, a government task force stated that it is becoming increasingly apparent that the only places that high streets survive are in leisure areas. Hence, post-moratorium, outside of leisure-based towns the landlords will likely cut ties with retailers in favour of those tenants who require offices. Whereas in leisure areas, where the retailers remain, the landlords will likely gain very unfavourable CVA-based rent, tempting the landlords to make the jump to offices themselves.

The death of the high street is a problem for the lived experience of Britain. Take, for example, the working populace, of which 4 million are employed by the high street. The decline of the high street and resulting unemployment would be incredibly damaging to Britain economically and socially. Alternatively, for those not employed, such as pensioners who, for the most part, are not technologically savvy, the high street is both a social experience and a hobby providing mental health benefits as lockdown continues. It would be hard to argue that the British high street is not an inherent good. The UK Government is trying to reduce the severity of the high street’s decline as through its attempt at a £1 billion funding project for the rejuvenation of British high streets.

However, the fall of the high street is being increasingly argued as an institutional inevitability. Alistair Kefford, a research fellow at the University of Leicester, argues that the high street was historically the pivotal area of the town. The intention of post-war property developers and post-war local councils was to create a landmark out of the high streets to attract people to the area. This was done by rapidly increasing retail store tenants, with the perceived value of retail conglomerates being high enough to justify travelling to neighbouring towns. The 1960’s “age of affluence” led to a boom in disposable income and created a demand that matched the retailer supply. He argues that eventually this consumer fervour led to an oversupply and consequent over-competition between retailers, and thus the market was incredibly sensitive to consumer habits. Hence, when consumer habits changed from retailers in the 1970s, the demand was deeply impacted and the decline of retailers increased astronomically. It seems apparent, therefore, that the consumer habits in the high street were always going to decline and consequently, the death of the high street is inevitable, rendering the governmental spending useless, as the high street morphs into mere office complexes.

Murder On The Shop Floor

The Acts of Parliament, in an attempt to prevent mass company liquidations, have worsened the difficult relationship between retailers and their landlords, which will inevitably contribute to a decline in the high street. The death of the high street, however, is an inevitability, considering the changing spending habits of the British public since the 1970s, which has been exacerbated by the increase in online shopping. Whilst the Government may attempt to rejuvenate the high street with excessive funding projects, it is becoming increasingly likely they will fail, which is a catastrophic outcome for workers, non-workers, and the United Kingdom as a whole.

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