The Crisis in Retailing: Closures and Job Losses

Retailing is in crisis, caused by high costs, low profitability, and losing sales to online shopping.  These problems are felt by most businesses operating from physical stores, in high streets or shopping malls. The low growth in consumer spending since 2015 has meant that the growth in online sales comes at the expense of the high street.

The Main Impacts

Attitudes vary about whether this crisis represents an exciting change in how we shop or a dangerous trend that will vitiate our town centres and high streets. Probably a bit of both unless carefully managed.

This page examines the main outcomes in 2018 and 2019 (to date) caused by retail companies going  into administration, agreeing CVAs with their major creditors or rationalising their operations to meet reduced demand. The figures relate to large and medium-sized retailers (five stores or more) and to independents (fewer than five stores, mostly 1 to 2).

If only one-half of these jobs had gone in manufacturing industry, there would be questions in Parliament, an emergency debate and no doubt some well-meaning attempts to intervene. Polly Toynbee would explained that it was caused by Brexit and Owen Jones would blame it on neo-liberal economic policy. Greedy retail executives and their yachts would certainly come into the blame equation. The retail sector with almost 3m employees doesn’t carry the same clout as other industries. The total employees in manufacturing, at 2.7m, are now rather fewer than the number of retail employees, yet the loss of industrial workers seem to be mourned more than the loss of retail employees.

Why Is It So Bad for Shop Retailers?

The reasons for the issues facing retailers with physical shops are discussed extensively in our report Retail At Bay. The key issues are as follows

• The high costs of running retail outlets, including rents, business rates and high labour costs;
• Low profitability caused by high costs, slow growth in sales, squeezed profit margins and heavy price competition;
• The rapid growth of online competition such that by 2018 online sales accounted for around 18.4% of total retail merchandise sales, with much of online growth achieved at the expense of bricks-and-mortar retailers.
• Lack of preparation: low investment in stores and weak forward planning to meet the challenges of the new retailing.  

The retail crisis in jobs, businesses, stores and high streets has been coming for a long time. Retailers who sell from physical shops have found consumer spending and profitability has been hit hard.

Here are further details about where the job losses and store closures have come from

Table 1
Outcomes for 2018 (twelve months)

Table 2
Outcomes for 2019 (to October)

For more information or support about CVAs, talk to KSA Group (https://www.ksagroup.co.uk/)

Definitions

• Administration –administration is a form of insolvency giving a firm protection from its creditors and time to reform the business. It is similar to Chapter 11 of the U.S. Bankruptcy Code. On this webpage we only include actual job losses and actual store closures over the year following administration, although in our Who’s Gone Bust? we include the total jobs and stores at risk.
• CVAs – Company Voluntary Arrangements – a different form of insolvency intended normally to give a business time to prepare a recovery business plan, which needs the agreement of its creditors. The plans often involve store closures and job losses as part of relaunching the business.
• Rationalisation – our term for store closures or job losses occurring either as a regular aspect of business or a special cost-cutting programme. Retailers may close stores or warehouses, reorganise their management structure in stores or the head office or propose cuts in every department in order to reduce losses and cut costs, but where there is no recourse to administration or CVAs.
• Store – a special retail unit with a visible physical existence, whose size may vary from less than 1,000 square feet to more than 120,000 square feet. In English English ‘shop’ and ‘store’ mean the same although this is not true in North America and other continents.
• Job losses – these include announced reductions in a company’s labour force, both full-time and part-time. There is no assumption that such workers become permanently unemployed.
• Multiples – large retail businesses with ten or more stores.
• Medium-sized retailers – multiples with between five and 10 stores.
• Independents – mainly one-shop retailers but includes businesses with fewer than five stores.
• Online retailers – retail businesses that primarily trade online, although they may also operate a small number of stores.
• Pop-up stores – not included in this analysis.

The estimates on this page give job losses and store closures resulting from:

 We only include proposed closures and announced job losses. We do not include what the BBC calls jobs ‘at risk’ (ie companies or in administration) because there is a danger that this overstates losses in a normal year and we publish those figures anyway in Who’s Gone Bust?