Meltdownon the high street

Chocolatier Thorntons is closing 180 shops, but Hotel Chocolat isopening more outlets. Jane Norman has gone into administration, butsales at Karen Millen and Zara are booming. TJ Hughes has collapsed,but Debenhams has just revealed an increase in like-for-like sales.

The story of the high street is a tale of Jekyll and Hyde.Although most retailers are suffering from rising inflation, highercosts and consumers cutting back, the most successful are keepingmore than their heads above water. Austerity measures by theGovernment have finally taken their toll on the consumer, bringing aplague of falling sales, forcing the weakest on our high streets tocrumble.

Although the names to have lost the battle to survive recentlymay not be a surprise to some - Jane Norman and TJ Hughes have beenstruggling for a long time - the job losses and the empty shellsleft in many town centres are a problem for everyone. The estimatednumber of jobs lost from last week's administrations is 6,000.

Malcolm Dalgleish, a retail expert at CB Richard Ellis, says:"The early part of this crisis was a financial recession. But now weare seeing the effects of the recession hitting the real people, thepeople on the street. We have seen the retailers with financing anddebt problems go first. But good retailers don't become badretailers overnight. There is still opportunity for some to takemarket share, and not all retailers are suffering at the same rate."

In the past 30 years, Britain has lost more than 300,000 shops.Last week Habitat, Jane Norman and TJ Hughes fell intoadministration, while Thorntons and Carpetright announced plans toclose shops when the leases expire.

This is just the tip of the iceberg. Topshop's parent company,Arcadia, Dixons, Mothercare, JJB Sports and HMV all plan drasticreduction in store numbers. A quick tally finds 15,462 shopsearmarked for closure.

Christine Elliott, the chief executive of the Institute forTurnaround, says: "Some have said the woes are the fault of therecession. But this is not just about recession. The failures havebeen about the retailers that have not got their act togetherdespite warning signs.

"These retailers have not been capable of fulfilling the basicrequirements of getting to know what their customer wants and actingon it; activating the right channels to market and adjusting theircost base."

Too much debt

Jane Norman had 140m of debt which was unsustainable, and itfinally went into administration last Monday. Last month, Life &Style, the cheap fashion chain run by Elaine Macpherson who boughtthe stores when the Merseyside chain Ethel Austin went intoadministration on two separate occasions, went into administrationfor a third time.

Elliott adds: "We have seen the advent of retailers that havegone into administration more than once. This is not a healthyphenomenon.

"The reason they have failed again is that, although there hadbeen financial restructuring, changes to the operational businesshave not been made. Shareholders should be monitoring businesses andacting early to restructure before it is too late."

Michael Ziff, the chief executive of the footwear group that ownsBarratts and Priceless Shoes went through a pre-packagedadministration in 2009. "You should not run a business in thecurrent climate with more than a week's turnover in bank debt," hesays. "The sums of money that some of the retailers have beencarrying is monopoly money.

"In my old business, we were carrying too much debt, and that iswhere the problems started. But now we have just a small overdraft.Retailers need to keep stock tight and work with suppliers."

Following the boom-time era of cheap debt, many businesses arestill heavily laden, which could have an impact on their future. Thefashion chain New Look is one such retailer labouring under 1bn ofdebt.

Mike Shearwood, the chief executive of Aurora Fashions, whichowns brands including Oasis, says: "Trading conditions are brutal.We are fortunate that our consumer likes the differentiation we havebrought through our brands. We are outperforming the market, but wehave sympathy with those businesses that are indebted to banks in away that doesn't enable them to get through this tough period."

Internet beats the high street

What is driving the revolution on our high streets is expansionof alternative sources - from online, from retail parks and fromsupermarkets. The major growth is online. Verdict Research predictsthat internet spending will grow by 14bn - 61 per cent - by 2014.The structure of town centres will have to change.

The shutters are predominantly falling on small towns where thelocal shoppers today save their pennies for online purchases, tripsto supermarkets or large shopping centres: these they visit lessoften but spend more money when they go, leaving the local centresstruggling.

Statistics from the Local Data Company show the retail failuresare increasingly hitting northern towns worse than their southerncounterparts: the average northern town is likely to have double thenumber of empty shops compared with the south.

But Kay Chaldecott, the group executive director of property atCapital Shopping Centres Group, says it is the smaller towns thatare being affected - no matter where they are in the UK. "We are notseeing a North-South divide," she explains. "Large centres which aredestinations and provide strong leisure and catering are continuingto see strong footfall, and our experience is that the big citiesoutside London are still doing well."

In prime areas such as central London, the Trafford Centre inManchester and Bluewater in Kent, rents are still rocketing andretailers are fighting to take space - in contrast to the secondarycentres up and down the country where retailers cannot even affordto pay the rent. The cost of rents and rates is just too high tomake opening a shop in some towns viable.

Too many shops

But the issues for the high street are more structural than justgeography. There are too many shop premises - everywhere. In thecredit-fuelled property boom, too many were built, leaving theoldest shops in towns empty when retailers favoured more modernbuildings. Retailers, flush with cash from over-zealous banks orprivate equity backers, took more and more new shops - thinking itwas the only way to increase sales.

Supermarkets to blame?

Some landlords blame large supermarkets that sell everythingunder one roof for some towns' woes. Tom Tyler runs ChesterProperties and has managed retail schemes in more than 12 townsincluding Walsall, Yeovil and Motherwell. "Town centres have beendamaged by edge-of-town supermarkets. Out-of-town supermarkets,shopping centres and retail parks are not the problem.

"It is an issue when a supermarket - usually more than 80,000 sqft - is built just on the edge of the town centre. It is the worstscenario. Asda or Tesco sell everything from food to furniture topet products to travel insurance. All the things that you might havepopped in to town for."

Tyler blames the planning system for allowing the supermarkets toopen so many large stores.

"Up and down the country, supermarkets are getting planningpermission to extend their stores by up to 50,000 sq ft. They haveroom to sell 40,000 sq ft of non- food and that is enough to put 12unit shops out of business in each town. Nothing is being done tostop this."

The future

Over the next few months more shutters will come down for thefinal time and more windows will be boarded up. New uses will haveto be found for such shops if they are not to lie empty. But thereare pockets of good news where retailers are still planning to opennew stores.

Despite the difficult trading environment, overseas retailersstill plan to set up shop on our shores - from the US, UrbanOutfitters, Forever 21, and American Eagle, and from Europe, TheKooples and Sacoor Brothers are just a few of the names planning toopen, rather than close, shops here.

Hugh Radford, the head of UK retail at property adviser DTZ,explains: "The recent administrations will provide some shops inprime locations that will be snapped up by other retailers lookingto grow market share. It is only the already struggling secondarycentres where these shops will stay empty."

For the best retailers, shoppers will still part with their cash,ensuring that Britain continues to be a nation of shopkeepers andnot just shop closers.

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