The 2012 increase in rates has been a huge blow to independent retailers who are already struggling with the financial impacts of reducing footfall and increasing costs. ALL retailers, large and small, who trade in “prime” locations suffer a massive rates burden that gives competitive advantage to out of town and online only brands (who do not carry the same cost overhead), but for indies in particular, the recent increase in rates has been enough in many cases to put some out of business altogether.
Business Rates are a barrier to the growth that the government so desperately needs!
They have also been a barrier to growth, some smaller retailers have had to let staff go and are working in the store themselves to save on salaries in order to make up the rates payments at a time when sales are slow and footfall is down. Others have paused recruitment – so it’s having a detrimental effect on employment levels for starters. Obviously no retailer is going to open new stores at a time of such uncertainty, and so overall the increase in rates has been very detrimental and particularly at the micro end of the retail spectrum where 1 additional store could mean a business doubles in size, turnover and staff numbers. With over 60% of all retail outlets being occupied by independents imagine what a profound impact they could have on growth if just a small proportion of them felt the environment existed that supported and encouraged their growth. The reason I think something needs to be done about this is on the one hand the government suggests small businesses will be the catalyst for growth yet on the other hand makes it excessively costly to achieve that growth.
Business rates are perpetuating the issue of rising high street vacancy rates
It’s also negatively impacting vacancy rates I’ve had first-hand feedback from several indies that have held back from opening new stores as the rates in some locations are now higher than the rent! The annual increases means that they won’t take the risk on opening a new store for fear of not being able to accommodate the rates in the early years of establishing their presence / customer base. Many have chosen to withdraw from high street premises altogether when leases have come up for renewal, choosing to sell less product via their ecommerce, but actually as a result of their diminished costs, making more profit! If rates were lower and also more aligned to regional variations, footfall and turnover (as arguably most rent now is) then I would expect many smaller businesses (eager to expand and take on premises) opening stores. The barrier for the majority is ongoing cost, and whilst the government need to collect rates they also need to stimulate growth. Small retailers (as well as other service providers) are keen to grow but are unable at present. If the barrier was removed, even on a temporary basis (such as rates free periods comparable to rent free deals available) and if the rates were a sensible value in the context of what a business trading as an indie on the high street can realistically afford, then I am sure the net effect would be that more rates would be collected but also there would be far wider reaching benefits to the local economy such as reducing unemployment.
Urgent action is required – support the “Fair Rates for Retail” campaign!
The government needs to take urgent action is needed to help those who are still teetering on the brink to survive and to give them a real chance on the high street. In the immediate term the way rates are increased annually needs review, and that’s what’s so encouraging about the “Fair rates for retail” campaign and petition.
Business rates need rebalancing – prime retail is no longer only town centre space!
However, that’s just the beginning, rates for retailers need to be addressed in the wider context of how shoppers shop – it’s no longer true to assert that prime retail space is high street, particularly when footfall is down and over 10% of sales are transacted online. There needs to be a rates rebalancing in light of the shifts in shopping habits to recognise that out of town and online only businesses are only able to trade as profitably and competitively as they can because they aren’t carrying the burden of premises that attract high rates. The current rates structure creates a bias toward non-high-street retail which means that the high street will always be either less profitable or more expensive than out of town and online retailers. I am sure ALL retailers with a significant high street footprint would support that as it’s in the interest of ALL those who want retail (and consumer facing services) to be a part of the high street of the future to actually rates rebalancing in place ASAP.
Small business rates relief does little to relieve small businesses in high rateable value locations
There is one other area that particularly effects SMEs, and this is true not only for retailers but for any smaller business who occupies more “prime” premises – that’s the subject of small business rates relief – the fact is there isn’t really a rate relief for small businesses, only for small rates’ bill payers – in that if a small premises occupied by a small business has a high rateable value then rates relief does not apply. The fact is that it’s more like small rates rates relief, so that’s a further barrier to indie retailers opening up in key City centre locations and may well be why some of the most significant major cities (outside of London) have areas with some of the most significant vacancy levels.