Shops with physical premises should be subsidised
Today brought the news that HMV is going into administration. It is the latest in the line of high street failures which has included the downfall of Woolworths, Comet, and Jessops. Essentially (though not exclusively), these firms have lost business to online competition.High street stores provide a classic case study in positive externalities. Everyone likes having them there (I presume; otherwise what is driving the clamour to 'save the High Street'?). They are often pleasant to wander around, and it is nice to be able to hold products in your hands. It is also viewed as good for the community to have a busy high street, and there is an "insurance" benefit of knowing that you can get something immediately in a store if you need it at short notice. But people no longer spend much money in these stores, often preferring to go home and buy what they saw in the shop online. The social value of the high street is not captured by the firms, and some of them go bust in the absence of sufficient revenue.
If we are to preserve the social value they create, this must be addressed. This means compensating the firms for the value they generate yet cannot capture. Economics 101 says that goods which exert positive externalities should be subsidised. There is thus a case for subsidising - or at least reducing the taxes of - firms with physical stores. This could be done, for example, by reducing rates (a kind of council tax for businesses) on shops. Online sites may be cheaper, but Amazon will never provide the satisfying experience of browsing and exploring which many currently get for free.
Ignoring the fact that in HMV's case their core products have seen huge declines in sales (even though album sales were up in 2012, physical sales were substantially down), you could also consider the following:
ReplyDeleteFor many commodity goods (CDs for instance) or specialised products (camera equipment) a physical storefront is of little use as consumers either know what they're getting, have a very good idea of what exactly they want, or both. Nobody needs to hold a DVD to know what it is. The market value of the externality is not what HMV are paying to provide it.
For those goods where a hands on experience is useful (say, a new laptop) the difficulty here is that the retailers going out of business are bad retailers. Apple sales are driven by apple stores which provide a positive sales experience. Nothing about visiting a Comet and having a poorly trained staff member give me no useful information at all about a poorly displayed product could make me want to part with £1000 for a product avilable cheaper elsewhere. Despite visiting 2 PC worlds I bought a computer online because I could get the specification I wanted in relative comfort rather than queue at a till in an out of town retail park. Top UK retailers are still posting growth (John Lewis...) and they do this by offering best in class retail experiences. An HMV store is hell.
The footprint of such retailers is also too large, both in terms of national presence and store size. This prevents high standard finishes in shops or clear, navigable experiences. It also means that many hold unbearable debt burdens from periods of excessive expansion which are now unserviceable. Whilst painful, this leaves room for other retailers.
This isn't to say that part of your argument doesn't hold true, but if the high street is to survive perhaps what it needs to do is revise down ground rent for premises and improve customer experience.