The UK high street is in danger of decline, and has been for a while. This blog will go into the ways we can prevent its decline.
As a business owner, I have personally witnessed how small enterprises navigate the challenges posed by a swiftly-evolving world, and the UK high street is certainly not immune to these changes.
There are many ways in which a business can be pushed to breaking point, but there are probably six key street to the average UK high street business:
- Home working patterns and trends
- The rise of online businesses
- Excessive and unfair tax burdens
- Rising wage and worker costs
- A squeezed consumer in the cost of living crisis
- Rising Overheads (Rents in particular, but not limited to)
In this article, I will break down each of these points. In most cases there is not a simple solution, but I attempt to touch on some potential solutions that might help business owners and policy makers take positive steps in driving forward change. The lack of affordable parking in many city centres also deserves a mention, but in this article, I won’t focus on this point.
If you’re interested in this topic, definitely check out the Wandering Turnip on YouTube as I think he provides a lot of thought-provoking content on the death of the high street.
Home Working Patterns and Trends
Since the pandemic, there has been a push from businesses and workers towards remote working.
According to the ONS, 44% of workers in the UK are involved in some kind of remote work. These include both those who are fully remote and workers who hybrid-work (have to attend a physical location at some point during a week).
This lifestyle shift has had some positive impacts on workers. In fact, 54% of home workers felt that remote working had a positive impact on their work-life balance, and the likelihood of experiencing bullying or harassment has decreased significantly. There are some negative impacts of course, such as feelings of isolation: 46% of home workers feel isolated working from home.
Overall, I believe we need to regard this as a positive shift in a changing world. Like any change, there are expected issues and problems which can arise. However, we need to adapt and adjust, and put into place actions that mitigate the problems.
The Impact of Home Working on Businesses
Certainly, the current trend towards remote and hybrid working has created opportunities for various online businesses. For instance, businesses specialising in office equipment online are witnessing a surge in demand, reflecting the growing number of individuals seeking to establish functional and comfortable home offices. This shift in work dynamics has led to an increased focus on creating productive and ergonomic home workspaces, driving the need for quality office supplies and equipment.
Moreover, the impact extends to sectors like garden outbuilding companies, which cater to the demand for alternative workspaces. Entrepreneurs in this industry can anticipate a rise in interest as more people express the desire to construct garden office buildings. These structures provide individuals with the option to work in serene and peaceful outdoor settings, promoting a conducive environment for concentration and creativity. The demand for garden office buildings reflects a broader societal shift towards flexible and personalised work arrangements, and businesses that adapt to these evolving preferences stand to benefit from this changing landscape.
Benefitting from the Situation?
Of course, many businesses that operate online can benefit from this remote and hybrid working trend. For instance, an office equipment online store may experience a spike in business as people are looking to build their home offices. Similarly, someone who owns a garden outbuilding company could also expect more people to wish to build out garden office buildings, so they can work in more relaxed and quiet surroundings.
Any business owner should remember the quote:
“The trend is your friend until it bends”
Commodities Trader, Ed Seyota
The high street, however, has struggled to cope with this trend, even though it seems to be reversing slowly. I am positive that this trend will not remain a limiting factor on high street businesses, but it was still important to address in any article about the threat to the high street. Humans are naturally drawn to human contact and personal relationships. As a result, people will likely keep seeking out high street businesses for the stimulation they provide.
The Rise of Online Businesses
The persistent challenge facing high street businesses is the ongoing impact of the widespread availability of products online, which continues to exert a negative influence on their operations.
The ease and convenience of accessing a vast array of products through online platforms contribute significantly to the declining foot traffic in traditional brick-and-mortar stores. Amazon is obviously one of the huge threats to the high street, but over the next few years, there will be other competitors that affect the high street: Tiktok shop, Instagram shop, and more.
Consumers are increasingly turning to the internet for their shopping needs, drawn by the convenience of browsing and purchasing from the comfort of their homes. Online retail platforms offer a diverse selection, competitive pricing, and the convenience of doorstep delivery, rendering them an attractive alternative to physical stores situated on the high street.
This shift in consumer behaviour not only poses a threat to the survival of traditional businesses but also necessitates a reevaluation of their strategies to remain competitive in an evolving market. The pandemic sped up this trend and physical businesses had to start thinking about setting up online stores to push their products.
Changing Consumer Behaviour
The ability to access products online not only influences consumer preferences but also affects the overall retail landscape. High street businesses, grappling with the challenge of online competition, must innovate to enhance the in-store experience, offer unique value propositions, and leverage technology to bridge the gap between online and offline shopping.
Adapting to the changing dynamics of consumer behaviour in the digital age is crucial for high-street businesses to thrive amidst the persistent challenge posed by the accessibility of products online.
As business owners, you cannot expect consumer behaviours to revert. Your goal has to be to develop your business to cope with this trend. Your primary aim should be to stand out to customers in positive ways. Some so many customers value the personal touch, appreciate the social aspect of shopping, or look for extra value in your offerings.
Excessive and Unfair Tax Burdens
Tax is always a difficult subject because most business owners would think that at least some level of taxation has to be levied. If we want to live in a modern society which allows people to rise, gain a decent education, etc. Social mobility is important in society. However, small businesses have a very tough time with these added costs. The current system also creates perverse incentives which makes it more likely that business owners can be pushed to avoid, and even evade tax.
The black market or shadow economy in the UK accounts for an estimated £200,000,000,000 (two hundred billion). Now it is true that some of this economy is made up of businesses which may never be mainstream such as prostitution in the sex industry and the opiate drug industry. However, there are probably businesses in this group that could operate legitimately and be taxed.
These tax issues are specifically, a small to medium-sized enterprise (SME) problem. I know quite a few small business owners who have started to either, close their businesses or are thinking about it. Many business owners think about setting up their businesses elsewhere.
Here are the taxes which I have a particular issue with:
Business Rates
The financial burden of business rates poses a substantial challenge for high-street businesses, differentiating them from online counterparts and those operating out of warehouses. Unlike businesses in the virtual realm or large storage facilities, high street establishments are obligated to pay business rates, constituting a significant operational cost that directly impacts their profitability.
These business rates, often associated with the physical presence of a commercial property, can become a considerable drain on a high street business’s resources. The allocation of funds to cover these rates detracts from the profits that could otherwise be utilised for crucial aspects of business development. The direct consequence of this financial strain is a limitation on the capacity to hire additional staff, make strategic investments, and pursue expansion opportunities.
A high street business has to pay business rates, which can be a significant cost. These same rates are not applied to businesses operating online or out of warehouses. Our business rates costs significantly cut into the business’s profits which hurts our ability to hire staff, invest, and expand.
VAT
VAT or Value Added Tax is currently at 20%. I don’t necessarily have a problem with a sales tax in principle, but 20% is extremely high. Businesses which levy VAT are able to claim back VAT on their expenses, however, VAT can still be a barrier for the consumer as it pushes up the cost of transactions for customers. Whenever a business raises its prices, the amount of VAT also rises in line with this.
The main issue with VAT, however, is that the tax is completely out of date when it comes to the threshold. It still sits at £85,000 and will continue to be held at that level until 2026 at least. If you’ve ever tried to run any form of high street business (especially in London), how could you survive at this level of revenue? That’s revenue and not profit!
Your minimum level of expenditure is probably already around £50,000 or more annually. Earning around £85,000 and registering for VAT would certainly put most business owners out of business. Shockingly, this threshold has remained the same since 2017-18.
This ridiculously low threshold leads businesses to intentionally attempting to earn under the threshold, or simply not declaring their takings by taking cash payments. In fact, 44,000 businesses have chosen not to raise their revenue above the threshold. These are 44,000 businesses that are limiting their growth, investment, and future profits because of this ridiculous threshold and frankly because of a political elite that is completely out of touch with every concern of local business owners.
Rising Worker Wages
I believe that a worker should be valued and receive decent pay. If smaller businesses are finding it tougher generally, however, having higher worker wages inevitability will affect small and medium-sized businesses.
Larger businesses are simply able to pay their workers more because they have higher margins, and tend to have highly scalable businesses delivering a higher return on invested capital. Plus, they have easier access to capital markets for investment.
This trend is probably going to a downtrend in the coming months and years, and I have noticed more people looking for work, but it was a real problem for small businesses during the pandemic, where companies were willing to employ because of the shortage of workers and the easy availability of capital.
I also think that AI will slowly unfortunately start to erode the worker’s ability to command value in the job market. As a business owner, however, you need to think about the survival of your business and automate where you can, so your staff can deliver the ultimate value, and concentrate more on the emotional needs of the customer.
A Squeezed Consumer
The current cost of living crisis is making things tough, especially for regular folks and local businesses on the main street. People are feeling the pinch between higher prices and not-so-growing incomes, and it’s changing how they spend money. This shift is hitting the wallets of businesses operating on the traditional high street.
For these businesses, dealing with consumers feeling financially squeezed is a big challenge. With less money to spare, people are being more careful with their purchases, and that means less spending on things they don’t really need. This is hitting sectors like retail and hospitality, where people typically spend on extra stuff.
High-street businesses are facing a tough time figuring out how to deal with this. They need to adjust their strategies to match what customers are now doing. Price is a big deal, and businesses are trying out new ways of pricing, offering discounts, or extra services to stay in the game and attract budget-conscious customers.
But it’s not just about spending less; the cost of living crisis is affecting the whole vibe of the high street. Businesses, dealing with lower sales and not making as much money, find it hard to cover their basic costs like rent and wages. This can lead to tough decisions, like laying off staff, cutting back on marketing and improvements, and, in some cases, even shutting down.
To survive all these challenges, high-street businesses are trying to connect with cost-conscious consumers. They’re focusing on things like giving value for money, adding new products, and making the customer experience better. For instance, as a coffee shop, it would be advantageous to have a cosy setting, with fast internet and a good selection of drinks and other consumables. It’s a tough time, but these businesses are doing what they can to weather the storm and keep serving their communities.
Rising Rents
With the recent upward movement in interest rates, both commercial and domestic landlords have found themselves grappling with a challenging financial landscape, leading to a decline in their profits. The fluctuation in interest rates directly affects the borrowing costs for property owners, impacting their bottom line and eroding the profitability of their investments.
In response to the pressure on their profit margins, landlords have adopted the strategy of raising rents. Many view this move as a necessary measure to offset increased financing costs, property maintenance expenses, and other operational overheads. By adjusting rental rates upward, landlords aim to restore or enhance their profit margins, ensuring the sustainability of their property investments.
However, the decision to raise rents is not without consequences, especially for tenants. For commercial tenants, higher rents can translate into increased operational costs, potentially affecting their profitability and long-term viability. Small businesses, in particular, may find it challenging to absorb sudden spikes in rental expenses, leading to concerns about the affordability of their leased spaces.
Rent hikes can significantly affect tenants in the residential sector. The escalation of rental prices may contribute to housing affordability challenges, placing additional pressure on individuals and families with limited financial flexibility. This phenomenon has broader societal implications, potentially exacerbating housing inequality and pushing some tenants towards seeking more affordable housing options.
The dynamic relationship between interest rates, landlords’ profitability, and rental increases underscores the complex interplay within the real estate market. It prompts discussions about the need for balance and fairness in rental adjustments, as well as the importance of considering the broader economic implications for both property owners and tenants.
Conclusion
The high street in the UK is a vital cultural and economic hub, often taken for granted until its potential decline looms. While I believe it will endure, preventing its deterioration is crucial. Small businesses on the high street are not just economic entities; they are the vibrant pulse that infuses daily life with interest and diversity.
Envisioning a world without the high street paints a dystopian picture of communities dominated by residential units and warehouses. Such a scenario would strip our towns and cities of the dynamic energy, social interactions, and unique offerings that define a thriving community.
Preserving the high street is not just an economic imperative; it’s an investment in the vitality and character of our communities. It ensures our urban landscapes remain rich with the tapestry of local culture and the heartbeat of small businesses.
If you have similar feelings or disagree completely, please let me know in the comments below.
