Why are pharmacies and banks vanishing from the UK High Street – and is closing stores the only way to stay afloat?

The rate of store closures in the UK has been on the rise, with banks and pharmacies among the most affected sectors. According to a recent report from PwC, 6,945 chain stores closed in the first half of 2024, equivalent to around 38 closures per day, an uptick from previous years. Driven by changing consumer habits and the growing dominance of digital services, the scale of these closures has raised concerns about the future of physical retail.  We look at the most affected sectors, how closing stores can keep businesses solvent and what else might form part of a restructuring plan.

Pharmacy and bank closures surge across the UK

Pharmacy chains have been particularly hard hit. Lloyds Pharmacy announced the closure of over 200 branches across the UK in 2023, largely due to reduced government funding, rising operational costs, and increased competition from online pharmacies. Similarly, Boots has been scaling down, with plans to shut 300 stores.

The banking sector has also experienced widespread branch closures. With the rise of online banking, major banks like Barclays, HSBC, and NatWest are reducing their physical footprint. Barclays plans to shut 142 branches in 2024, following the closure of hundreds of branches by other banks in previous years.

Restructuring Plans and store closures

For many companies, closing stores is a strategic response to financial difficulties. Restructuring plans often involve cutting costs by closing underperforming locations, especially when businesses face economic challenges or shifts in market demand. Lloyds Pharmacy, for instance, closed numerous branches as part of its restructuring plan to streamline operations and enhance its digital presence​.

Similarly, Boots' decision to close 300 stores is part of its broader strategy to focus on profitable locations and invest in digital services, reflecting a common trend among struggling retailers.

By cutting high operational costs and reallocating resources, these companies aim to stay afloat and prevent potential insolvency.

How restructuring plans aim to save struggling businesses

There are many aspects that may be considered as part of a restructuring plan, not just closing stores, these may include:

1. Debt Restructuring

One of the most common components of a restructuring plan is renegotiating debt with creditors. This may involve extending any repayment terms, reducing interest rates, or converting debt into equity to lower the company’s financial burden. For example, in the retail sector, House of Fraser successfully negotiated a Company Voluntary Arrangement (CVA) to reduce rent obligations across some of its stores while securing new investment​.

In 2019 Mothercare  entered into a CVA that allowed it to reduce costs without closing all of its stores. While Mothercare eventually exited the UK retail market, the CVA helped it focus on international expansion and online sales​.

2. Cost-cutting measures (other than store closures)

Restructuring can also involve cost-cutting measures that do not require closing stores. This might include:

Reducing Staff Costs: Companies often reduce their workforce through voluntary redundancies or reassign roles to lower-cost areas of the business.

Renegotiating Supplier Contracts: This can help businesses achieve better payment terms and reduce the cost of goods.

Reducing Operational Costs: Companies might downsize offices, relocate to cheaper premises, or implement energy-saving measures to reduce utility bills.

In 2019, for example, New Look closed a smaller number of stores than originally planned by renegotiating rents with landlords and shifting focus to its more profitable locations. It also introduced more affordable product lines to increase foot traffic​.

3. Selling Non-Core Assets

Another strategy often employed in restructuring plans is selling non-core assets or underperforming divisions. This can free up capital for more critical areas of the business or pay down debt. Retailers might sell off warehouses, underutilised properties, or international divisions.

Debenhams, for example,  attempted this by selling its Danish chain Magasin du Nord to focus on its UK operations. Although the business eventually collapsed, this strategy allowed it to reduce some financial pressure​.

4. Digital Transformation

Investing in digital channels is a key part of many modern restructuring plans. Instead of cutting physical locations, companies may shift resources to online platforms, implementing e-commerce strategies, digital marketing, and improved customer engagement tools.

Next, for example, avoided significant store closures by aggressively focusing on online sales and investing in its digital presence. By balancing physical store operations with a robust online platform, the company remained competitive, even as other retailers struggled​ and disappeared completely from the high street.

5. Mergers and Acquisitions

A restructuring plan may also involve merging with, or acquiring, other businesses. This strategy can help a company increase market share, diversify its offerings, or gain access to new technology or customer bases.

In 2020, for example, Morrisons merged with McColl's, a convenience store chain, to diversify its reach into smaller, local stores. Instead of closing stores, Morrisons capitalised on McColl’s existing locations to expand its presence.​

6. Supply Chain Optimisation

Optimising the supply chain is another way to cut costs without store closures. Businesses may renegotiate terms with suppliers, streamline logistics, or adopt new technologies to reduce inefficiencies and improve delivery times.

Sainsbury’s, for example, launched a supply chain optimisation initiative in 2021, investing in automation and data analytics. This allowed the company to reduce costs and improve efficiency without resorting to widespread closures​.

How successful are restructuring plans in the UK?

While restructuring plans can offer a lifeline to struggling businesses, they don’t always guarantee success. The effectiveness of these strategies largely depends on how well the company adapts to market changes and reduces costs while maintaining revenue streams. According to research, around 50-60% of restructuring efforts can lead to business recovery, though this varies across industries and individual companies​.

Future of the UK High Street: what to expect

The future of the UK high street remains uncertain. While many businesses are investing in digital services to remain competitive, the closure of physical stores may alienate customers who prefer in-person interactions, especially in sectors like banking. On the flip side, retailers who successfully integrate digital strategies into their business models may be able to thrive even without a large network of physical locations.

What is clear is that retailers need to evolve with the times. The long-term success of restructuring plans will largely depend on how well companies can balance cost-cutting measures with their response to customer needs​.