Can Scotland's high streets withstand the tightening grip of cost-of-living pressures?
On so many streets in the centre of Scottish towns and cities, the gleaming panes of shop, cafe and restaurant windows have been replaced with boarded-up facades, and gone from hives of activity to permanent hibernation.
Now, with an already-beleaguered but hugely important part of the economy facing the caustic combination of increased costs, including energy bills and wages, and consumers tightly reining in spend due to the cost-of-living crisis, how many more businesses will also close their doors for good in the coming six months, including the festive season and traditionally muted January?
This week saw the news of inflation heating up to 10.1 per cent, which exceeded expectations and “wiped out” a modest rise in the value of Scottish retail sales in August, which consequently “flatlined” in real terms, according to data unveiled the same day by the Scottish Retail Consortium (SRC) and KPMG.
We are living through a “hugely” challenging time for retail, SRC director David Lonsdale now says, adding that it follows two “incredibly” difficult years. “Once again, the industry is in the eye of the storm, facing into significant spikes in its own cost base, whilst customers’ disposable incomes are being eroded by inflation, most notably due to the spike in energy prices,” he said.
Some energy experts have warned the average annual household bill could top £5,000 by next spring. A separate report published late last month found the proportion of Scots that said they were struggling financially had more than doubled.
Mr Lonsdale said: “It seems somewhat perverse that retail and other consumer-facing sectors, which were amongst the most impacted by Covid, are once again and so quickly set to bear the consequences of this cost-of-living crunch. It may well be a third consecutive tough Christmas trading period for the sector.
“The costs crunch comes as retail destinations and city centres continue to struggle in terms of shopper footfall with fewer commuters and business travellers. The number of visits to stores has improved, but remains well shy of pre-pandemic levels, with Scotland rooted to the bottom of the UK footfall league table.”
The SRC and Sensormatic Solutions earlier this month announced Scottish retail footfall fell by 16.5 per cent in July, marking the third month in a row of suffering the weakest such figures in the UK. Mr Lonsdale warns: “If retail spending in city centres fails to fully recover, that could have implications for already gap-toothed high streets."
In terms of the pace of those gaps appearing, more than four shops a day on average disappeared from Scotland’s main retail locations in 2021, according to a report unveiled earlier this year by PwC and the Local Data Company. They found 1,424 chain shops were closed, with 673 opening, giving a net loss of 751, up from a net loss of 652 in 2020.
The study also noted the rate of closures hit the accelerator as pandemic-related state support was wound down, while a separate report flagged a near-50 per cent year-on-year jump in corporate insolvencies in Scotland in the second quarter of this year.
“With footfall low and costs rising, for those businesses already operating in survival mode following the pandemic, particularly in sectors like retail and hospitality, these are troubling times,” Richard Bathgate, chair of insolvency and restructuring trade body R3 in Scotland and restructuring partner at accounting firm Johnston Carmichael, said at the time.
And now, Charandeep Singh, deputy chief executive of the Scottish Chambers of Commerce, says many businesses in town and city centres north of the Border, such as pubs, restaurants, music venues, nightclubs, hotels and wider hospitality, “have again reached a tipping point [while] others are staring down the barrel of potential jobs losses – and even permanent closure”.
In terms of the circumstances causing this, he states: “With chronic challenges in the supply chain, labour shortages, interest rates and inflation, rocketing energy prices have become an existential emergency right across the economy.
“Businesses are also facing increased pressure to increase wages to support workers through the cost-of-living crisis as well as having to pay more just to keep staff ... this is especially challenging for businesses that are already running on tight cost-to-profit margins.
“Businesses need immediate support from government now or many will not see out the end of this year, especially with energy costs increasing over the winter. This winter will be make or break for many firms that are already teetering on the edge.
“The call from business is clear – the emergency UK Budget by the next prime minister must focus on bringing the cost of energy down for firms by lowering VAT on energy bills and introducing an energy price cap for SMEs, providing a similar level of support as that offered during the Covid-19 pandemic.”
Also issuing a loud and further call for state support is Scottish Hospitality Group spokesman Stephen Montgomery, who says stratospheric energy bills are the biggest issue, with some firms facing 400 per cent jumps.
“Until somebody in government gets a grip of that and does something about it ... we are going to see some major small to medium-sized businesses take the option of closing before it’s too late for them,” he says.
He adds that hospitality is embedded in the heart of every single community… any footfall decline is going to have a major impact on every single bar and restaurant.
Mr Lonsdale said “fresh action is needed to bring footfall and energy back into our city centres”, via initiatives such as Glasgow City Council this week starting to post out to 85,000 less-well-off households a £105 pre-paid shopping card. He said the SRC supported such a move that “will provide a very timely £9 million fillip for shops in the city centre”.
However, any potential support is too late for McTaggarts cafe in Aberdour, Fife, which will shut for good on August 28 due to a staff shortage. “The shock of the decision has probably not hit us yet, it’ll only really be when we close the doors for the last time,” said John McTaggart.