Reopening the high street will not guarantee a rebound

During the coronavirus outbreak, deserted high streets across Britain have been one of the most potent reminders of the economic damage being inflicted by the health emergency.

Retail accounts for about a third of consumer spending in Britain. With much of the high street closed and the economy slumping into the worst recession since 1706, Boris Johnson’s plan to reopen non-essential shops from 15 June is key to limiting the hit to jobs and growth.

Such is the importance of consumption to the UK’s economic model, that overall household expenditure, which adds total retail spending together with bills, rent, mortgage payments and other outgoings, accounts for almost two-thirds of national output.

About three million people work in retail, roughly one in 10 of all jobs in Britain, and it is the largest single private sector for employment. Millions more working in public transport, warehouses, restaurants and elsewhere depend on the high street and online sales to thrive.

Retailers have been battered during the lockdown period. Sales fell by almost a fifth in April as shoppers stayed home, the biggest slump since records began in the late 1980s. Wiping out 15 years of growth, sales volumes fell back to their 2005 level.

The impact, however, has not been uniform. While restaurants and pubs have closed, food sales have proven resilient and spending on alcohol has surged. Fashion retailers and departments stores have had their high street business completely wiped out, although online trade has risen from around a fifth of sales to almost a third.

A rebound across the board will depend on consumer confidence in two things: their personal finances and whether they feel safe on the high street.

With rising job losses, the continued risk of infection and mixed government messaging, reopening retail is no guarantee of rebound.

Unemployment is expected to more than double by the summer as companies buckle. There are concerns job losses could spiral further as the government scales back its furlough scheme.

There are, though, some positive pointers. Household savings have been growing fast as those still earning have been forced to cut their spending on everything from travel and tourism to leisure and haircuts.

And there are signs of pent-up demand after two months of confinement. Footfall on high streets and at retail parks over the bank holiday was up a third compared to the Easter weekend, according to the data tracker Springboard.

But the fact is a summer spending spree is not expected. Fashion chains might open again but with many offices still shut, few social events on the horizon and pubs, clubs and restaurants still closed, few will be rushing to buy a new outfit.

In China the government has been handing out retail vouchers to encourage shoppers back into the stores.

Social distancing measures will be used to protect shoppers. But for some retailers that will push up costs and lead to shop closures and job losses. Shoe shops and clothes stores face some of the biggest challenges, as they will need to isolate stock every time an item is tried on. For many, buying new shoes and fashions may cease to be an enjoyable way to spend time.

Britain’s retailers were struggling before Covid-19 struck, with the potential death of the high street a key issue at the 2019 election, after a wave of high-profile shop closures.

According to the consultancy Retail Economics, pretax profit margins at the UK’s top 150 retailers have halved over the last decade, dented by the rising minimum wage and business rates.

Since at least the 1960s, British households have spent increasingly more on services and activities rather than objects, while the increasing shift to online spending is presenting ever bigger challenges to bricks-and-mortar retailers.

Weak wage growth since the 2008 crash, a lacklustre economic recovery and austerity cuts combined to dent the spending power of consumers. Brexit also threatens to disrupt supply chains and push up prices.

Covid-19 is expected to exacerbate and magnify these trends. It threatens to compress changes that were expected over five years into a matter of months.

Combined with the unfolding economic damage, continued lockdown measures elsewhere and the risk of infection, Johnson will need to do much more than simply hang an “open” sign on the British high street.