In one fell swoop DIY giant Homebase became the high street’s latest pound shop last week after its Australian owner, Wesfarmers, offloaded the loss-making chain for a token sum to a restructuring firm. The deal is expected to trigger fresh pain on a high street that is already shedding stores and jobs at a faster rate than during the recession in 2009. Major high-street names including Marks & Spencer, Debenhams, Topshop and House of Fraser are also struggling. On Friday the homewares chain Dunelm issued a profit warning, blaming “challenging” conditions. So why is life so tough on the high street?

Online rivals

It is hardly a surprise that the high street is under pressure as the internet has hoovered up about a fifth of all retail spending, with non-food sales online rising by 7.5% in the past year. Now smartphones are ubiquitous, it is possible to buy a sofa on the bus, a designer handbag from the sofa or a new kitchen while in bed.

The internet has made life challenging for retailers in a number of ways. Apart from directly diverting sales, it has given shoppers less reason to visit their high street, reducing small retailers’ chances of drawing in passing trade, while the cost and complexity of building the infrastructure to deliver goods to homes efficiently has hit profits. As traditional retailers struggle to adapt, they are being pressed by online specialists, such as Asos, Amazon and Boohoo.com, unhindered by a long tail of outdated stores. The ease of comparing prices and accessing goods from around the world has given more options to those based in small towns who are no longer restricted to shopping local, making competition tougher than ever.

The internet is also enabling savvy shoppers to trade goods among themselves much more easily. Whether it is bundles of baby clothes selling on Facebook, fashion fans searching for vintage on eBay or Etsy, or teenagers flogging their unwanted impulse purchases on fast-growing mobile app Depop, this market is on the rise. In the US, the fashion resale market, both on and offline, is expected to rise 13% between 2016 and 2021 to $33bn, and new specialist sites such as Hewi (Hardly Ever Worn It) and Vinted as well as Depop are also expected to drive growth in the UK.

Rising costs

As traditional retailers battle to fund adapting their businesses to cope with the shift to online shopping, they are being hit with a perfect storm of other cost rises. The fall in the value of the pound following the Brexit vote has pushed up the cost of sourcing goods abroad. The impending exit from the EU and lower value of sterling have also acted to push up wages in some areas as it has been more difficult to find skilled workers who have traditionally come from mainland Europe, such as van drivers. The rise in the legal minimum wage and imposition of the apprenticeship levy have also pushed up costs, as has a rise in business rates this year. While some businesses have seen a cut, and many small stores were protected, those in the south, particularly in London, have seen major rate rises. About 1,400 shops, pubs, restaurants and hotels received an average rise of almost £50,000 according to property adviser Altus Group.

Consumption fatigue

After years of filling their wardrobes and homes with material possessions, Brits appear to have reached “peak stuff”. Young people are now more likely to be renters rather than buyers, meaning they’ve no yearning to fill a bottom drawer with household goods they may have to lug between short-term lets. Barclaycard data for last year reveals a 10% increase in spending on entertainment and an 11.4% rise in spending on telecoms, which of course doesn’t include all those direct debits paying for long-term phone contracts. Entertainment, pubs and restaurant spending was all up in double-digit percentages last year, according to Barclaycard, but women’s clothing spending was down. The latest data from Visa indicates that spending on household goods and clothing continues to fall, while restaurants, hotels, pubs and bars are still on the up.

High-street decline

Retailers are currently closing stores at a faster rate than during the recession, but despite the underlying issues being well rehearsed, no coherent plan has emerged to tackle high-street decline. Some 50,000 stores are deemed surplus to requirements and MPs have recently launched a fresh inquiry, with the goal of drawing up a vision of what high streets and town centres could look like by 2030. There is no shortage of brain power being devoted to this emotive subject; retail guru Bill Grimsey is currently leading a taskforce that is revisiting his influential 2013 review. But while MPs and retail experts bang their heads together, the pace of decline only accelerates. Last week Marks & Spencer confirmed plans to close 100 of its traditional high-street stores by 2022 as sales move online. M&S’s predicament typifies that of large chains with long histories: stores opened on once-thriving high streets are now surrounded by discount stores and fast-food outlets. If shoppers have abandoned a high street and shops are ever more expensive to run, how can retailers be expected to stay?

Bad management

Retail executives have plenty of excuses up their sleeves – ranging from the weather to declining footfall and the rise of the internet – for falling sales but no one admits to lacking skills and vision. The world wide web has been around for more than 25 years so retail bosses have had plenty of time to get used to the idea and adapt their businesses. Nearly 50% of Next’s £4bn sales are rung up online, whereas last week Marks & Spencer admitted that despite spending the best part of £400m on its website operation, it is still too clunky and needs more money thrown at it. There are clear instances of bad management heightening the pressure created by the structural change bearing down on the high street: Homebase, which employs more than 11,000 people, was sold for just £1 after its new Australian owners, Wesfarmers, made terrible decisions that turned a profitable business into a massive loss-maker; the struggling Mothercare chain can no longer persuade new parents to shop there despite around 1,900 babies being born every day. Analysts level claims of inexperience at the bosses of retail chains such as House of Fraser, which has joined a long list of household names that includes Carpetright, New Look and Mothercare resorting to company voluntary arrangements (CVA), a form of insolvency, to jettison their weakest stores.

Spending squeeze

Consumers have just escaped a long period of falling real income and the scars are now becoming visible on the high street.

Last year saw inflation rise to 3%, while wages remained stuck between 2% and 2.5%. According to pay experts, most wage bargaining deals signed last year were nearer 2%. That made for a significant fall in inflation-adjusted earnings and depressed the disposable incomes of most shoppers.

It wasn’t supposed to be this way, with employment at record levels and unemployment so low that it has dropped to levels last seen in the 1970s. What many economists depict as full employment was meant to send wage rates soaring.

However, Brexit uncertainty – and the transformation of working life following the rise of self-employment, part-time jobs and zero-hours contracts – more than offset the pressure from rising vacancy rates to send household incomes falling backwards. A lack of investment by British business has also played its part, keeping productivity and wage rises low.

To maintain their standard of living, consumers have ramped up their borrowing, especially to buy cars and other big-ticket items. They have also run down their savings. The hope is that falling inflation this year will allow real incomes to rise again and a credit binge can be avoided. That’s what most forecasters expect, though the twists and turns of Brexit could wreck that prediction.