Small shops slash growth planning for 2019 – but is a high street revival ahead?
A snapshot of small shops at the close of 2018 conducted by AXA Business Insurance, reveals that while income levels struggle and overheads continue to rise, there is cause for optimism about the future of the British little shop. Growth plans by established businesses are at their lowest level in five years, but interest in empty shop spaces as vehicles for business creation is growing.
Growth plans are muted going into 2019: 11% of small shops expect to hire staff in 2019, which is a fall of four percentage points on last year. Investment planning is down by half, as just 15% will invest in growing their business in 2019 (this was 28% when the surveys began in 2014).
Despite this cautious mood, two thirds of shop owners said they expect their business will survive in the long term. This good news is diluted by the quarter (26%) of shop owners who are uncertain about their future beyond the next two years. Altogether, 13% of small shops are ‘likely’ to close in 2019 according to their owners.
The most common reason British shop-keepers contemplate closing their business is stress – average hours work exceed those of a full-time worker in the UK, and lack of holidays compete with low income as triggers for stress (for 46% of shop-owners).
Cuts in business rates are proving a mitigating factor as they are expected to boost profitability for a quarter of small shops. Following the chancellor’s slashing of rates in the October budget, the average business rates bill is now £7,065 per year for a single shop (0-9 employees). While welcome, these savings may be eaten up by rising overheads for many. Seven in ten report significant rises in the cost of running their premises alone this year (rent and utility bills).
Take-home pay for small shop-keepers is showing signs of recovery: while the average hourly rate was scraping minimum wage at the end of 2016, it now comes out at £13.70 per hour, according to shop owners’ own estimates. It does, however, still remain the lowest hourly rate of all self-employed sectors surveyed by AXA this year. For comparison, this is £29 for small business owners in the construction sector, £27 in professional services, £17 in the creative and design industries, and £16 in the personal services sector.
Overall, income expectations remain low (compared to the national average for take-home pay in the UK). £17,828 take-home pay per year is the red line for British shop-keepers – this is the average figure quoted when they were asked at what point they would consider their shop no longer provides a living wage.
A coming revival?
Each year, AXA conducts a national survey of 8,500 people which assesses the appetite for business creation . Seven per cent of these entrepreneurs said empty retail space in their locality had promoted their business idea. While small, this is twice the number who said the same in previous years’ surveys, and equates to 378,000 people planning to open a physical shop – far more than the number of shops currently standing empty.
Hotspots for people wishing to take over empty retail space were Greater London, Brighton, Birmingham and Norwich – with lower appetite across the North of England, Scotland and Wales.
People opening up a dual-purpose retail space is a further trend noted, both in the survey and amongst AXA’s own insured businesses, prompting the company to overhaul the way it quotes for insurance to small shops. Some imaginative takes on the experiential shop included:
Rural moped hire and café
Urban mushroom farm and restaurant
Beanbag bookstore and café
Wine shop and events venue
Caribbean and Polish food store
Go-karting café and shop based around a local team
Gaming shop with role-playing venue
“We are seeing a change in how people start retail businesses”, says Gareth Howell, executive managing director, AXA Insurance. “Entrepreneurs entering the high street are not creating the business around selling a product, but often plan a dual-purpose space for their customers. It’s changed the way we quote to these businesses now, as we realise they defy traditional categorisation. While taking comfort from these imaginative answers to the problems faced by the traditional high street, we do see the real signs of struggle for survival among established businesses. Reductions in business rates are significant and noted by shop-keepers, but other overheads continue to rise, and amidst wider economic uncertainty, are restraining growth plans.”