Why business rates need to change to mirror changes in consumerism

In the 2 weeks from 6th to 20th January 2013 I felt like I’d got caught up in a non-stop media circus. From radio to TV, it was all happening, and practically daily! First it was about the retailers were reporting on Christmas trade, some winners some losers it seemed. Nothing particularly dramatic. But then on 9th the news broke that Jessops had entered administration. Swift decisions were made and ALL stores were closed with immediate effect. The question on every journalists lips was “who will be next?”. The pattern of the weaker retailers falling into administration immediately after Christmas was all too common, the past 2-3 years proved that, and the journalists were right to ask this as within a matter of days, on Tuesday 15th, HMV followed Jessops into insolvency. Over 4000 more jobs were at risk. And they asked “Who will be next?”. They didn’t have to wait long for an answer either, less than 24 hours later it was the turn of Blockbusters to collapse.

Will the government start to listen given all the media attention?

By now every interview I was giving focused on the same kind of questions… “What will happen to our high streets if shops all start going bust?”, “Why are we seeing all these stores going into administration now?”, “What can the government do to help?” and “Is there a future for high street retail?”

I’ve talked about this on Channel 5 and I’ve written about this for a few publications. 

Only today I’ve seen an article in The Guardian by a good friend, Paul Turner-Mitchell who owns 25Ten Boutique in Rochdale – see http://www.guardian.co.uk/uk/the-northerner/2013/jan/24/retail-vincentcable?CMP=twt_gu. So I decided I’d share my view of what needs to happen on this blog.

What will happen to our high streets if shops all start going bust?

To start with I want to dispel this myth – all the shops are not going bust! In fact the recent ONS figures show that only 10.6% of all retail sales are through NON store premises, meaning that practically 90% of all sales are taken through shops.

The figures released by major chains just after Christmas proved, yet again, that there were clear winners and losers. In spite of the bad news for the chains who’d failed, several others such as Next, Debenhams, John Lewis, Waitrose, Dixons Stores Group, Primark and Hotel Chocolat, demonstrated that it was possible to deliver great results.

Another interesting statistic from the ONS figures was around the areas of growth. Non-store sales (online etc) grew most, but from a lower base it is far easier to show a high percentage change. Next to online the largest growth area, with a year on year increase of 7.7%, were larger independents / small chains who employed 11-50 staff. I felt that was a fascinating insight into the polarisation of consumer shopping habits, with the suggestion that people are certainly either transactional or service led. Those who are transactional seek out the lowest price or greatest convenience (hence growth of online as the transparency of pricing makes this channel optimal for the transactional shopper). Those who are service led seek out retailers who have greatest product knowledge, a more personal service and perhaps also sell product that is less readily available elsewhere – and of course typically these traits are common to independent retailers.

As to the issues on the high street, in my view this is the natural evolution of things! We’ve seen a consumer revolution – the emergence of ecommerce in 1994, the arrival of smartphones in 2007, the credit crunch, the increasing number of “clone towns” – these and other factors have completely transformed the way people shop. Clone towns, where any town can look the same as the next, have no value-add for a consumer – open to the elements and with costly parking – why would you visit a town like that when a shopping centre is almost identical? Consumers vote with their feet and stay away.

Of course if shoppers changed the way they shop retailers need to change the way they trade. Some have, and those who haven’t evolved have gone the way of the dinosaurs, they are now extinct.

Why are we seeing all these retail chains going into administration now?

The retailers who have recently entered administration all have had different underlying issues. However one thing common to many retailers is the fact that quarterly rent payments are due in early January. Those who failed to deliver strong seasonal sales in the Christmas period can find themselves pushed into an insolvency position by the New Year. It’s not unique to 2013, if you look back over the past few years the pattern has been similar.

We may see a few more, or, it may not be until later in the year, when the next quarterly rents are due, that the next wave of retailers who are in a precarious financial position already, finally go under.

What can government do to help slow down the rate of retail failures?

In my view it’s not the role of a government to prop up businesses or provide unfair support to one sector over another. However they do need to address issues around taxation (and specifically those larger businesses who appear to exploit legal tax avoidance schemes), and they need to overhaul business rates.

The issues surrounding business rates are complex and there are 4 factors to consider:

  1. The rates system
  2. Annual rates rises
  3. Small Business Rates Relief
  4. The 2015 rateable valuations

The Rates System

Historically, before the development of major shopping centres and retail parks, high street retail was the dominant sales channel and thus due to the demand for the property the valuations were high. Rated as prime retail, these properties paid considerable business rates for the privilege of trading. Office premises, industrial units and warehouses pay far lower business rates.

Since the development of out of town centres, and since the growth of online, high street retail is no longer prime. We’ve seen that the retail sales mix, the share of sales between shops and online / out of town has dramatically changed. What was once prime retail isn’t any more but occupants of that space are still expected to pay premium rates.  This creates an unfair competitive advantage to out of town and online retailers whose properties aren’t classed as prime retail and therefore they pay a fraction of the amount yet can fulfil as many sales, if not more.

I’d like to see the government collecting the same business rates overall, they do need that revenue, but to change the charging mechanism to reflect modern consumerism.

Annual rates rises

Each April year rates are increased based on the September retail price index of the year prior. In 2012 due to a “blip” this created a recorded increase of 5.6% against an average inflation rate of 2.6%. The government need to address the method they use to calculate how business rates increases are determined to avoid issues like this happening in future.

Small business rates relief

The government have made something of an empty gesture to “help” high street retailers – they’ve extended Small Business Rates Relief. Now, the problem here is that this isn’t about whether or not the occupant of property is a small business or not, it’s really to do with the rateable value of a property. Most retailers agree that they don’t get anything from this extension because to have a property with a rateable value that was within the government’s qualifying criteria would mean that the property was either no bigger than a kiosk or in a location where there was simply no footfall whatsoever.

Postponing the rates revaluations

The last time property was valued for business rates was in 2008, at the peak of the property market. By 2013 many properties are potentially worth as little as 50% of they value that they are rated for. Properties were due to be revalued for rates in 2015, which would potentially have benefitted 1000s of shop owners UK wide. That’s now been pushed back to 2017, meaning that for a further 4 years retailers are paying rates on property valuations that are in no way reflective of the times.

What should the government be doing then?

In my view the government would have been better off to invest tax payers’ money in a complete overhaul of the business rates system than to throw £100K here and there at Portas Pilots, who in the main have spent less than 10% of their funds and delivered nothing! I really do believe that addressing rates is the “package of support for our high streets” that is needed, not the one that they have been dishing out!

Is there a future for high street retail?

All high streets have a future, but what that look likes will depend entirely on the local community, their needs and wants, and the local businesses ability to respond to that community. It will also depend on the “level playing field” when it comes to business rates… but let’s assume that is dealt with (big assumption) and look onward…

In more affluent areas I think there will be a migration away from towns by the major chains, save for a few, like Boots, who really aim to be a community and high street retailer. We’ll see more and more of what has been termed the “boutiquing” of the high street – the rise of independent traders who will lead on service and in store experience, engaging shoppers in a far more social and personal way. There will also be an inevitable rise in leisure and hospitality outlets, making the whole offer in a community much more about the total experience, a day out with fun things to do, places to see, places to shop. Towns will not be exclusively about shopping as their sole purpose.

In less affluent areas, where there are insufficient customers able to afford the the coffee-shop-culture and higher-end boutique, I would predict that there will need to be some reuse of retail space for other purposes. Anything from community services to housing.

However, whatever the high street evolution delivers I absolutely believe that any retailer who wants to secure their future and to engage this new consumer MUST ensure that they provide a well thought-out, integrated “multi-channel experience”. This means that in addition to stores where staff give exceptional service they must also embrace online channels embedding ecommerce, mobile commerce and social media as part of core trading activities. This is what the new consumer will expect.

All the 2012 Christmas winners were retailers who have managed to combine a great in store experience with service, accessible online channels and convenient delivery options. Their customers get the best of all worlds when they shop with them, able to control their shopping experience and tailor it to suit them. They can research online and shop in stores, browse stores and transaction online, order online and collect in store, order in store and have a home delivery. Yes, the consumer designs their own shopping experience and the winning retailers simply facilitate that.

Smaller and independent retailers must still adopt this approach if they are to meet the expectations of the new consumer. The high street isn’t dead, but it’s changing, and if retailers want a future they need to make sure they are changing too.

Fair Rates for Retail Campaign

If you care about this topic then check out the Fair Rates for Retail campaign, launched by Retail Week and British Retail Consortium. You can sign the e-petition and also issue a letter to your MP via http://www.change.org/en-GB/petitions/the-government-fair-rates-for-retail?utm_source=share_petition&utm_medium=url_share&utm_campaign=url_share_after_sign

But if you DO write to your MP I have to advise that this is the “copy-paste” answer you can expect, which is completely disregarding of all the issues identified above… Here’s the one I got from St Albans MP Anne Main (note the comment on Small Business Rates Relief… Since the 2008 revaluations I lost my SBRR and I am not sure a single high street property in St Albans would qualify… but hey, she’s only an MP, what would she know…)

“Dear Ms Rayner,

Thank you for contacting me about the ‘Freeze business rates’ campaign.

Unfortunately, we face the largest deficit in our peacetime history and difficult decisions need to be made to ensure that Government is more fiscally responsible. As business rate cuts are automatically tied to inflation, it is worth noting that there has been no real terms increase in business rates. To implement a cash freeze in business rates would cost the country £565 million a year (plus an ongoing cost each year) which would have to be funded by yet more borrowing, cuts to services, or higher taxes elsewhere.

However, I do support the Government’s commitment to support local businesses and their recognition that businesses are the engine of economic growth. The Government announced in December 2012 that they were extending the measure of doubling small business rate relief until April 2014. An estimated third of a million small firms, including many small shops, are paying no business rates at all as a result of the scheme.

The Localism Act 2011 ensures all eligible ratepayers can automatically receive the small business multiplier and the Government has removed the legal red tape requiring ratepayers to fill in paperwork to claim the relief. It also gives local authorities new powers to levy business rate discounts, so they can support local shops, community pubs, new business parks or vital local facilities. To promote further private investment, the Government will exempt all newly built commercial property completed between 1 October 2013 and 30 September 2016 from empty property rates for the first 18 months, subject to consultation. This reverses, in part, the Labour Government’s tax rises on empty property, whilst still helping tackling the deficit we have inherited from the Labour Government.

Thank you again for taking the time to contact me.

With best wishes,

Mrs Anne Main
ember for St Albans
House of Commons
0207 219 8270
Email: maina@parliament.uk

I shouldn’t have expected much from her after the 2nd home scandal (I can commute to Westminster in about 45 minutes), but you can only hope that an MP will actually listen…

Anyway, we have to keep trying, keep plugging away. Let’s hope the listen before it is too late.

About Clare Bailey

Clare Bailey, The Retail Champion (formerly Clare Rayner), is one of the most well-known and respected retail experts in the UK. With unrivalled knowledge in retail, high streets and consumer matters, she offers unbiased, independent content – whether engaged as a professional speaker, for broadcast media, or for a written feature. Clare is a business woman, entrepreneur and founder of several small businesses. Having been born into a family of successful business owners, it was inevitable that she’d eventually jump off the corporate treadmill and step out on her own! Today her brand portfolio includes The Retail Champion, The Retail Conference, the Future High Street Summit and the Support for Independent Retail campaign. In addition, she is co-founder of Mobaro Retail UK and a non-exec director of Beed Virtual Assistant Services. Having started her career as a fast-track store management trainee for McDonalds, she went on to work with leading retailers such as M&S, Dixons and Argos. She moved swiftly into management roles before being headhunted into senior consulting roles with global software giant SAP, and international management consulting brand, Accenture. Her corporate background in senior retail, consulting and technology roles, coupled with her experience of creating and running her own business, has enabled her to be equally capable whether consulting to global brands or micro businesses. This unique blend has not only positioned her as a leading expert in all things retail, but has enabled her to add meaningful commentary and insight to the debate around the future of the high street, and, how technology is driving fundamental change in the way consumers, and businesses, interact. Clare has become an influential voice in her field, which has resulted in her becoming a regular media contributor and sought-after conference speaker. Often seen on Good Morning Britain, BBC Breakfast, Sky News, and Chanel 5 (to name a few), Clare speaks on a myriad of retail, high street and consumer issues – but is particular adept when it comes to explaining the context behind retail trading results, newly released data, and government stats, in a palatable and informative manner. In addition to broadcast and conference speaking, Clare is the proud author of two best-selling business books published by Kogan Page - The Retail Champion: 10 Steps to Retail Success, published July 2012 and How to Sell to Retail: The Secrets of Getting Your Product to Market, published February 2013. She has provided contributions to various academic texts, including Retail Marketing Management (published by Pearson). With an engaging, conversational yet informative style, Clare writes for press and content agencies, providing features, articles, blogs and opinion pieces as well as contributions to white papers and reports. However, when the situation demands a more serious style, Clare can deliver - In 2016 she wrote an extensive report for a major insurance and risk law firm, as a retail expert witness, to support a public liability suit. She found that project particularly enjoyable as it played well to her strengths – assimilating large amounts of data and information, identifying the key points and articulating that in an understandable manner. When not on TV or speaking at conferences, Clare’s “day job” sees her supporting consumer-facing businesses through her consultancy services. When asked to describe what she most loves about retail consulting it is typically the opportunity to “dig deep”, getting “under the bonnet”, in order to leverage the business data to uncover the insights that lead to “lightbulb moments”. She also loves working on business change programmes that centre on improving the processes and systems to increase profitability by supporting more rapid, better informed decision making, improving the customer experience, or simply by become more efficient and streamlined. In this respect she considers herself a “business engineer” with a brain that works like a relational database! Due to her years of experience, her logical, objective approach, her quick, rational thinking, she is known for being able to cut through complexity, seeing right through to the crux of issues, finding creative solutions that others may have overlooked. As if all that wasn’t enough, Clare is a working mum, juggling a home life in rural Lincolnshire with her partner, their 5 kids, 4 cats, and geriatric Labrador! For all enquiries, contact Clare directly on 01727 238890 or email champion@retailchampion.co.uk.
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