Britain’s shrinking shopping streets are poised to become smaller still, thinning out what have long been Europe’s densest retail districts.
With U.K. consumers spending more online and making fewer trips to the high street, the number of store closings is set to double this year, according to real estate researcher Local Data Company. The country’s 500 busiest retail locations will lose a net 4,000 outlets this year, versus about 2,000 in 2012, Local Data predicts.
“We clearly have tens of thousands too many retail stores out there,” said Bryan Roberts, director at market research firm Kantar Retail in London.
Companies likely to benefit from the trend are those that have rapidly expanded on the Web while adding smaller outlets in city centers, such as Tesco Plc. Analysts expect Britain’s biggest grocer to this week report its fastest revenue growth in three years.
From billionaire Philip Green’s Arcadia fashion group to electronics seller Dixons Retail Plc, shopowners are shuttering stores as spending falls. Last year’s collapse of the 236-store Comet electronics chain won’t be the last, according to Begbies Traynor Group Plc, which forecasts that 140 retailers are in a “critical” situation and may fail. That’s about 30 percent more than at this time last year, the insolvency adviser said.
“We think there will be a few more high profile names disappearing,” this year, as well as many smaller stores, said Julie Palmer, a partner at Begbies Traynor. The firm says 13,700 retailers are in “significant distress,” particularly sellers of books, stationery, pharmaceuticals, and alcohol.
Britain has the most shopping space per capita in Europe, according to real-estate services adviser CBRE. The U.K. has 0.36 square meters of retail floor space for each resident, versus 0.21 sq. meters in Italy and 0.14 sq. meters in Germany. In the U.S., the figure is 2.3 sq. meters.
Shrinking store numbers represent a reversal of the previous decade’s opening binge, when retailers flush with cheap credit fought for new space amid tough planning constraints. They are largely a function of changing shopping habits as more people order goods online.
U.K. online sales increased to 31 billion pounds ($44 billion) last year, accounting for 12 percent of the overall retail market, according to the British Retail Consortium. That compares with 6 percent in 2010, making the Internet the fastest expanding part of the industry.
Most British retailers began their post-Christmas clearance sales online last month before stores reopened. John Lewis Partnership Plc, owner of Britain’s largest department-store chain, said an online clearance it started on Dec. 24 began with a record hour of sales and orders up 70 percent from a similar sale a year earlier.
The growth in Web shopping isn’t being mirrored in stores. Next Plc, whose Directory unit is Britain’s biggest online fashion retailer, said Jan. 3 that physical store sales barely grew in the first 11 months of the financial year even after selling space increased by 2.2 percent. Home-shopping revenue, including Internet and catalog sales, rose 11 percent.
“There’s been a fairly big shift to online and those who failed to get on that will certainly suffer,” said Matt Clark, director of the consumer unit at consultancy Boxwood.
It’s not just the Web that’s causing Britons to make fewer shopping trips. Consumers have less money to spend as unemployment remains high and prices for food and fuel rise.
Retail sales growth eased more than economists forecast in December and may cool again in early 2013, according to the Confederation of British Industry. That may lead to further failures after the collapse of more than 50 retailers last year, according to the Local Data Company.
Last year was the worst since 2008 for store closures and retail job losses, according to CBRE. In addition to the failure of Comet, 2012 also witnessed the demise of JJB Sports Plc, Game Group Plc, Clinton Cards Plc and Blacks Leisure Group Plc. HMV Group Plc, the U.K.’s biggest retailer of CDs and DVDs, raised fresh doubts about its future last month when it said it will probably breach debt covenants this year amid lower-than-expected Christmas sales.
The number of retailers that filed for administration, a form of insolvency protection, rose to 194 last year from 183 in 2011 and 165 in 2010, according to Deloitte LLP. The largest 16 retail collapses accounted for 1,400 store closures, the accounting firm said. About 55 percent of outlets closed permanently and 45 percent were sold to other retailers.
Profitable chains are also cutting back. Arcadia Group shut 60 clothing outlets last year, while electronics retailer Dixons wants to trim its 498 shops by as much as 20 percent. With roughly 20 percent more selling area than it needs, home-improvement retailer Kingfisher Plc is leasing floor space in some of its stores to other companies such as grocers, Chief Executive Officer Ian Cheshire said in November.
Fashion chains can achieve national coverage with as few as 200 stores, according to Kantar Retail. Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, has about 300 mainstream outlets, while privately-held New Look Group Ltd. has almost 600 outlets in its domestic market.
With just 39 stores backed up by a 200,000-product online offer, John Lewis stands apart from competitors. The chain said Jan. 2 that sales rose 15 percent to 685 million pounds over the five-week Christmas season, while online revenue surged 44 percent.
Surviving in the current climate means retailers must embrace customers both online and on high streets, and reduce the number of physical outlets to account for consumers moving to the Web, said Lee Manning, partner of restructuring services at Deloitte in London. Shoppers are using stores now as product showrooms and as a place to pick up online orders, rather than simply to shop, he said.
“There will always be a need for physical retail space, but at present too many retailers have too many stores,” Manning said. “And 2013 is likely to be marked by further closure programs.”