High Street Closures, Is It Always The Fault Of Online Competition?

Here's an extract of a conversation I had with a company which, to me highlights some of the problems the High Street (at least in the UK) are facing.

As a background, it's a small pet shop limited company, turning over ￡300k with a net profit of ￡20k. Add-backs increase it to ￡30k and it has a balance sheet of around ￡50k. Completely B2C in an offline-only environment so with my online experience I know I could bring in an online offering and grow the business. I would keep the shop open and sell through multiple channels.

We had a general chat about the state of the High Street and he mentioned that so many of his business network in the area is looking to retire, but can't sell their business.

At one point he exclaimed:

"I can't believe that so many of us down this street can't sell. I've been on the market for 3 years, next door's been looking for the last 12 months and the guy over the road has been looking for longer than I have."

We exchanged general chit chat regarding the other businesses and I asked, "What are you and the others going to do if you can't sell?"

His reply was:

"Well I had a talk with next door yesterday and he has decided that if he can't sell by Christmas 2021 he's going have a closing down sale in January 2022 and I'll probably follow."

This gave me some context to timelines and his desire to sell so we went on to financial matters.

Me: "So what are you looking for from selling the business?"

Seller: "I want to retire, but I've been doing this so long it would be a shame for it to close down and I'd like to see the staff still have jobs."

Me: "What about financially?"

Seller: "We turnover ￡300k so I think the business is worth at least that?"

Me: "Is that how your neighbours are valuing their businesses?"

Seller: "Yes!"

Me: "That's 10 times profit, what makes you think it's worth it?"

Seller: "When you look at the multiples companies like Sainsbury's, Asda and Amazon are valued at I think 10 times is fair."

Me: "So if I paid ￡300k for the business it could take 10 years to get my money back."

Seller: "Considering how long I've been doing this, I think that's fair."

We had a bit more of a discussion, but the upshot was that there was no movement on the valuation and we parted. Hopefully, I didn't upset or insult him and I've left the door open to discuss it further if he wants in the future.

This got me thinking though. The media and councils are always shouting about the state of the High Street and there are reports of shops closing all the time (even before Covid).

Some of these shops are undoubtedly closing due to finances, but I wonder how many are closing because the owners want to sell and have an exaggerated view of the valuation.

In my conversation above there are at least 2 shops that will close down if the owners can't get the exaggerated figure they want. These are viable businesses, neither have been hit by Covid as they were considered essential, yet they could close their doors and the staff could lose their jobs.

I don't know what the answer is, but I feel this is a discussion that needs to be had.

Shops and businesses closing are not always because they are nonviable or are a consequence of online competition. Closures can also be a consequence of the owners thinking they have a business with a far higher valuation than they actually have.