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This report is from this week’s CNBC’s UK Exchange newsletter by Ian King. Like what you see? You can subscribe here.

England, Napoleon Bonaparte reputedly once said, is a nation of shopkeepers.

These days, he might observe that it is more a nation of administrators, insolvency practitioners and restructuring advisors.

Barely a day passes without news of another retailer going bust or closing dozens of stores.

To take a handful of headlines from the last week: advisors have been appointed to salvage part of Claire’s U.K., the British arm of the global accessories chain, which has 281 outlets nationwide; Hamleys, the world famous U.K. toy retailer, has closed 29 stores after shutting 40 in 2023; and Seraphine, the maternity retailer whose customers included the Princess of Wales, has stopped trading altogether.

They are just the tip of the iceberg. Poundland, recently offloaded for just £1 by its Polish-listed former parent Pepco to the U.S. investment group Gordon Brothers, is widely expected to close dozens more stores on top of those already announced as its restructuring begins in earnest. Hobbycraft, the arts and crafts retailer, and the Original Factory Shop, a general retailer, are both closing scores of outlets following their acquisition by Modella Capital, the U.K. private equity firm currently in the process of buying the high street arm of WH Smith, the stationery retailer now best known for its outlets in airports around the world. Some of its branches are also likely to shut.

The pain is being felt most acutely in fashion retail, reflecting increased competition from online competitors like ASOS and Shein.

New Look, which has delighted generations of teenagers and 20-somethings for 55 years, is fighting for its life and earlier this year announced plans to shut 100 outlets, around a quarter of its total, when their leases expire.

The even-older River Island — which dates back to 1948 and, in the swinging 1960s, rebranded itself Chelsea Girl as it rode the mini-skirt boom — has also called in advisors to help with a possible restructuring. It currently employs some 5,500 people across more than 250 stores.

They follow a long line of well-known U.K. retailers to have closed their doors during the last decade or so — some still soldiering on as online-only brands — including Topshop, Dorothy Perkins, Ted Baker, Thorntons, Carpetright, Paperchase and Debenhams. Others, such as the Body Shop and Wilko, are under new owners, which tends to come with a vastly reduced store estate.

The retail sector is not alone in suffering. Hospitality is also afflicted with even established names like Byron Burger, Chipotle, Frankie & Benny’s and Papa John’s closing sites across the U.K. The most recent casualty was Ping Pong, a popular dim sum chain, which closed for good last week after 20 years in business. There may also soon be closures at Côte, a brasserie chain which once had 100 outlets, whose private equity investors are now seeking new investment.

In all, around 17,350 retail sites are expected to shut down this year, with the loss of almost 202,000 jobs, according to the Centre for Retail Research, a data provider. It estimates that, during 2024, some 13,479 stores closed, following 10,494 closures during 2023. To say the trend is accelerating is both accurate and worrying.

There are several short-term reasons for this carnage and plenty of long-term ones.

The most important of the former is the rise in employers’ National Insurance Contributions (NICs), a payroll tax, introduced by Chancellor Rachel Reeves in April this year. However, more damaging than the increase in the rate — which rose from 13.8% to 15% — was a drop in the threshold at which it is paid from £9,100 to £5,000. That has increased the cost of employing people and, in particular, the part-time workers crucial to retail and hospitality.

A number of employers have blamed it for both job losses and branch closures.

Among them was Bob Wigley, co-owner of Margot, a popular restaurant in London’s Covent Garden recently forced to close.

Wigley, previously one of the City’s best-known investment bankers, posted on LinkedIn that one of the restaurant’s managers had told him: “We survived Covid but we can’t survive Labour.”

The government told CNBC that its tax changes were “tough but necessary,” and are needed to “protect working people’s payslips from higher taxes,” and invest in public services.

The British Retail Consortium, the main industry body, has estimated that the hike in employers’ NICs will cost the retail sector alone some £2.3 billion.

Other near-term factors include the recent rise in the minimum wage from £11.44 ($15.38) an hour to £12.21. The age at which it kicks in was also reduced from 23 to 21 — making it more expensive to hire younger workers — while the rate for 18-20-year-olds rose from £9.60 an hour to £10. Wages have also been rising more broadly, following several years of above-average earnings growth across the economy, a result of the U.K.’s tight labor market and the rise in economic inactivity since the pandemic.

But as unemployment — and with it, job insecurity — starts to rise, consumers are increasingly eating into their savings or becoming more frugal. The U.K.’s savings ratio, which spiked during the pandemic and remained high afterwards, is now falling for the first time this decade.

As Clive Black, head of consumer research at the investment bank Shore Capital and one of the City’s most renowned retail-watchers, put it in a recent client note: “U.K. consumers are low on confidence, fed up with broken Britain.”

Local councils have also pushed up parking charges and introduced so-called “low traffic neighborhoods,” making high-street shopping tricky for those who rely on their cars, prompting many bigger operators —the likes of Next and Marks & Spencer — to shift to out-of-town retail parks.

But there are also longer-term factors. Business rates — a tax dating back 400 years levied on the “rateable value” of most non-domestic properties such as shops, offices, pubs and warehouses — hit bricks-and-mortar retailers much harder than online retailers like Amazon, which is also blamed for sucking business away from the high street. 

In its election manifesto last year, the governing Labour Party promised to “level the playing field between the high street and online giants,” but its solution — hitting larger properties more heavily to fund lower rates for smaller premises — has alarmed many in the sector, including supermarket multiples like Tesco, Sainsbury’s and the Co-op. The government says its business rates system is designed to “protect the high street” and support investment.

Regardless, the acceleration in store closures has raised fears that this is a structural downturn, rather than just cyclical. There is some evidence for this.

In the past, when an established retailer was forced out of business, other operators stepped in to take its place. A good example is the U.K. arm of Woolworths, the much-loved variety store chain, whose 807 outlets closed — with the loss of 27,000 jobs — in late 2008 and early 2009 at the height of the financial crisis. New tenants were quickly found for many of these as rivals, such as B&M, stepped in to take the sites at a cheaper rent. Many of these, including the likes of Poundland, Poundstretcher and Original Factory Shop are now themselves struggling.

However, more recently when a store has closed, it has remained closed, which, added to the exodus to retail parks, has left many high streets with a sense of decay. When a big retail destination closes or moves out, footfall is reduced.

Accordingly, a typical British high street, which in the 1980s or 1990s boasted familiar names like Boots, Woolworths and Marks & Spencer, is more likely these days to be home to vape shops, American-style candy stores, tattoo parlors and charity shops (the latter of which benefit from significantly lower business rates).

The sense that this is a structural change also reflects a shift in retail property ownership. The big U.K. commercial property players such as Land Securities and British Land, where they have exposure to the retail sector at all, will do so largely via retail parks or shopping centers. The typical high street landlord is more likely these days to be a “mom and pop” operator unable to offer tenants better terms when they run into difficulty.

All of this sounds like a perfect storm, yet there is another, less frequently acknowledged factor at play: going into the 21st century, when Amazon began eating the lunch of the old bricks-and-mortar retailers, there were simply too many players.

Many retailers will not countenance the idea, but perhaps what we have seen over the last quarter century is simply over-capacity being taken out of the market.

— Ian King

U.K. stocks have been strong outperformers over the past week, with the FTSE 100 gaining 1.6%. The index notched a record intraday high above 9,000 points on Tuesday.

London-listed companies have been boosted by the fact that the U.K. has already negotiated a trade deal with the White House, while business in the European Union remain mired in uncertainty — and under threat of 30% U.S. duties — heading into earnings season.

Further support has come from a decline in sterling, which has dropped 1.5% against the U.S. dollar to $1.339 over the past week, as Bank of England Governor Andrew Bailey suggested the central bank would be more forceful with interest rate cuts if the labor market weakens. A weaker pound can be beneficial to FTSE 100 firms, a majority of which derive their revenue overseas.

The gilt market has been relatively calm following its recent spell of volatility. The 10-year yield has eased to 4.62% from 4.63% over the past seven days, while the 2-year yield is down to 3.83% from 3.88%.