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Economics

On British retailing and the Portas Report

After a tough few years for the British High Street, with well-known shops like Barrats, Woolworths and Peacocks announcing closures all around, retail expert Mary Portas was called in by the government to write a report. An article from Retail Human Resources provides a summary of her findings.

In short, the report suggests that government needs to get involved in order to save British high streets. Can intervention be justified?

Why is the high street in crisis?

The Retail Human Resources article states that the main cause of the high street crisis is failure to compete with internet retailers and out-of-town sites. However, the report sheds no light on why the high street is struggling to respond to these competitive pressures.  The fundamental problem is that people have found more efficient alternatives.

In a world where people are rapidly losing their jobs and trying to save every last penny, is it really so lamentable that we have become smarter shoppers? The simple fact is that the high street is much more expensive than the internet. Price comparison is much harder: to put it in economic jargon, the search costs associated with finding a desirable item are almost prohibitively high at a time where people have little time to spare.

Online retailing offers the benefit of at-home delivery, no queuing, email updates when a desired item appears online or at a discount and most importantly no opening and closing times. Similarly, out-of-town shopping centres have the ability to turn shopping into more of a day-long activity. So when people do actually have the time and money to dedicate to shopping, they want to make an experience out of it, and take a drive somewhere further away that offers lower prices and more convenient parking.

Shopping on the high street, by contrast, comes with the inevitable problems of transport, rigid opening and closing times, and the risk of harsh weather while shopping.

So let us ask ourselves this question again. Why is the high street in crisis? Because more efficient alternatives have been discovered. It is as simple as that.

Why does the high street matter?

According to the aforementioned article,

Ms Portas … said the high street had been “displaced” by out-of-town shopping centres, without anyone considering the impact of such a huge change.

The fact that people are not shopping on the British high street is not the end of the world. In fact, as the report highlights, people seem to have substituted shopping on the high street with online shopping and shopping in out-of-town centres.

Thus, even if we were to accept the Keynesian premise that enthusiastic consumption is essential for economic prosperity, the drop in consumption overall has not been drastic. What has changed is where people spend, and even the strictest Keynesian would say that this is economically relevant. So this ‘crisis’ is essentially the fact that people’s spending patterns have changed — something entirely natural in a dynamic economy.

From this perspective, what the report is arguing for is that the government needs to find ways to make people spend in places they have consciously chosen not to spend. People on an individual basis have chosen not to spend there. They act not act as a collective, but individually based on their own value scales.

Accordingly, it is disturbing when people bemoan the shift in preferences. It sounds like an incitement for the government to control where we spend our money, because only they are presumed to be responsible enough to evaluate “the impact of such a huge change”.  Portas is essentially reprimanding the government for failing to protect the inefficient high street from its more efficient competitors.

But isn’t there more to life than efficiency? Mary Portas argued that

Community had been sacrificed for convenience, and there was now no sense of “belonging” to a local high street, which could partly explain the summer’s riots

However, whatever value the high street may have in fostering and focusing community spirit, this clearly doesn’t matter to people as much as convenience or lower prices. If it did, they would demonstrate their preferences by choosing to shop on the high street. The ‘crisis’ of the high street is a demonstration of people’s preferences, and the government should not be trying to impose what they assume are people’s preferences from above.

Why should the government be “making things happen”?

It is the job of high street retailers to find a way to overcome the difficulties they face. It is in times of crisis when entrepreneurial creativity is really put to the test, and entrepreneurs’ truly creative nature is allowed to shine. If there is a role for the high street in today’s economy, and I genuinely believe that there is, what entrepreneurs need to do is stop trying to use the government to protect themselves from ‘unjust competition’ and try and find ways to adapt to new consumer preferences. Entrepreneurship means being able to adapt to changes and taking changes in people’s behaviour as new data from which to construct a new business strategy.

It is not the government that should be making things happen. All government involvement will do is delay the inevitable demise of certain high street stores that are unwilling to adapt. What is most destructive is that this delay will come at a huge cost of a misdirection of resources and will inevitably penalise the innovativeness of entrepreneurs who have set up successful online businesses and out-of-town centres.

The best thing retailers can do, and the thing that most smart retailers will do, will be to change their strategy and opt for people who can work with this change and make the company viable under current economic conditions. Companies choosing to avoid this change will inevitably be out-competed by companies that embrace it. Retailers expecting things not to change will be acting like a woman who has lost 50 pounds and expects to fit into her old clothes. Inevitably she will have to decide to go out and buy new clothes, but until then she will look awkward and out-of-place, and waste money buying clothes in her previous size.

The bottom line

The British high street has become inefficient; its demise however is not something that should be lamented because it is giving way to better things. Any government action will simply delay the inevitable and cause a massive misallocation of resources. This is a true test of entrepreneurial creativity. All companies need to do to survive is embrace change and try and find a new innovative strategy for dealing with it.