Recently we have seen the collapse of retailers Toys R Us and Maplin, and the announcement that New Look and Carpetright are to close stores.
This week multiple other examples of distress on the high street have been publicised. Prezzo is to shut 94 of its restaurants, including all 33 of its Tex-Mex themed Chimichanga outlets. House of Fraser is in trouble and said to be seeking emergency financial aid after poor Christmas sales. Next have reported a sharp fall in profit, describing the current retail environment as the most challenging in a quarter of a century. Moss Bros has seen profits fall and is ‘planning for an extremely challenging retail environment‘. And H&M has posted a 61% profit fall for the three months to February.
The environment is equally strained in the United States. According to CNBC, in 2017 there were nearly 7,000 store closures (up 200% from the level set in 2016). Prior to the new year, early estimates for closures in 2018 stood at over 3,600.
One factor making it more difficult for firms is the exponential rise in business rates. Small companies in particular are suffering the most in this regard. There is evidence that between April and September 2017 over 40,000 firms were subject to visits by bailiffs over unpaid debts.
How much business rates rise by is now determined by the consumer price index rather than the retail price index. The cut off point for this year was several months ago when inflation stood at 3%.
The Government is putting rocks in our rucksack, with the National Living Wage, business rates, the Apprenticeship Levy and pensions changes. It’s loading costs on to businesses and they need to be careful of unintended consequences.
Gowers’ comment on the national living wage is a pertinent one. The Federation of Small Businesses warned in August last year that stagnating growth meant that adopting an increase in the National Living Wage would place further strain on firms.
It’s vital that the NLW (National Living Wage) is set at a level that the economy can afford, without job losses or harming job creation. Cost pressures on small businesses are building, and with most recent economic indicators under performing, we are now facing the reality that the NLW target may need to be delayed beyond 2020.
The government has stipulated that no matter how small the business, they are legally bound to pay the same minimum wage as multi million pound earning corporations such as Tesco and ASDA.
Supermarkets are already restructuring to accommodate the increase in the minimum wage. The small independent firms who are fighting for market share have neither the same flexibility or profit levels as those who monopolise industry.
Today, streets outside of a city centre consist of a mixture of boarded up units, corner shops, takeaways and betting shops. Employment opportunities are scarce to non-existent.
With interest rates continuing to rise, the cost of servicing debt becomes increasingly more expensive. It is inevitable that this and other elements such as higher wages will result in a growing number of companies going out of business.
- Bank of England rate-setter Gertjan Vlieghe said on Friday that interest rates will probably need to rise once or twice a year over the next few years, comments that are likely to help cement investors’ expectations of a BoE rate hike in May.
- Vlieghe said was he increasingly confident that inflation pressure was building in Britain’s economy.
- “The current central outlook is, in my view, consistent with one or two quarter-point rate increases per year over the forecast period,” Vlieghe said in a speech due to be given to business representatives in Birmingham.
- Swedish fashion giant H&M – the world’s second-biggest clothing chain – has posted a 61% profit fall for the three months to February amid weak sales.
- Stock levels were 8% higher than a year ago, partly because of an increase in stores but also thanks to slower sales.
- It said it had more unsold stock than last year and that would mean further discounts in the next three months.
- H&M employs 171,000 people worldwide in its 4,700 stores.
- It has outlets in 69 countries, with the US, Germany and the UK its top three markets by number of stores.
- The high street firm saw its pre-tax profits fall 6.1% to £6.7mln for the year ended 27 January 2018 as like-for-like sales growth slowed to 1.6%, compared to 5.3% growth the year before, with overall revenues up 3% to £131.8mln.
- Moss Bros chief executive Brian Brick reiterated the group’s pessimism for the current year, commenting: “Going forward, we are planning for an extremely challenging retail environment, not least because of the uncertain consumer environment and significant cost headwinds.”
- Restaurant chain Prezzo has won agreement from creditors on a rescue deal that will see it close 94 of its 300 restaurants.
- The company did not say how many jobs would go but it was understood around 500 were affected.
- Prezzo said the 94 restaurants to close were likely to shut in April and May.
- The number includes all 33 of its Tex-Mex themed Chimichanga outlets.
- Next has set out a gloomy outlook for the high street as it reported a second successive set of falling annual profits and warned of a further decline next year.
- The FTSE 100 retailer said it had experienced its toughest period in a quarter of century as pre-tax profits for the year to 27 January slipped 8% to £726m – and said more “challenging” times were to come.
- House of Fraser has held emergency funding talks with specialist lenders amid mounting fears for its future as retailers battle increasingly torrid trading conditions on the high street.
- House of Fraser suffered a tough Christmas with store sales down 2.9% and online sales tumbling 7.5% compared with the previous year. The company, which has 59 stores and 17,500 staff, is already trying to cut its high street footprint by 30%.
- International Monetary Fund (IMF) head Christine Lagarde said on Monday euro zone leaders should set up a “rainy day fund” to help cushion member states in economic downturns.
- The Fund’s managing director welcomed a “sustained and broadly shared upswing” in the global economy, which she said offered a precious window of opportunity for governments to “complete the architecture” of the euro zone.
- “There are other, forceful headwinds threatening,” Lagarde said. “Think of the rise of populism and the short-sighted siren call of protectionism.”
- “Within the next six months or so there could be a meeting of minds … on the general principles and timeline,” she said. Even if details took five years to hammer out, the announcement would “let it be public that members of the currency union stick together”.
- Federal Reserve officials on Friday said they want to see more details about new tariff policies before deciding whether any policy response is warranted, holding to their view that more interest rate hikes are needed.
- “I am concerned about it. It bears watching,” Dallas Federal Reserve Robert Kaplan told reporters. “I am going to counsel patience. From a policy point of view from the Fed, let’s see how this unfolds.”
- President Donald Trump signed an executive memorandum on Thursday that would impose retaliatory tariffs on up to $60 billion in Chinese imports.
- “This is the first of many” trade actions, Trump said as he signed the memo.
- The new measures follow a so-called 301 investigation led by U.S. Trade Representative Robert Lighthizer into China’s potentially unfair trade practices with the U.S.
- The U.S. Trade Representative’s yet-to-be-released report covers 1,300 product lines, the administration officials said.
- Trump said recent budget cuts have put America at risk and it was a matter of national security to sign the bill. Describing the rushed manner in which the legislation was passed as “ridiculous,” he said he will “never” sign a bill like this again.
- The spending package includes a record increase in military funding and is set to bankroll the government until September. Defense spending levels for the fiscal year, which ends on 30 September, were set at $700 billion. That represents an increase of $61 billion over last year’s cap.
- One of the most dovish Federal Reserve officials said on Friday he backed this week’s decision to raise interest rates in the name of “continuity” after it was telegraphed and well-expected, but he will only support more tightening if wage growth rises.
- There is “still a ways to go” to get to full employment, Minneapolis Fed President Neel Kashkari said at a Quinnipiac forum in New York.
- “If the economy evolves roughly as I suspect, I will likely support further increases over the course of the year,” Atlanta Federal Reserve Bank President Raphael Bostic said in remarks prepared for delivery to the Knoxville Economic Forum.
- Six-month core inflation is now at 2 percent, and unemployment of 4.1 percent is at or below precrisis levels; those two data points, he said, “give me confidence we are at or near the (Fed’s) sustainable employment and inflation objectives.”
- Federal Reserve policymakers should consider adjusting the central bank’s monetary policy framework to strengthen the tools available in the event of a future substantial hit to the economy, Boston Federal Reserve President Eric Rosengren said on Friday.
- “Now should be the time that policymakers carefully… assess which tools could provide more potent buffers to draw upon should a large adverse financial shock occur,” Rosengren said.