Join our community of smart investors

Ravens and retail: London is in danger of crumbling for good

The ominous news that a raven has left the Tower of London adds more weight to miserable company Christmas updates
Ravens and retail: London is in danger of crumbling for good
  • Retailers without meaningful online presence feel the weight of falling footfall 
  • Lockdown is having an outsized impact on the pubs and restaurants that cannot offer online services
  • London’s cultural hub is being sapped of energy

‘When the ravens leave the Tower, the walls will crumble and the Kingdom will fall’ 

An optimistic billboard hangs outside the Adelphi Theatre on The Strand: ‘Back to the Future - The Musical. Landing Summer 2021’. When the UK first went into lockdown in March 2020, the idea that theatres might still be closed almost 18 months later was absurd. But now, Back to the Future’s opening looks uncertain. Will London’s theatres be welcoming fans again by the summer?

It is hard to imagine, with the capital city in its current state. Silent theatres are not the only evidence of the pain brought on by Covid-19 restrictions; empty roads, shuttered shops and forlorn restaurants are broken only by the odd Tesco Metro or Greggs (GRG), which can keep their doors open thanks to their essential retailer status. But even they only operate during limited hours. Without the hustle and bustle of office workers there is little point in pursuing businesses as normal. 

Essential food stores certainly are not alone in struggling with the fallout of lower footfall. Card and gift shops, newsagents and pharmacies, estate agencies and bank branches - the types of businesses that run outlets in London to support the 2m people who normally work there - are in a bad way. Some, including the ballsy butcher on Watling Street, have clung to the qualities that deem them ‘essential’ and have remained open. But this has not saved them from struggles. Greggs recently reported a 31 per cent drop in sales in its annual trading update and is expecting to report its first annual loss as a listed company. Walgreen Boots Alliance (US: WBA) suffered lower prescription volume, a reduced demand for pharmacy service and a sharp decline in retail sales in its UK division in its fiscal first quarter, which ended in November. WH Smith (SMWH) defied expectations with a set of resilient Christmas numbers, but still only managed to generate 87 per cent of last year’s high street revenue in the 20 week period to 16 January.

Falling footfall is something local high streets have had to contend with for many years as shopping has moved online. In 2017, PacelHero wrote a widely discussed report, which concluded that without change and innovation, “the High Street as we know it will reach a dead-end by 2030.” But for the first time ever, these doom-laden forecasts apply to the nation’s capital - the beating heart of its economy. At its lowest point last year, footfall in London was at just 6 per cent of its normal levels and is now hovering around the 30 per cent-mark.

 

Keeping the city moving 

There are occasional hives of activity. The building work happening in parliament square buzzes with workers in hard hats; the security guards on the door of the Bank of England check many passes every day; and the skateboarders, banned from the southbank skate park have taken up residence in the shadow of St Paul's Cathedral.  

And in the last year, these key workers and residents have been kept optimistic by signs of unwavering resilience in the face of adversity: the pubs that have set up pop-up stalls to sell beer outside; the bars that have installed pizza ovens to serve customers food alongside their cocktails; and the off licences handing out plastic cups to those buying bottled beer. But even these are now gone. Clamped down by the government’s latest round of restrictions, which ban the sale of takeaway alcohol. 

Pubs and bars are surely going to be among the hardest hit when dust clears and the true fallout of coronavirus restrictions is realised. Many of these establishments, especially in the City, thrive on high volume from frequent footfall meaning margins - especially in areas where buildings and staff are expensive - are tight. The Christmas trading update from JD Wetherspoon (JDW) lays out the challenges plainly: “all pubs have been closed since 31 December 2020, from which point the company's sales have been zero.” Chairman Tim Martin has unsurprisingly railed against the enforced closures, arguing that of the 50m customer visits that were registered using the 'track and trace' system at various Wetherspoon outlets during the final quarter of 2020, there was no incidence of an outbreak among customers. 

 

Only the best will survive retail carnage 

A dearth of tourists is also being felt in the West End. In its last set of results, Shaftesbury (SHB) - which owns the properties in Carnaby Street and Covent Garden - said that rent collection was down to just 37 per cent for the two months to the end of November as shuttered bars, shops and restaurants failed to make payments. 

It’s hardly surprising that consumers didn’t pile into shops as they normally do over the Christmas period. Mask wearing and restrictions on the number of visitors have changed the dynamic for a day of Christmas shopping. 

But unlike hospitality, most of the retail industry has an alternative route to market. In 2020, e-commerce sales rose to nearly a third of all retail in the UK as consumers sheltered from the pandemic and companies bulked out their online offerings. At Dunelm (DNLM), online sales have now risen to 40 per cent of the group total, Burberry (BRBY) reported 50 per cent growth in full price clothes sales online, and it’s a similar story at Next (NXT) where online sales are now the majority. 

But Britain’s high-quality retailers that have shifted their business in line with the covid-accelerated trends are few and far between. Debenhams, Cath Kidston and the Arcadia group of brands are just a handful of the companies to have collapsed in 2020, with many more likely to follow as continued restrictions expose the worst retailers. How long can John Lewis afford to keep a five story premises open on Oxford Street? Will all of the Inditex-owned stores, which line London’s major shopping road, survive the lockdown as its prime consumers turn online? Can mid-range British brands including Ted Baker (TED), Superdry, Joules (JOUL) and Jack Wills survive the onslaught? Recent numbers suggest not. 

And what is London’s shopping district without a wealth of stores? A hub of overpriced property that is likely to fall into the hands of international buyers and be converted to flats or offices. Will the tourists keep coming if the shops and restaurants aren’t there? And who will fill the museums and theatres when they are gone?

These are questions that the government - currently pondering business support schemes and post-covid plans - should be asking themselves. The UK’s lockdown is hopefully saving the lives of many people vulnerable to Covid-19, but the lives of Londoners who may be jobless by the spring must also be supported, or else the capital is in a very real danger of crumbling. After all, a raven has just left the Tower.