Store closures slow but tough times lie ahead for high street

New research, published by accounting giant PwC with The Local Data Company, signalled that the “shake-out” sparked by the pandemic is complete, with the first half seeing a sharp fall in closures compared with the same period in 2020.

According to the report, the daily closure rate dropped to 34 in the opening six months of this year, which was almost half the rate seen in 2020, when there were 61 closures per day.

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Alongside the slowing rate of closures, openings began to recover. However, openings have yet to climb back to their pre-pandemic level, suggesting retailers are “exercising strict caution in the current trading environment”. The report found there were 21 openings per day in the first six months of 2022, compared with 32 when openings peaked in the first half of 2017.

The research comes as the Bank of England forecasts that the UK economy will fall into a protracted recession later this year, as consumer spending power comes under mounting pressure from the surging cost of living. Inflation, which reached 10.1 per cent in July, is forecast by the Bank to reach 13% in the next few months, driven by spiralling energy prices.

The latest rise in the consumer energy price cap, announced by Ofgem last week, will see bills for typical dual-fuel households rise to £3,459 per year from October. Business groups are calling for immediate action to protect companies from punishing rises in the cost of utilities.

Lisa Hooker, industry leader for consumer markets at PwC, said: “A reduction in closures and growth in openings give some reason for optimism, but any positivity must also be viewed alongside the significant concerns over the rising cost of living and how it will impact people’s ability to spend. In addition to pressures on consumer demand, we must not also forget that increasing utility, input and labour costs will significantly affect the viability of all high street businesses.

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“While the outlook is better than it was during the height of the pandemic, it is worth noting that the numbers still show a decline, with our net numbers equating to 12 closures a day in the first half of this year. Added to that, retail footfall remains 10-15% below pre-pandemic levels and openings lack momentum – particularly outside leisure.”

The PwC-Local Data Company report found there were a total of 6,146 store closures by multiple operators, defined as companies with five outlets or more nationally, in the first half of the year – 30% lower than during the same period of 2021. The closures came as 3,888 stores opened, 11% more than last year, resulting in the lowest number of net closures in five years at 2,258.

The report notes that closures have been on an accelerating trend since the mid-2010s, driven primarily by the shift to online retail and services, such as banking and post offices, although this has been partially offset by the roll-out of leisure operations, including casual dining outlets and coffee shops.

The onset of the pandemic in March 2020 sparked a “shake-out”, largely among retailers which had over-expanded, such as restaurant chains, and businesses that failed to extend operator models to “omni-channel”, notably in fashion.

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The report found the shake-out is now over, explaining the sharp deceleration in closures seen in the first half of the year.

Lucy Stainton, commercial director at The Local Data Company, said: “What is clear from the latest numbers is that the impact of Covid-19 has finally washed through. However, we now face a new round of economic headwinds, so it remains to be seen if we can really expect this more positive trajectory to continue. That being said, surviving operators have learned huge lessons over the last couple of years.”

David Lonsdale, director of the Scottish Retail Consortium, said: “A reduction in the rate of store closures is encouraging and has parallels with the improvement in our own shop vacancy data during the second quarter of this year, which was the first full trading period when Scottish shops were able to remove all Covid-era trading restrictions. However, retail is rarely out of the eye of the storm and after two difficult years of pandemic now finds itself immersed in a cost crunch facing both shoppers and retailers.

“It is somewhat perverse that retail, which was amongst the sectors most impacted by Covid, is once again and so quickly set to bear the consequences of this cost-of-living crunch. The indications are that it may be a third consecutive tough Christmas trading period.”

Mr Lonsdale added: “To help Scottish shoppers and storekeepers weather this storm we are suggesting concerted action from government to pep up consumer confidence and to cut the cost of doing business. The Scottish Government’s spending review ominously pointed to a rise in the business rate next spring. If that matched the inflation rate it could add £60 million to Scottish retailers’ rates bills next April. Given the weakness in consumer demand, sluggish footfall, and spiralling costs, any further hike in Scotland’s business rate – already at a 23-year high – needs to be knocked firmly on the head.”