Despite the hysteria there is a healthy future for physical retail

Life as a retail agent can seem a little daunting if you were to believe everything you read in the press.

There is no doubt there are a number of challenges facing retailers but, the simplistic view that online sales are killing the high street or physical retail does not do justice to issues far more varied and much more complex.

Retailers have always had to adapt to shifting consumer patterns, and the evolution of online retail is a major structural one. But, it is the need to get the right balance of physical and online presence that is the Holy Grail, not the expense of one for the other.

The rise in national living and minimum wages have added further pressures on margins compounded by an outdated and unfit for purpose business rates system which is overly penal on physical retailers.

Add to these the hysteria surrounding recent retail failures and the anticipation of more to come and it is difficult to look beyond the doom and gloom.

Nevertheless, we believe there are a number of reasons to think that there is still a healthy future for physical stores. A difficult market place encourages more thought and a different approach and there are signs that there are fresh challenges for online pure-plays which may help to level the playing field.

There are challenges for the retail built environment but, it remains relevant and a major part of UK PLC

A renaissance of local retailers 

Negative sentiment on the retail landscape generally has impacted on national retailer appetite for more units.

Few are under pressure to expand and as a result, landlords are looking to local independent retailers to help fill the gap. Online has also helped fuel the growth of small retailer entrepreneurs who also recognise the benefit of showcasing their wares in a physical presence.

We have seen this in enquiries we have received for a variety of schemes. Added to this has been the growth of the artisan markets, which also offers opportunity for both occupiers and landlords. There is still life out there!

The growth of the artisan markets offers opportunity for both occupiers and landlords

A levelling of the playing field

Online retail is here to stay however, there is an argument that its growth has been in part subsidised by physical retail and a lower cost base. There are signs that this cost base may come under more pressure.

Business rates for physical retailers need to be fundamentally reviewed. The burden of tax on retail occupation is a historic and unfair system that does not reflect the commercial market today.

The Government has at least recognised the issue but reducing to three yearly reviews is a finger in the dyke approach to the issue.

There is no doubt that some town centres in the UK are in long-term decline and a fundamental rethink is needed to uproot the business rates system. Tim Newark recently argued in the Daily Express for scrapping business rates to be replaced it with a local sales tax.

Equalisation tax

This is the concept of a turnover tax to target large corporations such as Amazon and Google. As recently reported by The Independent,  a letter to the European Commission written by the finance ministers of France, Germany, Spain and Italy stated that an “equalisation tax” paid on turnover instead of profits could recoup “some of what these companies should be paying in terms of corporate tax”.

Amazon, a major disrupter in the retail world would undoubtedly find something like this a major inconvenience. With Donald Trump picking them out as a special case in recent tweets there may be more commentary from other governments in the coming weeks and months.

The Local Government Association has claimed that online shopping is destroying the road network

Distance travelled by light goods vehicles have increased by 20% since 2011 and measures are needed to tackle the cost of congestion and repair bills as a result. Who pays?

Last mile delivery is a major headache for most online operators. Increased demand for warehouse accommodation has almost reached the level in some locations whereby an operator will be paying more rental per square foot for a unit to distribute their products from than they would be to sell directly to the public! There’s a thought …

Retailer failure is nothing new

The Toys R'Us UK arm has gone into administration, putting thousands of jobs at risk

There have been many in the past ten years and more often than not, the reasons for failure are linked to losing touch with your customers or over expansion into untested locations on over-rented properties.

We may still be early in the year and have already had a few high profile casualties, but we have seen worse in the past where the internet was not the source of decline. 

What is fact is that the retail landscape has never been more complex but, young or old, we still crave social interaction. There are challenges for the retail built environment but, it remains relevant and a major part of UK PLC.

Alex Munro is Head of Retail at Knight Frank. To discuss any of the points raised in this article to see how Knight Frank can help: