By Sarah Montano, Professor of Retail Marketing and Dr Inci Toral, Associate Professor
Birmingham Business School, University of Birmingham
Once again, the UK’s retail sector is facing challenges, as highlighted by protests and a letter signed by over 80 major retailers. Key measures, including a rise in National Insurance contributions, an increase in the minimum wage, and a new packaging levy, are projected to add over £7 billion annually in costs to a sector already operating on slim profit margins. Retail leaders warn these changes will lead to shop closures, higher prices, and significant job losses, particularly in entry-level positions. While the government defends these tax increases as necessary to fund public services, there is a growing feeling that these increases will once again negatively impact a sector that is facing hurdle after hurdle. We explore what these increases mean for the sector, our high streets, and retail employees themselves.
Sector Struggles:
Every year we are seeing the decline of the retail sector and a loss of familiar brands. Whilst, notably in 2023, we lost Wilko, this year we have seen The Body Shop and most recently Homebase face substantial difficulties. With an average of 38 outlets closing per day, there is rising concern that our High Streets might not recover. In recent years, retail has rebounded from Covid lockdowns only to face the cost-of-living crisis, rising inflation, and now the NI increase.
Some retailers may feel that this is a perfect storm that once again will leave retail in a precarious position. Whilst we are seeing a significant number of outlet store closures, it is important to note that online sales hold steady at about 26% of all retail sales for most of the year (although this should increase by a couple of percent in November due to Black Friday and the festive season). This shows that customers do want to spend in-store, and that in-store shopping holds an attraction for customers. We can now consider what the impact of these increasing costs might be on four key areas.
Impact on Retail Employees:
Retailers, particularly those employing shop-level staff, face significant challenges due to the rise in National Insurance contributions and other cost increases. Women make up a significant portion of the retail workforce, especially in low-paid, part-time, and entry-level positions. These roles often provide the flexibility needed to balance work and family responsibilities. According to ONS data, between April 2022 and April 2023, 2.2 million jobs held by women are already below the real living wage.
With rising costs and an increase in inflation, potential job cuts will have a disproportionate effect on female employees. Women should not be considered solely as employees as they are also the main retail shoppers in retail, making around 70% of all consumption decisions. Moreover, job losses in retail can lead to increased financial instability for families, particularly single-parent households, and reduce the overall economic participation of women. Therefore, the compounded impact of shop closures may be more damaging to the economy than its obvious outcomes.
Impact on businesses:
The rise in unemployment due to retail job losses will also lead to decreased consumer spending power. This reduction in spending will have a domino effect and potentially cause more closures. As more retailers shut down, the market could move towards an oligopoly, where a few large companies dominate, reducing competition and consumer choice.
An oligopolistic market structure can have several negative consequences for both consumers and smaller businesses. With fewer competitors, dominant firms can exert greater control over prices, leading to higher costs for consumers. This lack of competition can also stifle innovation and reduce the variety of products and services available. For smaller businesses, entering or surviving in such a market becomes increasingly difficult, further entrenching the power of the few large players.
Impact on outlets:
Retailers have stated that this may lead to store closures. Given that we have nearly 40 stores closing per day, we do not want to see further closures on our High Streets, retail parks, or shopping centres. Empty units create a visually unattractive locality, and the fewer stores there are, the fewer people shop in an area, which leads to further closures.
The Entertainer has already indicated that the NI rise means that they will axe new store openings. Our local shopping areas are more than just about making a purchase, they are the heart of our communities; they are where we go to meet others, make friends with our hairdresser and provide our community spaces. At this time of year, our independent stores are where we find the perfect gift for a special someone, and all retailers must start somewhere! The next Tesco or Glossier may just be one outlet right now, but in 10 years they could be nationwide and need a chance to grow.
Impact on customers:
Whilst there is not an immediate direct impact on customers, we may see that in the longer term there is an impact. Firstly, store closures can significantly impact shopping habits, as proximity is a key factor in retail choice. When a preferred outlet shuts down, customers may need to travel further or switch to a different brand.
Secondly, women make at least 70% of all consumption decisions and are therefore more likely to be affected by retail changes through the afore mentioned job losses and increase in prices. Moreover, the consolidation of retailers on High Streets, making them unappealing, will continue to create digital attachment, and therefore physical detachment. That is, online shopping habits will keep growing at the expense of the High Street.
What could be done instead?
During the election we called on the government elect to SOS and Save our (high) Streets.
- Government Advice Consortium: the government could call for a new task consortium with experts from academia, retailers, retail unions, and consumer support groups. This consortium can prepare an action plan to save the High Streets, retailing as an industry, and employment conditions. To differentiate this effort from previous ones, the focus can be set on innovation, creativity and the use of digital technologies.
- Government, Local Council and Landlord Support: the government, local councils. and landlords could work together to reduce rents and rates for small retailers, helping them manage their operational costs and stay afloat. Furthermore, geographical and demographical differences can be implemented in a rental policy to leverage consumer buying power. Another form of government support could be providing tax relief or subsidies to small and medium-sized retailers, helping to ease their financial pressures.
- Consortiums and Collaborative Efforts: retailers can form consortiums to create retail entertainment centres in town centres. These centres could offer a mix of shopping, entertainment, and cultural experiences, such as shows, talks, concerts, and art exhibitions. This approach aims to attract more consumers to town centres. Furthermore, these consortiums could invest in large digital units to provide immersive shopping experiences, including metaverse experiences. These units could be financed collectively rather than by individual retailers, making it more feasible for smaller businesses to participate. Employees could be trained to serve in these centres, providing a blend of physical and digital retail experiences.
We believe, rather than facing inevitable retail outlet closures, both the retailers and authorities could come together to find solutions that can last. After all, retailers are more important than being economic vehicles but an important part of our society and lives. We are repeating our call for the government and the retailers to SOS – Save Our Shops!
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The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.