Can the local department store survive?
Shops closing + Tesla + Citadel + The Last of Us
Hello and welcome to the latest edition of Off to Lunch…
Department stores are the heart of a town centre. Sometimes they are a nationwide chain, but often they are a family-owned business which has been operating for decades, sometimes centuries.
Or they were…
Family-owned local department stores are disappearing across the UK. Having battled against new online rivals such as Amazon, now they are struggling with rising energy bills. Last week it was announced that two department stores in Lincolnshire would close. Firstly it was announced that Rebos in Boston would shut. Rebos only opened in 2021, replacing Oldrids, a department store which had been open since 1804. The owner, Serkan Arslan, told the BBC that Rebos’s energy bills had risen to £30,000 a month and were “so high you just have no chance”. You can read more about the closure here.
Just a few days later it emerged that Eve & Ranshaw would close in nearby Louth. Eve & Ranshaw has been open since 1781, making it one of the oldest department stores in the UK, and probably the world. In a statement, the retailer said
“It is with a heavy heart that we close after 240 years of service in Louth. In recent years we have faced some challenging times with changes in customer shopping habits, lockdown closures, rising business costs and the current cost of living crisis. Regrettably, it has now reached a point where the department store is no longer viable.”
You can read more on that closure here. The news has caused consternation in the area…
In Friday’s Off to Lunch we looked at optimistic news for the high street. But this shows that life is tough for certain businesses. Fenwick also announced last month that it would close its New Bond Street department store in London. Fenwick was founded in Newcastle and its shop there opened in 1882. It is the largest family-owned department store chain in the UK. The New Bond Street shop opened in 1891 but Fenwick has agreed to sell the site to property developer Lazari in a £430 million deal. The department store will be redeveloped into a mixed-use. A sign of the times….
I wrote about the loss of local department store chains in 2019 when I was at The Times. You can read that column here. The piece was prompted by news that Boswell & Co in Oxford would close and that the future of Jenners in Edinburgh was in doubt. Jenners did close in 2021. Sadly more closures are likely. In that 2019 piece I flagged that business rates were a problem for department stores because of their size. Harrods and Selfridges were two of the ten biggest payers of business rates in the UK between 2016 and 2021 according to data from Altus. The other taxpayers on that list include Heathrow airport, Sellafield nuclear plant and national infrastructure. The size of a department store is causing problems again in 2023 - this time because of the amount of electricity and gas needed to power and heat them.
Department stores are more than just shops. They are community hubs, where people meet friends and family to eat and drink. I fondly remember family trips to Bulloughs in Carlisle when I was growing up. But that shop closed in 2006. They are also key employers, giving young people their first taste of work.
They make sense for shoppers and brands. They show shoppers the best products available right now and make it easier to buy gifts. In turn, they allow brands to showcase their best products to people who may otherwise not have seen them.
All these factors make department stores key drivers of footfall for town centres. The loss of these shops matters.
But with their strengths come weaknesses. Running shops of this size is expensive, even when energy bills aren’t surging. And a single department store cannot benefit from economies of scale in the way Amazon does, therefore competing on price with the online giant is difficult, if not impossible.
What can be done to help these stores? Should we just leave them to face commercial realities as their energy bills rise? Or should local authorities be empowered to help by, for instance, offering tax discounts on business rates? Free marketeers will say that businesses that cannot generate the sales to survive must be allowed to close. But do any of the areas I have mentioned above think they are better off for these shops closing?
Other stories that matter…
Tesla will reveal its latest quarterly results this week. That means more Elon Musk, questions about Twitter and analysts looking for information on the impact of Tesla cutting its prices by up to 20 per cent. The results will be published on Wednesday evening. Other companies reporting this week include Microsoft, General Electric, Boeing, Comcast - the owner of Sky - Associated British Food - the owner of Primark - JD Wetherspoon and Diageo (Market Watch)
The head of the CBI, the business lobby group, will accuse Rishi Sunak of “throwing industry into some chaos” in a speech on Monday. Tony Danker is concerned about the government scrapping a collection of EU laws relating to workplace rights and other areas (Financial Times)
The US hedge fund Citadel made a $16 billion profit in 2022. That is the biggest ever profit reported by a hedge fund and represents a 38.1 per cent return on its investments. Citadel is led by Ken Griffin, who was one of the bidders to buy Chelsea and has bought a collection of UK properties. Citadel appears to have benefitted from a widespread sell-off in government bonds (Financial Times)
This is the economic impact of train strikes: pub group Fuller, Smith & Turner has warned that profits will be lower than forecast because train strikes reduced sales at its city centre locations in the final three months of 2022 (Fuller, Smith & Turner)
Almost 60 per cent of Queen Elizabeth II’s horses have been sold at auction since she died in September (The Economist)
The UK boss of Kia has said an affordable electric car aimed at the mass market is not yet commercially viable (The Times)
Active fund managers outperformed index funds in 2022, writes Bloomberg’s John Authers. Is this a one-off? Or can truly skilled investors continue to outperform passive index investing? To look at this, he considers whether an amateur basketball player could outperform Michael Jordan in a free-throw contest. If it’s only one throw each, Authers writes, then the chances of the amateur winning are a lot higher, thanks to luck and randomness. In other words, we need to see more than one year of outperformance to know if this is a new trend (Bloomberg)
Lastly, check out our Sunday press review for a round-up of the key stories in the Sunday papers. This was sent to paying members on Sunday and you can sign-up via the link to get next week’s edition. Click here.
I normally avoid zombie films and TV shows as the plot and formula always feels so samey - a small band of humans survive a zombie apocalypse, go on the run, humans are brutally divided into clans, but then a potential cure emerges….etc etc repeat, repeat. I realise this is a narrow-minded view and means that I have probably missed out on superb films and TV shows over the years. Anyway, the widespread acclaim for The Last of US - and the 9.4/10 score it currently has on IMDB - encouraged me to give it a go. And the first episode was gripping. Yes, the plot has many of the same aspects I mentioned above, but the characters are interesting and you get the sense the story could go in some fresh directions. The HBO-made show is available to watch on Sky now.
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