Dr Omar Al-Tabbaa from Kent Business School explains the issues that are blighting the UK high-street and why government proposals will do little to change these trends.
‘Anyone can see what is happening in the high street retail sector: the collapse of well-known and established retailers (Toys R Us, British Home Stores, House of Fraser, Pound World, Maplin, etc.). Indeed, this is a global, rather than national, phenomenon which indicates a fundamental sector problem rather than a case of business failure.
‘The recent warning message by a committee of MPs stating that “city centres could become ghost towns” is just one implication of this phenomenon. However, the committee suggestions of imposing ‘green taxes’ on online sales, reducing business rates of high street retailers, and investing in the development of ‘green spaces’ in city centres are likely to reduce the pain but would not eradicate the cause.
‘The crux of the high street retail sector problem lies in its business model. Typically, a business model explains how a firm creates value to customers (has certain offerings) and how this value is delivered to them. The existing business model of high street retailers is more than 100 years old, and its underlying primes is that value is created and delivered to customers by displaying varieties of products in a physical space where customers can touch, try and purchase simultaneously. However, this model became inefficient as it cannot cope with the change of customers’ habits (demanding more varieties, enjoying the convenience of online shopping, and becoming more price-sensitive due to real-time price comparison).
‘Accordingly, these retailers need to rethink and innovate their business models before it is too late. Indeed, we can see real-life examples of how business model innovation can disrupt established industries leading many of its conventional players to bankruptcy. For instance, Uber deployed the shared economy business model to transform the taxi business. Similarly, the business model of the Apple Store has revolutionized the music and entertainment industry putting well-known firms that still sell physical music (e.g., HMV) under serious financial pressure. The list is much longer.
‘In short, when the sector business model is no longer capable to fulfil its customers’ needs, it enters into the ageing stage. Here, the firms of this sector have two options: revolutionise their business model, or vanish to make space for newcomers.’
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