Professor Mike Haynes

Retail guru Mary Portas suggests many high streets are beyond rescue, and Professor Mike Haynes from the University of Wolverhampton Business School in Telford fears there is worse to come:

It is horrid in Shropshire’s shopping centres and high streets this Christmas. But the problem for the county’s retailers and their staff is not too many customers fighting to get last minute presents, but the fact that there will too few of us scrambling in shops on Christmas Eve.

The economic crisis is hitting, and hitting hard. The vacant property in the Telford Shopping Centre or the Darwin Centre in Shrewsbury is painful to look at. Some of it is filled by ‘pop ups’ – discount shops that will be gone in the New Year making things look even bleaker. But the worrying thing is who, amongst Shropshire’s established shops and chains, will go under next?

Comet, with stores in Telford and Shrewsbury, has effectively been given away with huge debts. Blacks – the outdoor retailer which also owns Millets and which has two stores in Shrewsbury – is desperately hanging on.

Electronic store Game, and the French Connection clothing chain, have both issued profit warnings. Barratts the shoe store chain (which also owns Priceless) has gone into administration and the talk is that Peacocks, with 800 stores in the UK and overseas, may be closing a quarter of them.

Discount stores like Lidl are picking up trade

The explanation for this is that we are not buying, and when we do buy we tend to buy cheaper. Even Tesco is feeling the pinch. Its onward march to dominance has been halted as people shop around and look to Shropshire’s Aldis and Lidls for bargains instead.

But why does bad news tend to come all at once, and why is Christmas such a dodgy time?

One reason is what is known as ‘quarter day’. Rents are usually paid quarterly and, ironically, the winter quarter falls on Christmas Day. It’s a present that most retailers would prefer to do without because it means they have to cough up their rents. If they can’t then they are in big trouble . . .

There is a saying in business which helps to explain why. It goes like this: ‘Turnover is vanity, profit is sanity, but cash flow is king’.What this means is simple. Turnover, your revenue, is not the important thing, and too many people get taken in by it. Revenues are easy to get – the question is at what cost?

Suppose I employ a new sales team or rerun some advertisements that increase my sales by £100,000. It sounds great, but what if I have to pay out £150,000 for these £100,000 in new sales? Now it doesn’t sound so good. Chasing turnover without regard to costs is dangerous, but businesses and especially retailers fall into this trap all the time.

Every Shropshire market town has empty shops

This is why profit is sanity in business. What counts in the long run is your ability to earn a surplus that is more than your costs, and which is more than you would get if you invested your resources in something else. Profit is what successful businesses make year after year, and it is the thing that not only helps them survive, but grow. This is why business people are so concerned with what they call the ‘bottom line’.

You can get by for a time if profits dip or even disappear. Low profits are like a cancer which eat away and will eventually kill a business. But you can survive if someone will lend you money.

This is where the third element comes in. Cash flow is king. If there is no cash, you go under. Cash pays your workers, it pays your suppliers, it pays your loan charges and it pays your rent. If it is not there and you cannot get it because a bank has turned off the tap then you have no future.

This is why quarter day is so important, because it’s the time in the high street when rents become due. You have to cough up from your own funds or go to the bank. And the banks are hard nosed at the best of times. But today they are likely to be even more difficult.

And the worst quarter day of all is Christmas, because this is the time when most retailers make most of their money. If you cannot make it now you are in trouble, and waiting for an early summer boom might be a step too far.

Millets outdoor store is desperately hanging on

This is why so many shops are having pre-Christmas sales. They are everywhere in Shropshire at the moment. If the stores are overstocked they need to get rid of the stuff as quickly as possible in offer to generate their cash flow. They can’t afford to hang on to Christmas decorations in a warehouse for next year. And they have to get rid of winter clothes in order to be able to have the confidence to be able to pay for the spring and summer ones.

It is dangerous even to wait for a cold snap in the hope that we will all buy last minute winter woollies and boots. Unfortunately the goods to be sold at Easter are already on the way. New season stock from China and elsewhere was ordered and shipped long ago.

This is a vicious circle. As shoppers look for bargains they may delay purchases and this puts more pressure on retailers. But there are also dangers for shoppers. When the record store Zavvi went under just before Christmas in 2008 people realised its ‘gift cards’ had become valueless.

They had effectively lent the store some money for goods due later. But when a retailer goes under this means that in law you are in the queue like other creditor. You gift card is no longer valid to take goods away, nor is the deposit that you put on this piece of furniture or that electrical item.

Austerity has a dangerous habit of backfiring on those who practice it. Our economic system is built on spending, and if it does not take place then things tend to get worse before they get better.

The economic crisis is threatening us with what economists are calling a ‘lost decade’ until at least 2015-16. Unemployment in Shropshire will rise next year if the government’s policies continue, whether or not we have double dip recession. And as jobs go, spending falls. So the vacant premises in the county’s retail sector street look set to rise in the New Year.

To rescue the high street we have first to rescue the economy.