Throughout the end of 2017, more small businesses than ever had to deal with closure or downsizing. One of the major reasons for this trend is the rising operation costs retailers have to battle with, and next to that is slowing demand.
A study conducted by the Federation of Small Businesses (FSB) showed that retailers are among the least optimistic of 14 per cent of small businesses expecting to close or scale down. As for why this was the case, 75 per cent of those surveyed admitted having to deal with rising operating costs in the first three months of 2017. Even worse, consumer spending had been increasing but still remained outstripped by operating costs which continue to rise by higher proportions.
According to a 2013 report by Centre for Retail Research (CRR), store numbers in the UK would have fallen to 220,000 in 2018 from 281,930 in 2013; a 22 per cent fall. Also, 41 per cent of town centres were expected to have lost 27,638 stores in the past five years. It was estimated that 316,000 workers would lose their jobs due to these trends.
Rising costs can be attributed to overheads costs like rent as well as other essentials such as affordable shop insurance. CRR compared the costs of opening an online warehouse and a High Street store. Five years ago, it would have cost between £650 and £1,800 a month to maintain a warehouse on the outskirts of a town, while a High Street store in the Midlands would cost about £10,000 a month. That’s a phenomenal difference and the situation hasn’t changed much over the years; it remains cheaper to sell online.
Small businesses are not the only ones affected by the massive retail meltdown. By May 2013, 16 major retailers had gone into administration, leading to the loss of nearly 15,000 jobs. This year, Maplin and Toys R Us entered administration and that can put more than 5,000 jobs at risk.
Customers have been buying less from the High Street, with their share of consumer spending declining from 50 per cent to 40.2 per cent between 2000 and 2004. As fewer people shop in physical stores, online retail is expected to account for as much as 21.5 per cent of total retail sales by 2018; a significant increase from 12.7 per cent in 2013. At that time, retailers with well-established online stores needed only 70 High Street stores to establish a national presence, unlike 250 in the mid 2000’s.
The fall of consumer demand combined with the effects of inflation have led to 41 per cent of small businesses surveyed by FSB reporting lower profits. Business owners are not optimistic either as nearly a third of companies believed their performance would continue to fall. The fall in demand has been attributed to the rate at which online shopping is growing, especially in the UK where the proportion of online retail sales are highest.