PwC | UK

Store Openings and Closures - 2020

Is there worse to come? Even record closures may not show the full picture

Could retail and leisure emerge from this challenge leaner and stronger?

High street retail and leisure may be on the edge of a precipice: Fewer openings, an increase in closures, and permanent changes to the make-up of shopping and leisure destinations. But while there may be worse to come, consumers still want to spend, so there’s every chance for businesses that evolve now to come out leaner, smarter and stronger.

Last year, we saw record store closures but glimmers of positivity for certain sub-sectors. This year, retail and leisure were always going to see challenges, and our most recent store openings and closures research paints a particularly bleak picture of what’s to come. Arguably, however, the crisis has simply accelerated a restructuring that was already needed: it’s just more painful than expected due to the speed of change, which has left businesses little time to react.

Even so, COVID-19 hasn’t revolutionised the way we shop. It has created a step-change in shopping behaviours and encouraged forced experimentation, but that is more of an acceleration of the trends we’ve already seen: a shift to online, changing priorities in shopping categories and a more rapid shift away from outdated, poorly delivered store formats.

We know that retail is resilient: even in the face of a global pandemic and a national lockdown, sales had already recovered to pre-COVID-19 levels by July, though with a shift in categories and channels.

This year’s headline figures are testament to this resilience. Amid accelerating closures (a record 11,120, and record net decline of -6,001) there have still been consistent openings (5,119 - the highest since 2017).

But even this industry has its limits.

Jan-Jun openings and closures by year -

Click on a region to select it

Closures
Openings
Net change

Source: LDC

“ The resurgence of local high streets and the steady successes in certain sectors shows that consumers still want and need to visit shops and leisure operators. Because of this, there is still a future for physical locations.”

Lisa HookerLeader of Industry for Consumer Markets, PwC UK

Further closures to come: for high street retail and elsewhere

The reason for this bleak prediction? Based on primary research, our survey doesn’t count ‘temporarily closed’ sites as closed, so we’re not quite seeing the full picture yet. And the bounceback in retail hasn’t been replicated across leisure and hospitality, which have been hampered by both national and local operating restrictions, as well as consumer reticence and other industry-specific factors, such as the lack of a film slate affecting cinema audiences.

We’ve already seen announcements of chain closures and company voluntary arrangements, which are yet to take effect on high streets and shopping centres. Unless further government stimulus is announced, we’re guaranteed to see further closures as other external factors impact the sector. With further movement restrictions and local lockdowns almost certain, the furlough scheme phased out in October and business rates relief and VAT reductions for hospitality ending in March, what will shopping centres look like next year? And is there anything operators can do now to recover?

Multiples to miss out? Top 500 high streets no longer the main attraction for consumers

Previously, our store openings and closures research only covered the top 500 high streets in Great Britain. This year, we have extended our research to multiple retailers across all high streets, shopping centres and retail parks, and recalculated data for the last five years for ease of comparison. This has given a more complete picture. And this change in reporting has highlighted an interesting pattern we’ve not seen until now.

Over the time we’ve analysed the top 500 high streets, store closures have been generally flat. Often the biggest concern has been a scarcity of openings as incumbent operators gradually shift online, and newer operators have less inclination to open physical stores.

Now our analysis covers all shopping venues, we’re seeing closures accelerate but openings remain flat. This suggests that there have been new openings over the last few years, away from the top 500 high streets: for example, in retail parks, where footfall has held up in recent years, and recovered more quickly following this year’s lockdown.

It also suggests that locations away from the top 500 high streets have previously been disproportionately affected by closures: such as secondary high streets as large national chains have reduced their store footprints.

However, with people now spending more time working from home, there’s been a resurgence of interest in local high streets. In this environment, multiples are likely to be at a disadvantage to local independents. Not just because consumers are more likely to support local independents, but because multiples are no longer where consumers are spending more of their time.

Even independents aren't immune

Independents have proven to be more resilient than multiples in the last few years: net openings have remained broadly flat, while multiples have consistently declined. This, despite being a population three times larger.

Even though consumers are showing an ever-increasing affection for independents, they’re still not immune to the challenges in this environment; particularly those in categories such as fashion, where many have already fallen victim to the shift online.

To find out more about the future outlook for independents, sign up for Local Data Company’s seminar in November.

“While the pandemic has created a step change in underlying consumers trends, whatever happens, retail will come out of this smaller but stronger.”

Lisa Hooker Consumer Markets Leader, PwC UK

Store openings: what does the future hold for physical stores?

While it’s challenging for many, these results aren’t bad news for everyone: there have been openings in several areas from across retail, leisure and services sectors. In short, this means that even in this uncertain and volatile environment, there is a future for physical stores, whatever the sector.

For retail, the consistent success story has been the value retailers and supermarkets, predominantly the discounters. As consumers look for value, and because of the economics of delivering low-value goods, they accept the need to visit physical stores rather than online. Other neighbourhood shopping needs may be better served by independents with local knowledge rather than national chains, and the relative resilience of independent store numbers is testament to this.

For leisure, the last 5 years have been dominated by the takeaway and coffee shop boom. And while many expect coffee shops and food to go to be heavily affected by any post-COVID-19 environment, leisure is likely to remain resilient in the shape of takeaways and pizza delivery shops.

For services, certain operators (such as banks and post offices) are likely to move away from the high street. However, those services that can still only be delivered locally (and therefore see little impact from online) will see growth: tradesmen outlets, building products or locksmiths. Elsewhere, while we’ve seen positive results for travel agents, this highlights how some categories can be temporarily influenced by the actions of one operator.

Store closures: where are we seeing the biggest decline?

While store openings have long been driven by changing consumer behaviours and preferences, most net closures have been dominated by specific changes in industry or specific operators exiting.

In the services sector, we’ve seen a long-term shift away from standalone banks and post offices on high streets. The widespread shift to online services has been the driving factor in this change, prompting some banks and financial services providers to reassess their future strategies for physical branches.

Changes to the industry structure have been the biggest influence on leisure closures. While pubs and bars look to have declined as many mid-sized chains exit or consolidate, the largest and smallest operators have flourished by comparison. Elsewhere, the decline of physical betting shops has been led almost exclusively by legislation, accelerating the longer-term shift online.

As ever in retail, everything is dominated by the tug of war between online and instore. Fashion retail has traditionally been most affected by online, and we’ve also seen some one-off multiple closures skewing figures for mobile phones and electronics. Convenience stores have regularly entered the bottom 5 categories despite being one of the few growing parts of grocery. These closures are largely driven by the consolidation and exit of marginal stores following rapid expansion over the past two decades.

“The reduction in gaming machine stakes and prizes has led many of the large betting operators to reduce store estate. The pandemic will lead to further store closures, but with most sports betting already online, the shift during lockdown was less pronounced than in other sectors.”

David Trunkfield Hospitality and Leisure Leader, PwC UK

Fluctuating fortunes in the short term and uncertain times ahead

While this year’s research is a stark contrast to the green shoots we’ve seen in previous years, it also comes with a warning that this is just the beginning. While we’re beginning to see the impact of COVID-19, these results don’t quite give the full picture: there is worse to come for physical retail locations.

But the pandemic hasn’t brought any significant new long-term challenges with it, it has simply accelerated trends that we’ve been seeing for some time now, and laid bare structural weaknesses or overcapacity in certain categories. Operators now need to get on top of these trends: and fast.

In the short term, we’re likely to see fluctuating fortunes across categories and locations: The continued resilience of retailers, products and services that can only be served locally, such as takeaways, discounters and tradesmen. An acceleration in exits for those offerings shifting online, such as banking and non-grocery ‘comparison’ retail. And an uncertain future for those areas affected by a post-COVID-19 shift to home, such as food to go, coffee shops and destination leisure like cinemas.

What happens now?

Local authorities need to rethink the solution

For local authorities, it's now critical to rethink how they respond to this significant and growing decline in store occupants. It’s more than just thinking about the high street of the future - it’s thinking about out of town shopping, ‘competing’ town centres and how they all work together. And it’s thinking about more than just retail.

There isn’t a one-size-fits-all solution: the reality is that changing shopping and leisure habits mean less requirement for traditional retail and leisure on most high streets, less requirement for regional shopping centres and less demand for out-of-town leisure parks. The solution is unlikely to be more of the same.

There’s now an opportunity to rethink town centres and what they look like in the future. Places to live, work, shop and play: homes and workplaces, leisure venues and green spaces, alongside retail and hospitality ranging from independents and pop-ups to national chains and flagship destination stores. Based on the needs of that area, these individualised ‘hubs’ can provide activities at the heart of a community and create a destination for all.

Businesses should look at operational restructuring to secure their future

...and with the continued threat of local lockdowns, tightened restrictions and economic uncertainty, businesses need to act now to take control and restructure for recovery. They need to challenge themselves, rethink their strategies and make nothing untouchable. And this course of action shouldn’t only apply to those that are in trouble or face insolvency.

The good news is that there are plenty of ways to do this: reviewing the operational structure, shoring up liquidity or revisiting strategies that are no longer fit for purpose. And it’s important to consider all of these areas as a collective, rather than focussing on one in isolation. Once an organisation has found its new approach or solutions, they will then need to bring stakeholders with them: whether that’s employees, customers, suppliers and funders.

These aren’t easy decisions to make, but for some, they will be essential for business survival. The most important thing is that they act now - for many, while they still have the support of government stimulus or the benefit of agreements with landlords - before it’s too late.

Revisit property portfolios

With openings and closures comes a significant strain on real estate and, with property often accounting for a significant proportion of costs, difficult strategic decisions will need to be made. However, there is a rare opportunity to create a mandate for potentially radical business transformation for which real estate can be the enabler.

While dealing with the immediate issues in hand, securing cash flow must take priority. Property is an often-underestimated enabler of cultural change and business growth. For businesses able to take a longer-term view, it’s important to think holistically about future business strategy, the real estate that business will need to occupy, and how any assets could be leveraged, or cost savings used, to facilitate this strategic change.

There are a number of approaches that can allow businesses to optimise costs and revenue - whilst operating within your balance sheet constraints. When it’s right for the business, leaders should grab this chance with both hands. While hasty decisions are to be avoided, so is inertia. COVID-19 has provided a good opportunity to reset.