High Street Blues

The decline of traditional retail is a topic which has been discussed, on and off, for around a decade now. It's a conversation which is particularly relevant to videogames and other digital media, where direct online distribution is possible, but online shopping has affected almost every retail sector - even clothes and food, the backbone of the high street.

In spite of this lengthy discussion, it's still something of a shock to see two large retail chains, both of them very active in the videogames sector, shutting down in the space of a couple of months. Woolworths has been a fixture of towns around the UK for a century, and in recent years has been a key outlet for videogames, especially at the casual and family-oriented end of the market. Zavvi, the new name of the Virgin Megastores chain, occupies some of the best retail property in the UK and was determined to focus the core of its business around videogames.

Now they're both gone, or are on the way out. With no buyers in sight for either chain, both have suffered the fate of stock liquidations, massive job losses and the sale of their individual retail locations.

After years of discussion and dire predictions regarding the future of high street retail, should these closures be seen as support for those arguments? Is this, as much of the commentary has indicated, a clear sign that the high street is entering its latter days?

Too much weight can be placed on those conclusions, and it's important to consider that there are special circumstances surrounding the collapse of both Woolworths and Zavvi. In the case of Woolworths, the company has been facing trouble for many years, and found little succour in the buoyant economic conditions of the past decade. Ironically, its low-cost, "cheap and cheerful" approach (many would debate the use of the word "cheerful", in fact) might have resonated better with consumers in a recession. It'll never have a chance to find out, however.

Zavvi, meanwhile, has slid out of view protesting all the while that it's a victim of circumstance. Its sales through 2008, the company says, were healthy - but when Woolworths went down, it also spelled the end for Entertainment UK, a distribution outfit which supplied Zavvi with much of its stock. With tens of millions of pounds of debt suddenly being called in and deep concerns over how to keep key items (especially games) in stock over Christmas, Zavvi promptly ended up being dragged down by the Woolworths disaster.

Just unlucky, then? Woolworths, caught short by the timing of the economic cycle; Zavvi, a victim of pure circumstance, mere collateral damage in Woolworths' implosion?

That's one interpretation, and it's one to which many in the high street retail business have flocked. There's certainly an element of truth here - but in dismissing these dramatic collapses as mere circumstance, we risk blindly ignoring the important lessons and indicators which they provide.

The fact is that very few corporate collapses are marked by graceful, textbook descents as sales slide, profits fall, and the whole operation is wound down by administrators. As managers (and eventually administrators) attempt to rescue businesses facing difficulties, they often take gambles which result in far more dramatic collapses. Weakened businesses are also easy prey for hiccups in the economy of any description, which can result in a seemingly sudden demise rather than a slow decline.

In other words, yes - the collapses of Woolworths and Zavvi are definitely the product of circumstance. However, there is an important argument here which says that those circumstances could only sink these large companies because there are bigger, underlying problems in play.