Lawyers setting up in shopping centres could kill off the high-street solicitor in the West Midlands, according to a business adviser who has just completed a study into the region’s legal sector.
Martin Ramsey, a director at Grant Thornton in Birmingham, said the changes in business structures that would come in with the introduction of the Legal Services Act would mean the creation of large consumer-facing chains that would end up knocking small-scale law firms off the high street.
Mr Ramsey carried out a benchmarking study into the future of the legal sector, and said that firms were still in for a tough time – even if they could survive what is known as “Tesco law”.
One chain of legal service providers – trading as Qualitysolicitors – has already opened up 15 of a planned 300 branches around the UK, with many locations in shopping centres. It has seen a number of law firms joining together under the common brand to market directly to shoppers.
Mr Ramsey said he thought this would be a model for many in the future.
“You’ve got to credit Qualitysolicitors,” he said. “I think it’s going to be very difficult for this kind of firm if you roll forward five to 10 years. I think small-scale solicitors on the high street would have to be very specialised to survive.”
In terms of larger law firms in and around Birmingham, Mr Ramsey said there had been a huge variety in performances, but that they were largely back to growth after a year or more of restructuring, but it was still uncertain how this would translate into jobs.
There have been sporadic job cuts across the city, and the first sign of an expected wave of mergers recently, when Midland firms Shakespeare Putsman and Needham & James announced they would be joining forces.
Mr Ramsey said: “In general we are expecting firms to be announcing higher profits in their 2010 accounts having addressed the restructuring issues in 2009 and, with expected flat turnover, the result should be higher profits.
“Results vary massively from firm to firm which is partly as a result of the mix of work types undertaken, the strength of the firm on the way into the recession and the quality of the teams. Some firms have largely held on to pre-recession levels of turnover and suffered only modest reductions in profit share, whilst others look to be in serious difficulty.”
Mr Ramsey said the increasing level of lending from banks might make them less keen to put money into law firms into the future, and the onus would fall on leading partners to support firms.
Among the mid-tier and larger firms in the West Midlands he found that while the amount of equity held by partners had held steady, at an average of £109,000, bank borrowings had gone up 57 per cent, with firms holding an average of £4.4 million in bank debt.
He said: “It is vital that firms communicate openly and honestly with their banks – banks have been fairly supportive generally. Some firms now find themselves in an uncomfortable position of being beholden to their bank which may now be taking a tougher stance. Contrast this to the pre-recession days when banks were falling over themselves to do business in the legal sector.”
“I think it’s going to change the way banks think about the legal sector. There are quite a few firms still struggling out there. The legal sector has traditionally been low-risk for the banks, but I think that mindset is changing now. Going forward the question is whether banks will change that model.
“That’s got some big implications in terms of the attractiveness of being a partner.”