High-Street in the Economic Recession Essay
High street is the metonym of primary business in the town or city, especially in the United Kingdom. High street has best perception and fastest reaction to the local economy.
Currently, Britain still not completely survive from the dreadful economy, in this situation, high-streets are facing problems. This essay aims to describe current economic issues that the high-street retail sector is facing and to explain the issues by giving some examples. The first pressure that the high-street retail faces is recession of UK economy. Start from the end of 2008, this recession is said to be the “worst recession” in UK since 1945.The first aspect of recession influences retail is that it brings closure to the high-street retailers. As Wood (2010) described that “Recession has sorted the wheat from the chaff in the retail sector”.
As research firm Experian said that high street shops close at up to 100 every day due to business struggle at recession period. Recession reduces high-street retails’ sales. In the year 2009, retailers’ sales fell 0. 6 per cent in May after holding up well in April (Wallop, 2009).Based on research from National Statistics, compared with the same season in 2008, the seasonally adjusted value of retail sales in May in 2009 fell by 1. per cent together with seasonally adjusted volume fell by 1.
6 per cent (See figure 1). Figure1: The seasonally adjusted value and volume of retail sales in May 2008 and 2009. Source: National Statistics Verdict analysts estimate that retailers’ sales lose ?7. 4 billion over past two years with one shop close in seven. For instance, Sainsbury’s, one of the big supermarket chains in the UK faced a lowest growth in 2010 since 2005 and Co-operative Group which is Britain’s fifth-biggest grocer mentioned in March that “its underlying sales were nearly flat” (Finch J. 2010).In terms of demand, Drucker indicated in 1954 that “there is only one valid definition of business purpose: to create a customer.
” (Gillespie A. 2010) That is means customer is the priority for a business, hence demand from customers is what business want. Currently, Britain still not completely survives from the recession, less demand makes retailers life difficult. Hence, the second factor witch high-street retailers facing is lack of demand. The first reason for demand reduces is decrease in consumer spending. It claimed by Verdict Research that consumer spending will grow by 1.
% in 2012 but it is third slowest rate in 40 years. Argos like-for-like sales slumped 8. 5% in the fourth quarter and the company estimated that in 2012 the full year underlying profits would approximately ?100 million sharply reduce from ?254 million the year before. In 2011, Carpetright has reported a 70% drop in profit from the ?22.
3 million in 2010(Peston R. 2010). It is evident that consumer spending shift sharply so does the retailers profit. In addition Carpetright said it will close more than 50 outlets.
The second reason for demand reduces is VAT rate rise.In 4th January 2011, the standard rate of VAT has risen from 17. 5% to 20%, that is means customers will spend more money on the same amount of goods. It will raise ?13 billion in additional revenue for the government. On the contrary, raise VAT rate hits high-street retailers. In this period, lack of jobs makes people watching their pennies and VAT rose makes it more difficult for businesses to let customers spending their money, business is struggle.
For example, John Lewis figures that in January 2011, the like-for-like sales fell by 0. per cent (Barrett Claer 2011). Consequently, VAT rate rose makes high-streets hard to remain the sales. Thirdly, high-street retailers have pressure on inflation in Britain. According to BBC said that “UK retail sales values in February rose more slowly than inflation”.
(Cohen N. 2012). From the survey took by the British Retail Consortium said that the total sales in February rose 2. 3 per cent but it still below the national rate of consumer price inflation of 3. 6 per cent. According to BBC reported that Peacocks have been hit hardest over these years.This discount fashion chain has ?240 million debt with banks and struggling to refinance the debt. This firm sold the chain to Sun European Partners and continues to close approximately 160 stores, one of its store in Newcastle-upon-Tyne on Northumberland street has latest been closed, it remains hard to survival.
Thus, inflation gives a significant pressure to high-street retailers and some retailers like Peacocks is hard to survival. In conclusion, high-street retail is facing three main current problems: the first is recession, second is lack of demand and inflation.Customer spending reduced and VAT raised is the reason for demand reduces. Inflation makes retailers hard to refinance and some of them like Peacocks is forced to declare insolvent.
Ultimately, pressures for high-street sector are remaining serious, retailers should be well-prepared in short-term to face more challenges.References List:Barrett C. and Wembridge M. (2011) VAT increase fails to dampen UK shoppers [Online] Available From: http://www. ft. com/cms/s/0/297fd492-306f-11e0-8d80-00144feabdc0. tml#axzz1pE5d6RbD [Accessed in 11th March 2012] Cohen N.
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