The Retail Sector - Business, Innovation and Skills Committee Contents

3  The changing nature of retail

If town centres are going to be the focal point of our communities in future, they have to change and, in order to do that, they need a plan. [Bill Grimsey][34]

Current position

25. The way in which we shop has changed and will continue to change, given the increasing popularity of online shopping. Figures from the Christmas period of 2013 highlighted this increase:

    Internet sales, which are seasonally adjusted for the first time in this release, increased by 11.8% in December 2013 compared with December 2012 and by 1.8% compared with November 2013.[35]

Liz Peace, Chief Executive of the British Property Federation, described the changing nature of the retail sector:

    Certainly, we have seen a very substantial change—particularly in relation to the impact of retail on town centres and high streets. Basically, town centres and high streets blossomed. Lots more retail came through the 20th century, but now it has shrunk and it will have to shrink back again. There is less demand for retail in traditional high streets. Obviously, what you have seen is a blossoming of malls, property malls, out-of-town shopping centres and out-of-town supermarkets. […] We do not challenge that change; we think we merely have to adapt to it. The key, from a sociological perspective, is how you adapt to the impact that has had on the town centres and high streets. We cannot put the genie back in the bottle; we have to learn from it.[36]

26. Much of our evidence pointed to the fact that customers use a variety of ways of shopping, by using their mobile devices, their computers, browsing in shops—both on the High Street and Out-of-Town—and any combination of the above. However, there is an imbalance between online and physical retail, most clearly seen by the issue of Business Rates, which adversely penalises traditional store-based retail. The future health of the online retail market requires a vibrant physical retail sector. The British Retail Consortium described this significant change:

    Our industry is undergoing a structural transformation on a scale that we have not seen in the past. Consumers have proved themselves very adaptable to new technologies and hungry for the new ideas from our sector that are improving and enhancing the experience of shopping. Critically, this on-going development of digital technology and the explosion of different ways to satisfy consumer demand are having a monumental impact, not only on the sector but the shape of our communities and society. This represents a very significant increase in the impact of commercial decision-making beyond the boundaries of business, into the shape, structure and culture of where we live and work.[37]

The High Street

27. The 'High Street' is a phrase often used, but little understood. It is a geographical location that can lie in city centres and town centres, and in suburban and village shopping areas. It has common characteristics but varies enormously across these diverse geographical areas. Significantly, the High Street needs to recognise that it is facing a historical change in shopping preferences. CACI Ltd, a consultant in location planning, wrote, "policy makers should be wary of looking back to a nostalgic view of traditional 'High Streets'".[38] This runs the risk of property owners basing their future strategies on unrealistic, outdated expectations.

28. Fiona Wilson, head of Research and Economics at USDAW, highlighted the emergence of 'showrooming', when shoppers will look at the products in store, and then leave and buy the product on their mobile devices.[39] Meryl Halls, from the Booksellers Association, described the effects that showrooming can have on independent shops:

    That is one of the main challenges to retailers: they have got all of the overheads of their premises on the High Street, but unless they are an omni-channel and can think of their shops as showrooms, they cannot possibly compete. The independents cannot treat their shops as showrooms because they have not got anything to fall back on. It is very hard.[40]

29. This method of retailing has resulted in a surfeit of 'bricks and mortar' shops, which Professor Bamfield, Director, Centre for Retail Research, described:

    Due to the structural change and the change in technology and innovation, our conclusions are that there probably are too many shops and we may well see 20% of them disappearing over the next few years.[41]

The British Council of Shopping Centres agreed with the prediction of a significant reduction in bricks and mortar shops:

    But the most significant impact of multi-channel retailing on our industry is the reduction in the quantum of physical space required overall by multiple retailers to reach their desired market, the resultant obsolete space, where this is likely to be located in the retail hierarchy, and how the industry deals with this oversupply.[42]

However, CACI Ltd highlighted the positive relationship between online and physical shops:

    The relationship between online and 'bricks' should not be seen as mutually exclusive. Analysis we have undertaken for major retailers show that some omni-channel retailers increase their online sales when they open a new bricks & mortar store because of the 'brand anchor' and 'showroom' effect.[43]

30. Intu Properties plc believed that local authorities have "frustrated the natural evolution of social hubs in the community through trying to protect the traditional retail role of the High street", and Bill Grimsey, businessman and author of The Grimsey Review: an alternative future for the high streets,[44] told us that "the last thing this country needs is more retail space. It needs less retail space and it needs public spaces used for community wellbeing".[45]

The Association of Licensed Multiple Retailers highlighted the positive aspects of food and drink to Town Centres and High Streets:

    High streets need to offer more than just retail to attract customers back. Research by CACI reveals how integral a robust eating and drinking out offer is to the health of retail. Retail environments which include a broad and varied mix of licensed retail environments encourage customers to stay for longer and to spend more. Moreover, consumers who eat and drink out as part of their retail experience have a higher per capita spend and dwell time than those who do not.[46]

This point was also supported by much of our evidence, including that from the British Retail Consortium (BRC):

    Successful High Streets will become places people visit for a wider experience, encompassing more than just shopping. The retail offer must work with, and complement, the omni-channel experience. Many locations are indeed already doing this with successful local partnerships driving innovation, fostering the optimal retail, social and municipal mix. For many the focus will be on marketing, accessibility and ensuring there is a shared local vision for the retail centre.[47]

31. David Owen, Chief Executive of GFirst LEP, spoke about the need for town centres to encourage such community life:

    Town centres are absolutely vital to our local communities, because a dead town centre creates an atmosphere, environment and culture in an area that becomes increasingly challenging. People do not see opportunity; they do not feel good about the place in which they live or work or play. I think Town Centre First is absolutely the right approach.[48]

Interestingly, David Owen and his colleagues gave us a tour of Gloucester town centre, and we saw an example of the innovative use of a retail outlet as a PopUp shop, to advertise the courses on offer at Gloucestershire College. The following day, Peter White, Executive Director of the College, explained that the move to the city centre meant reaching out to people who might not have thought of studying:

    The footfall over the eight-week period was over 1,600 people. We actually took 169 applications for courses, so pretty much one in five people who came in applied for something; 83 of those applications were for full-time courses at the college, and on our conversion ratio—we convert at around 65%—you are talking about £189,000, so £23,000 a week.[49]

When asked whether those figures amounted to net additional recruitment, Peter White replied that it was impossible to know, but lots of careers information was given out, which in itself was a good thing.[50]

32. This example illustrated the fact that a town centre can have a mix of retail and other businesses, including information outlets, which add to the fabric of the community hub. This call for meaningful community hubs was a thread running through our written and oral evidence.[51] Tony Wheeler, Head of Branch at Peter Jones, told us of his positive experience of working at Kingston upon Thames, where the community was involved in the town centre strategy:

    I was chairman of the Business Improvement District at Kingston upon Thames, and during that time I found the relationship between private and public sector really fascinating. The value we got from an integrated strategy for that town centre, which involved retail, public sector and community groups trying to make sure that we had a strategic vision for the destination that attracted consumers into that space was absolutely vital.[52]

33. In order to achieve an integrated strategy for a town centre, Liz Peace, Chief Executive of the British Property Federation (BPF), stressed the need for strong leadership and a strategic plan:

    It is not much use just going on about Town Centre First unless you have a strategy and a plan for how you are actually going to implement that to create something out of your town centre, which might be very different to what it was 30 or 40 years ago.[53]

When asked about the need for stronger community hubs, which will emerge from a strong retail sector in the area, the DCLG Minister, Brandon Lewis, told us that this was for local authorities, rather than the Government, to shape:

    It is not one size fits all, 'We know best in Whitehall', but actually it is your town centre. It is your community. You have the power to do something with it. We have to cajole, encourage, nudge and motivate all our local authorities to look really carefully at what they can be doing with the powers that we have given them. I do not think we should underestimate the amount of power we have devolved that does allow councils particularly to do this.[54]

34. With the dramatic rise in internet shopping, retail businesses are no longer locked into one way of working, and likewise, the High Street is no longer just about retail; it is also about creating a leisure experience, including opportunities for visiting cinemas, restaurants etc. However, for community hubs to survive and flourish, the High Street needs support from the Government. We do not recommend that the Government spends huge sums propping up an outmoded way of retailing. However, we support calls for Government to help shops to remain on the High Street, and for new, independent shops to be able to open on the High Street, by reviewing the burden of Business Rates, which are still based on an outmoded pattern of retail.

35. The United States has a different tax structure, but lessons could be learned from its approach to local taxation and rent. We appreciate that this is complex, but it is something that the Government should explore as an alternative to the current system. The Government should look into encouraging a more flexible approach from landlords, and discouraging upward-only rent revisions. This would will result in a fairer and more sustainable system.

Local Enterprise Partnerships (LEPs)

36. The BIS Retail Strategy highlighted the role of LEPs in England, to promote and support their local retail sector. However, the experience is mixed, and 'retail' is missing in the strategy of many LEPs:

    Retailers are the prime movers behind Business Improvement Districts (BIDs) and are on the boards of several Local Enterprise Partnerships (LEPs). LEPs are beginning to explore what they can do to support retail in their areas—not just as part of the local economy—but as important engines for growth. […] The Government will work with local partners to better understand market conditions and challenges and to undertake activities that maximise retail's contribution to growth in local economies through identifying opportunities and sharing best practice.[55]

37. However, the Government's A Strategy for Future Retail paper, published a year later, expressed concern over the lack of focus on retail by many LEPs:

    Many LEP strategies include actions that will benefit retail, for example through the leisure economy or town centre regeneration, and several have retail and town centre specific activity. However, only a few LEPs have retail as a priority sector. There is more that can be done to help LEPs to recognise the importance of retail and town centres to local and regional economies, and in demonstrating the value that LEPs can add. This was a recurring issue during the Business and Skills Select Committee inquiry into retail in 2013.[56]

The Co-operative Group welcomed the relationship between BIS and LEPs, but highlighted the lack of LEP funding and powers:

    [I]t is paramount that LEPs are furnished with the level of resources they will need to succeed. We believe that currently LEPs do not yet have the capacity, both in terms of funding mechanisms and powers, to deliver substantial economic growth.[57]

David Owen, Chief Executive, GFirst LEP, described the reasons behind the success at Gloucestershire:

    We set up a very strong retail-sector group alongside nine other sector groups, which cover our key sectors in Gloucestershire. They are purely business people; they are genuine business people running businesses right across the county. That is at the very heart of what we consider our role as a local enterprise partnership to be. We have strong leadership from a chair with a very credible business background who is well known locally; we have very strong relationships with the local authorities, because we cannot deliver, as Local Enterprise Partnerships, without a genuine partnership with our local authorities; and we make sure that the LEP is seen by local businesses as being led by business for business, to grow the economy.[58]

38. However, the Rural Shops Alliance was not so complementary about the Gloucestershire LEP:

    The major output from Gloucestershire LEP, as the first LEP retail pathfinder, has been a report under the Successful Town Centres—Developing Effective Strategies banners, subtitled 'Understanding Your High Street'. This is a quite interesting academic approach, albeit one based on traditional hierarchy of shopping centre models. However, it delivers few ideas on how to actually address the problems it discusses. It is perhaps pertinent that of the 20 main contributors only one, Boots the Chemist, is an actual retailer. The techniques used hardly seem cutting-edge and based on the published documentation, seem to lack the rigour employed, for example, by the sophisticated geo-demographic mapping models employed by major multiple retailers.[59]

39. This concern about local authorities' general lack of planning and oversight in the context of regenerating High Streets and town centres was reiterated by Mike Davidson, Head of Retail Operations, Land Securities. He highlighted the good intentions of his local centre managers and centre directors to engage with the local communities in which they were investing. However,

    Quite often they have a limited amount of time and resource to be able to give to those things, because ultimately they are still running a business, and quite often, therefore, it is difficult to know where to invest that time. Is it the LEP? Is it the BID? Is it the local strategy partnership, of which many towns I have worked in have a plethora of groups that are meeting to talk about? Is it the retail community? Is it the leisure and tourism community? There are dozens of these, and cutting through all of that to get to the point where you can spend your time most productively doing things that are going to develop some sort of strategic change, rather than sitting in numerous talking shops, is what we would like to be able to do.[60]

40. When the Secretary of State, Vince Cable, gave evidence to the Committee in January 2014, in reference to the Department for Business, Innovation and Skills' Annual Report of 2013, he told us that LEPs function in "varying quality and competency across the country".[61]

41. The Government has placed the 39 Local Enterprise Partnerships (LEPs) at the forefront of supporting the local retail sector, yet many of them lack the necessary resources and influence to succeed. The Secretary of State for the BIS Department acknowledged this to us in evidence. The Government should call on LEPs to develop a strategy for retail, in order to demonstrate their commitment to the Retail Sector.

42. Given the substantial contribution of retail to employment, we recommend that all LEPs consider appointing a retail representative on their board. For independent traders, this may not be feasible. However, national retail businesses should do more to encourage their local or regional management to participate in LEPs.

34   Q352 Back

35   Office of National Statistics, Retail Sales December 2013, January 2014 Back

36   Q232 Back

37   Ev 172 Back

38   Ev 57 Back

39   Q130 Back

40   Q275 Back

41   Q232 Back

42   Ev 166 Back

43   Ev w30 Back

44   Bill Grimsey, The Grimsey Review: an alternative future for the high street, September 2013 Back

45   Q356 Back

46   Ev w13 Back

47   Ev 174 Back

48   Q233 Back

49   Q342 Back

50   Q343 Back

51   Brian Binley MP, a Member of the BIS Select Committee, was Chair of the Conservative Parliamentary Enterprise Group, which published, in July 2008, A Strategy for Successful Community Hubs: Commission into Small Shops in the High StreetBack

52   Q189 Back

53   Q233 Back

54   Q396 Back

55   BIS Retail Strategy, page 7 Back

56   A Strategy for Future Retail, p 14 Back

57   Ev 179 Back

58   Q239 Back

59   Ev 187 Back

60   Q340 Back

61   Oral evidence taken on 22 January 2014, HC (2012-13), Q70 [The Rt Hon Vince Cable] Back

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Prepared 4 March 2014