Retailers cut 85,000 jobs in past year

Retailers have axed 85,000 jobs in the past year as weak consumer demand, rising costs and the switch to online shopping, exacerbated by Brexit uncertainty, have put businesses under increasing pressure.

The job losses in the UK’s biggest private employment sector – with particular importance for women – are the latest sign of a crisis on the high street that has seen the closure of thousands of shops and the collapse of some well-known retail names.

Bonmarché, the fashion chain for over-50s, went into administration last week, putting nearly 3,000 jobs at risk, just weeks after hundreds of jobs were lost at Karen Millen and Coast, which closed all their stores after falling into administration.

Other retailers including Mothercare, New Look and Marks & Spencer and House of Fraser have also been closing stores, while Debenhams is set to close more than 20 in January.

While many retail job losses are the result of closures, thousands are also due to cost-cutting, as retailers try to offset cost increases caused by the rise in the legal minimum wage and the apprenticeship levy, higher business rates and an increase in the cost of goods as a result of the Brexit-led fall in the value of the pound.

That has resulted in a 2.8% fall in the number of retail employees in the three months to the end of September, compared with the same period a year before.

Helen Dickinson, chief executive of the British Retail Consortium, which published the retail employment numbers, urged the government to provide more help for retailers as she said the number of retail jobs had been declining for more than three years.

She added: “While MPs rail against job losses in manufacturing, their response to larger losses in retail has remained muted.”

What’s the problem?

Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. In 2018 Toys R Us, Maplin and Poundworld disappeared as a result.

In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores. 

At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.

What help do retailers need?

Retailers with a high-street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.

What is the government doing?

In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘future high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.

What is the outlook in 2019?

Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the far east, have also added to costs and hit profits.

More pain could be on the way as research from analysts Retail Economics for advisory firm Alvarez & Marsal suggests major chains have 20% too much store space as a result of a fivefold rise in online shopping in the past decade. The report also found that retailers’ operating costs have risen by nearly 11% in the past five years, while store-based profit margins have halved in the past decade.

Changing habits – towards spending on leisure and other experiences rather than goods – are also having an effect. Retail spending, which accounted for nearly 30% of household expenditure in the 1960s, is expected to fall to some 20% of families’ spending in the next 10 years, according to Retail Economics’ analysis of ONS data.

Richard Fleming, managing director and head of restructuring for the European arm of Alvarez & Marsal, said: “Most of the UK’s biggest retail brands are in the midst of a fight for survival. We have already seen some high-profile casualties, and many more are on life support.”

Retail IT bosses expect one in five jobs in their businesses to be replaced by artificial intelligence or automation within five years, according to a survey by recruitment business Harvey Nash and advisory firm KPMG.

The BRC predicted in 2016 that the number of people employed in retail – about 3 million – would fall by 900,000 by 2025 and that many would find it difficult to transition to new roles.

But Fleming insisted that reports of the death of the high street were “greatly exaggerated” as shoppers still enjoyed browsing and the social side of shopping when store are sufficiently attractive.

“We’re entering a new era of retail,” he said, “presenting opportunities for forward-thinking incumbents, entrepreneurs and investors. Those that collaborate with landlords and local authorities will be the big winners going into the next business cycle. This needs to involve striking the right balance between retail and leisure through strategic partnerships, nimble pop-up schemes, agreeing temporary rent cuts that allow companies to reshape their debt and operational structure.”