The typical UK high street is changing. Some analysts have been arguing for some time that high streets are dying, with shops unable to face the competition from large supermarkets and out-of-town malls. But it’s not all bad news for the high street: while some types of shop are disappearing, others are growing in number.
Part of the reason for this is the rise in online shopping; part is the longer-term effects of the recession. One consequence of this has been a shift in demand from large supermarkets (see the blog, Supermarket wars: a pricing race to the bottom). Many people are using local shops more, especially the deep discounters, but also the convenience stores of the big supermarket chains, such as Tesco Express and Sainsbury’s Local. Increasingly such stores are opening in shops and pubs that have closed down. As The Guardian article states:
The major supermarket chains are racing to open high street outlets as shoppers move away from the big weekly trek to out-of-town supermarkets to buying little, local and often.
Some types of shop are disappearing, such as video rental stores, photographic stores and travel agents. But other types of businesses are on the increase. In addition to convenience stores, these include cafés, coffee shops, bars, restaurants and takeaways; betting shops, gyms, hairdressers, phone shops and tattoo parlours. It seems that people are increasingly seeing their high streets as social places.
Then, reflecting the widening gap between rich and poor and the general desire of people to make their money go further, there has been a phenomenal rise in charity shops and discount stores, such as Poundland and Poundworld.
So what is the explanation? Part of it is a change in tastes and fashions, often reflecting changes in technology, such as the rise in the Internet, digital media, digital photography and smart phones. Part of it is a reflection of changes in incomes and income distribution. Part of it is a rise in highly competitive businesses, which challenge the previous incumbents.
But despite the health of some high streets, many others continue to struggle and the total number of high street stores across the UK is still declining.
What is clear is that the high street is likely to see many more changes. Some may die altogether, but others are likely to thrive if new businesses are sufficiently attracted to them or existing ones adapt to the changing market.
How the rise of tattoo parlours shows changing face of Britain’s high streets The Guardian, Zoe Wood and Sarah Butler (7/10/14)
The changing face of the British High Street: Tattoo parlours and convenience stores up, but video rental shops and travel agents down Mail Online, Dan Bloom (8/10/14)
High Street footfall struggles in August Fresh Business Thinking, Jonathan Davies (15/9/14)
Ghost town Britain: Internet shopping boom sees 16 high street stores close every day Mail Online, Sean Poulter (8/10/14)
Questions
- Which of the types of high street store are likely to have a high income elasticity of demand? How will this affect their future?
- What factors other than the types of shops and other businesses affect the viability of high streets?
- What advice would you give your local council if it was keen for high streets in its area to thrive?
- Why are many large superstores suffering a decline in sales? Are these causes likely to be temporary or long term?
- How are technological developments affecting high street sales?
- What significant changes in tastes/fashions are affecting the high street?
- Are you optimistic or pessimistic about the future of high streets? Explain.
There have been two significant changes in prices for travel in Bristol. At the end of April, the toll on Brunel’s iconic Clifton Suspension Bridge doubled from 50p to £1 for a single crossing by car. The bridge over the Avon Gorge links North Somerset with the Clifton area of Bristol and is a major access route to the north west of the city. Avoiding the bridge could add around 2 miles or 8 minutes to a journey from North Somerset to Clifton.
The justification given by the Clifton Suspension Bridge Trust for the increase was that extra revenue was needed for maintenance and repair. As Trust Chairman Chris Booy said, ‘The higher toll will enable the Trust to continue its £9 million 10-year vital repair and maintenance programme which aims to secure the bridge’s long-term future as a key traffic route, one of Bristol’s major tourist destinations and the icon of the city’.
The other price change has been downwards. In November 2013, the First Group cut bus fares in Bristol and surrounding areas. Single fares for up to three miles were cut from £2.90 to £1.50; 30% discounts were introduced for those aged 16 to 21; half-price tickets were introduced for children from 5 to 15; and the two fare zones for £4 and £6 day tickets were substantially increased in size.
First hoped that the anticipated increase in passengers would lead to an increase in revenue. Evidence so far is that passenger numbers have increased, with journeys rising by some 15%. Part of this is due to other factors, such as extra bus services, new buses, free wifi and refurbished bus stops with larger shelters and seats. But the company attributes a 9% rise in passengers to the fare
reductions. As far as revenue is concerned, indications from the company are that, after an initial fall, revenue has risen back to levels earned before the fare reduction.
What are the longer-term implications for revenue and profit of these two decisions? This depends on the price elasticity of demand and on changes in costs. Read the articles and then consider the implications by having a go at answering the questions.
Clifton Suspension Bridge toll to rise from 50p to £1 BBC News (9/4/14)
Regular Users of Clifton Suspension Bridge will be Protected from the Increase in the Bridge Toll Clifton Suspension Bridge (9/4/14)
Clifton Suspension Bridge Review Decision Letter Department of Transport (24/3/14)
Clifton Suspension Bridge Trust: bridge toll review inspector’s report Department of Transport (8/4/14)
Clifton Suspension Bridge Toll Increase – Account of the May 2013 Public Inquiry The National Alliance Against Tolls (NAAT)
First Bus Bristol fare cuts sees passenger growth BBC News (6/6/14)
First gamble over cheaper bus fares pays off as passengers increase in Bristol The Bristol Post (6/6/14)
Bristol bus fares deal to extend to South Gloucestershire and North Somerset The Bristol Post, Gavin Thompson (12/6/14)
Questions
- What assumptions is the Clifton Suspension Bridge Trust making about the price elasticity of demand for bridge crossings?
- What determines the price elasticity for bridge crossings in general? Why is this likely to differ from one bridge to another?
- How is the long-term price elasticity of demand likely to differ from the short-term elasticity for Clifton Suspension Bridge crossings and what implications will this have for revenues, costs and profit?
- How is the price elasticity of demand for the bridge likely to vary from one user to another?
- How is offering substantial price reductions for multiple-crossing cards likely to affect revenue?
- What determines the price elasticity of demand for bus travel?
- What could a local council do to encourage people to use buses?
- How is the long-term price elasticity of demand for bus travel likely to differ from the short-term elasticity?
- In the long run, is First likely to see profits increase from its fare reduction policy? Explain what will determine this likelihood.
We have had a minimum wage in the UK for well over a decade and one its key purposes was to boost the pay of the lowest paid workers and in doing so reduce the inequality gap. Rising inequality has been a concern for many countries across the world and not even the nations with the most comprehensive welfare states have been immune.
Switzerland, known for its banking sector, has been very democratic in its approach to pay, holding three referenda in recent years to give the Swiss public the chance to decide on pay. Imposing restrictions on the bonuses available to the bosses of the largest companies was backed in the first referendum, but in this latest vote, the world’s highest minimum wage has been rejected. The proposed wage is the equivalent of £15 per hour and it is the hourly wage which proponents argue is the wage
needed to ensure workers can afford to ‘live a decent life’. However, prices in Switzerland are considerably higher than those in the UK and this wage translates to around £8.33 per hour in purchasing power parity terms, according to the OECD. In the UK, much debate has surrounded the question of a living wage and the impact that a significant increase in the NMW would have on firms. The concern in Switzerland has been of a similar nature.
With a higher wage, costs of production will inevitably rise and this is likely to lead to firms taking on fewer workers and perhaps moving towards a different mix of factors of production. With less workers being employed, unemployment would be likely to increase and it may be that the higher costs of production are passed onto consumers in the form of a higher price. One problem is that as prices rise, the real wage falls. Therefore, while advocates of this high minimum wage suggest that it would help to reduce the gap between rich and poor, the critics suggest that it may lead to higher unemployment and would actually harm the lowest paid workers. It appears that the Swiss population agreed with the critics, when 76% voted against the proposal. Cristina Gaggini, who is the Director of the Geneva Office of the Swiss Business Association said:
I think [it would have been] an own goal, for workers as well as for small companies in Switzerland … Studies show that a minimum wage can lead to much more unemployment and poverty than it helps people … And for very small companies it would be very problematic to afford such a high salary.
The proposal was made by Swiss Unions, given the high cost of living in Switzerland’s suggest cities. It was rejected by the Swiss Business Federation and government and this was then echoed by the overwhelming majority in the referendum. Switzerland has been found to be the most expensive place to live in the world and the wages paid are insufficient to provide a decent life, with many claiming benefits to support their earnings. The debate over the minimum wage and the living wage will continue in countries across the world, but for now the Swiss people have had their say. The following articles consider this issue.
Switzerland rejects world’s highest minimum wage BBC News (18/5/14)
Swiss voters reject plan to establish world’s highest minimum wage The Guardian, Julia Kollewe (18/5/14)
Swiss voters reject setting world’s highest minimum wage Wall Street Journal, Neil Maclucas (18/5/14)
Swiss voters reject world’s highest minimum wage, block fighter jets Reuters, Caroline Copley (18/5/14)
Switzerland votes on world’s highest minimum wage at £15 per hour Independent, Loulla-Mae Eleftheriou-Smith (18/5/14)
Swiss reject highest minimum wage in world Financial Times, James Shotter (18/5/14)
Swiss reject world’s highest minimum wage, jet purchase Bloomberg, Catherine Bosley (18/5/14)
Questions
- Using a demand and supply diagram, illustrate the impact of a national minimum wage being imposed.
- Using the diagram above, explain the impact on unemployment and evaluate the factors that determine the amount of unemployment created.
- Given what you know about the proposed Swiss minimum wage, how much of an impact on unemployment do you think there would be?
- Draw a diagram to show the effect on a firm’s costs of production of the national minimum wage. Explain how such costs may affect the prices consumers pay for goods and services.
- How is it possible that a higher minimum wage could actually lead to more inequality within a country?
- Is there a chance that a minimum wage could lead to inflation? What type would it be?
When you think about John Lewis, you think of a large department store. It is a department store celebrating its 150th anniversary. Many large retailers, such as John Lewis, have expanded their product range throughout their history and have grown organically, moving into larger and more prominent locations. What’s the latest location? St Pancras station.
The idea of a click-and-collect store has grown in popularity over the past decade. With more and more people working and leading very busy lives, together with the growth of online shopping, it is the convenience of this type of purchase which has led to many retailers developing click-and-collect. Indeed, for John Lewis, 33% of its internet sales do come through click-and-collect. However, John Lewis is going a step further and its new strategy is reminiscent of companies like Tesco. If you just need to pop into Tesco to get some milk, you’re likely to go to the local Tesco express. The first mover advantage of Tesco in this market was vital.
John Lewis is unusual in that it is owned by its employees and this ownership structure has proved successful. Despite a long history, John Lewis has moved with the times and this latest strategy is further evidence of that. In today’s world, convenience is everything and that is one of the key reasons behind its new St Pancras convenience store. It will allow customers to purchase items and then collect them on their way to and from work – click-and-commute, but it will also provide customers with an easily accessible place to buy electronic equipment and a range of household goods. The retail director, Andrew Murphy said:
In the battleground of convenience, we are announcing a new way for commuters to shop with us … Customers spend a huge amount of time commuting, and our research shows that making life easier and shopping more convenient is their top priority.
This appears to be the first of many smaller convenience stores, enabling John Lewis to gain a presence in seemingly impossible places, given the normal size of such Department stores. For many people, commuting to and from work often involves waiting at transport hubs – one of the big downsides to not driving. So it seems sensible for such an established retailer to take advantage of commuters waiting for their train or plane to arrive, who have time to kill. The following articles consider this new direction for an old retailer.
John Lewis to open St Pancras convenience store BBC News (2/5/14)
John Lewis thinks small with convenience store The Guardian, Zoe Wood (2/5/14)
John Lewis to trial convenience store click-and-collect format at St Pancras Retail Week, Ben Cooper (2/5/14)
Why is click and collect proving so popular? BBC News, Phil Dorrell (2/5/14)
The rise of click and collect for online shoppers BBC News, Phil Dorrell (2/5/14)
Questions
- What are the advantages and disadvantages of the organisational and ownership structure of John Lewis?
- How would you classify this new strategy?
- How do you think this new strategy will benefit John Lewis in terms of its market share, revenue and profit?
- Is it likely that John Lewis will be able to target new customers with this new convenience store strategy?
- How important is a first-mover advantage when it comes to retail? Using game theory, can you create a game whereby there is clear first mover advantage to John Lewis?
Profits are maximised where marginal cost equals marginal revenue. And in a perfectly competitive market, where price equals marginal revenue, profits are maximised where marginal cost equals price. But what if marginal cost equals zero? Should the competitive profit-maximising firm give the product away? Or is there simply no opportunity for making a profit when there is a high degree of competition?
This is the dilemma considered in the articles linked below. According to Jeremy Rifkin, what we are seeing is the development of technologies that have indeed pushed marginal cost to zero, or close to it, in a large number of sectors of the economy. For example, information can be distributed over the Internet at little or no cost, other than the time of the distributor who is often willing to do this freely in a spirit of sharing. What many people are becoming, says Rifkin, are ‘prosumers’: producing, sharing and consuming.
Over the past decade millions of consumers have become prosumers, producing and sharing music, videos, news, and knowledge at near-zero marginal cost and nearly for free, shrinking revenues in the music, newspaper and book-publishing industries.
What was once confined to a limited number of industries – music, photography, news, publishing and entertainment – is now spreading.
A new economic paradigm – the collaborative commons – has leaped onto the world stage as a powerful challenger to the capitalist market.
A growing legion of prosumers is producing and sharing information, not only knowledge, news and entertainment, but also renewable energy, 3D printed products and online college courses at near-zero marginal cost on the collaborative commons. They are even sharing cars, homes, clothes and tools, entirely bypassing the conventional capitalist market.
So is a collaborative commons a new paradigm that can replace capitalism in a large number of sectors? Are we gradually becoming sharers? And elsewhere, are we becoming swappers?
Articles
Capitalism is making way for the age of free The Guardian, Jeremy Rifkin (31/3/14)
The End of the Capitalist Era, and What Comes Next Huffington Post, Jeremy Rifkin (1/4/14)
Has the Post-Capitalist Economy Finally Arrived? Working Knowledge, James Heskett (2/4/14)
Questions
- In what aspects of your life are you a prosumer? Is this type of behaviour typical of what has always gone on in families and society?
- If marginal cost is zero, why may average cost be well above zero? Illustrate with a diagram.
- Could a monopolist make a profit if marginal cost was zero? Again, illustrate with a diagram.
- Is it desirable for there to be temporary monopoly profits for inventors of new products and services?
- What is meant by a ‘collaborative commons’? Do you participate in such a commons and, if so, how and why?
- Should tweets and Facebook posts be regarded as output?
- What is meant by an internet-of-things infrastructure?
- What are the incentives for authors to contribute to Wikipedia?
- Could marginal cost ever be zero for new physical products?
- Think about the things you buy in the supermarket. Could any of these be produced at zero marginal cost?
- How can capitalists make profits as ‘aggregators of network services and solutions’?
- Provide a critique of Rifkin’s arguments.
The typical UK high street is changing. Some analysts have been arguing for some time that high streets are dying, with shops unable to face the competition from large supermarkets and out-of-town malls. But it’s not all bad news for the high street: while some types of shop are disappearing, others are growing in number.
