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Why Are Retail Stores Are Struggling Financially?

Why Are Retail Stores Are Struggling Financially?

In the past two weeks, the UK has seen an unprecedented move where three of the high street giants have crumbled, as wildly stated in the finance news. It began on January 9th when camera retailer Jessops went into administration. Two days after this all stores were shut down – 187 stores and 1370 jobs. Less than a week later on the 14th, music and entertainment retailer HMV also went into administration, though the future is somewhat brighter for the company as the administrators Deloitte have kept the company trading, with the company also now accepting vouchers once again.

The third to be hit was two days later. Whilst many in the UK don’t think about renting DVDs as an option, thanks to video on demand services coming out in full force, Blockbuster was still operating with 528 stores and 4200 staff. They too went into administration and some stores are still operating.

There are many reasons as to why high street business are failing and one of the most prevailed reasons is the Internet. Stores like Amazon are able to provide all of what those three companies could do and for cheaper. Amazon provides physical DVDs, Games and CDs with less tax due to a loophole they exploit, but also offer camera equipment, music downloads and film rentals via owning Lovefilm. All this means that in 2011, Britain spent over £68 billion online, with Amazon being the forerunner.

The physical cost of being on the high street is also a factor. Whilst online you can buy one of the latest games for £30, you can then see it in a branch of HMV for £45. This is partly down to the typically high rent on the high street, along with business rates, staff rates and needing to pay the full amount of corporation tax and VAT, unlike Amazon who operates outside the country. By simply being a presence the company has to inflate the prices, which is leaving some cities like a ghost town full of empty windows and coffee places. Whilst GAME managed to save itself from full administration last year and HMV seems to be able to get away with just a few closures, this won’t be the case for all.

One thing that’s certain is that these three companies probably won’t be the last you read about going into administration in the finance news this year.

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