The end of shops?

I don’t know what it is like where you are but in Central London shops are becoming an endangered species. Hardly a day passes without another shop window being covered by an advertisement proclaiming - ‘An exciting retail opportunity’. Surely, they mean ‘Another exciting retail opportunity’ because in my neighbourhood they are legion.

And I suspect that this is only the beginning. Let’s suspend disbelief for a moment and pretend that your dream is to open an upmarket fashion boutique selling many of the top designers. Let’s also assume that you have the investment funds and sufficient access to the top names to make such a venture credible. 

You find a great site – one of those exciting retail opportunities – and head to Milan and Paris as a bona fide buyer. You worry about being able to get a seat at the shows or an appointment at the showrooms, but it turns out that your fears are misplaced. The fashion world has been waiting for your initiative and is fulsome in its praise for your ingenuity, good taste, and superlative business acumen. After a whirlwind fortnight, you return to London with the very best that Paris and Milan can offer, secure in the knowledge that once the London clients see what you have, the queue outside your shop will rival Waitrose on a bank holiday weekend.

Let’s make one final assumption, let’s assume the boutique is a great success, you sell all the stock, and you can’t wait to count the money and buy next season’s clothes. Unfortunately, however, you were operating under the illusion that you were the sole shareholder. Nothing could be further from the truth. You have a number of preferred shareholders who would like to get paid before you take any money out of the business. The government, as ever, is first in the queue looking for VAT, social security payments, and corporation tax. Next is the landlord, who anxious to participate in your success, has decided to increase the rent. After the landlord, comes the local council and the dreaded business rates, not to mention your employees all of whom believe themselves to be wholly responsible for the store’s success.  

The reality, of course, is that no boutique ever sells all its stock which means that you need to discount it in the hope of being able to get your money back. Unfortunately, the brand that sold you the duds has also been left with the same items and is dumping them online at a price below what you paid for them. The brand doesn’t care because it will still make a margin. You, on the other hand, care a lot.

Now let’s look at the scenario when very little of your stock sells and you have to write it off. You haven’t been able to sell it which means that you don’t have the funds to buy next season’s collections unless you put money into the business. Nobody else is going to help you – not the landlord, not the government, not the council or your employees. They all expect to get paid whether or not you sell a single item. Unfortunately, you own the downside and yet they get to participate in the upside.

The advent of Covid has simply accelerated a shift from physical retailing which was already well underway and which will have big implications for the fashion business. 

The harsh truth is that nobody who is already exposed to the ‘preferred’ creditors listed above wants to increase their risk by buying and holding inventory. Department store after department store have gone bust and the remaining stores want only to offer brands concessions where the brand pays rent or a percentage of revenues for a piece of the shop floor. 

But this doesn’t solve the problem for the major brands. They are losing buyers at a rate of knots which means that the brands need to take more inventory risk themselves. Logically, the houses have only two options: either they cut back the size of the collections and hold fewer items in inventory or they embrace Industry 4.0 and find a way of manufacturing items in response to consumer orders. After all, if I can specify what I want and buy a car online, and Zara can re-order and manufacture fast-selling items in a few days, why can’t the major brands manufacture to order?