03 March 2016
The death of shops
The price of progress
by Frank O’Nomics
Napoleon famously described Britain as a nation of shopkeepers. Apparently he did not intend this to be a derogatory accusation, but rather that “you were a nation of merchants, and that all your great riches, and your grand resources arose from commerce”. With the steady decline of the domestic manufacturing base, that seems to be truer now than it was in the early part of the nineteenth century. Some 3 million people, around 1 in 10 of the working population, are employed in retailing in the UK, making it the largest private sector employer. This gives some perspective to this week’s forecast from the British Retail Consortium, that up to 900,000 jobs could be lost in retailing over the next decade – a figure which could have a significant impact on the overall level of unemployment, currently around 1.7 million. By way of highlighting the BRC concerns, on the very same day, Morrison’s announced that they had done a deal to sell their food through Amazon.
The BRC was more inclined to highlight the consequences of the shift to a National Living Wage, that would squeeze the profits of many supermarkets and other retailers, than to analyse the impact of the inexorable shift towards buying everything online, but the real death knell for shops surely comes from the latter factor. Is this something that we should be fighting? The potential loss of employment is clearly worrying, but surely this is just another inevitable shift in the economy which we should just embrace, highlighting the benefits, and engaging in more detailed planning to offset the downside.
Currently we spend around £1 in every £5 of our shopping on the internet and recent surveys suggest that this will double over the next 5 years. One significant area of increase is likely to be grocery shopping, of which only £1 in every £20 is currently online. Until now, companies have found it difficult to sell groceries at a profit via the internet, but this may be less of a concern for Amazon given that they are likely to be content to generate only modest returns while they build a market share, and that they have considerable technological expertise, which could help them succeed where others have struggled or failed. The new service from Amazon/Morrisons will offer fresh and frozen goods to customers, with delivery times in some areas as fast as just one hour. Such a facility, particularly as many will order on the move from a smart phone, will reduce even the need to drop in at a local convenience shop on the way home from work. Many shoppers like to browse on the high street and then shop online, but for groceries there is not even this justification for shops to remain. Given the news from Morrisons the BRC may wish to review their estimate that, of the 270,000 shops in the UK today, as many as 74,000 could shut in the next 10 years – take away some of the convenience grocery stores and the fall in numbers could be much more dramatic.
The big worry is the effect that this could have on some already vulnerable areas of the UK, with 30% of the closures potentially coming in Wales and the north of England. No one seems to be suggesting that it is wrong to be instituting the National Living wage, or to be fighting the growth of online shopping. The answer then would seem to be to look at promoting alternative businesses and giving incentives for any new manufacturing plant to be cited in areas that are likely to be hardest hit, and there are some parallels with the decline of historic core industries that may point to some solutions.
History is littered with the rise and fall of specific types of employment that fade either with technological change, or with a geographic shift in production due to a competitive advantage held by other nations, usually caused by an availability of cheap labour or better access to raw materials. The coal mining industry in the UK is a perfect example, and there are some interesting parallels with the decline in retailing, particularly in terms of magnitude. In 1920 close to 1.2 million people were employed in coal mining, and, even as recently as the 1950’s, this number was over 700,000, but the costs of production (relative to those in emerging economies), exhaustion of coal reserves and the shift to alternative fuel sources has meant that there are now less than 4,000 people employed in this industry. One could cite any number of other industries, cotton manufacture being an obvious one, where other nations ultimately had a much more logical geographical advantage in becoming the home of production, but coal mining is perhaps the best illustration given that a significant part of the decline was due to technological innovation.
The point is that, while most former coal miners are now probably retired, levels of unemployment are not necessarily higher in former mining areas. Many areas, such as the East Midlands, have adapted to create other forms of employment. A very good example is Coalville in Leicestershire. The very name displays its mining heritage, but with the closure of the mines the area has been transformed by the opening of business parks and industrial estates. Along with other towns in the area, businesses quickly worked out that such sites in the centre of the country are ideal places to set up distribution facilities, this time a much more positive consequence of the growth of internet shopping.
Perhaps then we should look at the benefits of the shift to a greater amount of online shopping. For those left in the retailing industry, the shift to the National Living Wage should make it a more remunerative career. For the rest of us the benefits will come in time saving, and cheaper prices as providers of groceries will not have to bear the same level of employment costs (they will pay more but employ far fewer), and will make considerable savings from closing shops which have far higher overheads than distribution warehouses. Over the next 2 months Tesco will close 43 stores across the country, with the loss of around 2,000 jobs. It seems that this may just be the start of a much greater trend.
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