CVAs And Big Names Are No Substitute For Sanity In The Retail Property Market

austin-reed-edinburgh

The collapse of two major retail chains within weeks of each other last year showed that no company, no matter how iconic or well established, can afford to rest on it’s laurels.

Both BHS and Austin Reed were rightly been accused of not responding to changes in consumer tastes and behaviour.  Both notably failed to establish an online presence until it was too late.

But the other misery shared by both these companies was the staggering rents being paid on large, high profile locations that in recent years have exceeded most sane measures of long term economic viability.

The sorts of premises they occupied are testament to a time when rents and rates were regarded more as incidental expenses, rather than the major undertakings they are today.  Indeed Austin Reed’s original Regent Street store had thousands of square feet of space left idle, a situation that is not uncommon amongst huge swathes of legacy high street stores today.

Their move to 100 Regent Street in 2011 seemed born of the same extravagance, no doubt driven by the need for them emulate their previously impressive presence across the road.  I remember at the time thinking that perhaps what they really needed was not yet another impressive shopfit, but rather a brand realignment.  If you’ll excuse the pun, something more tailored to today’s clientèle.

It seems that the disparity between footfall and overheads caught up with them, as it has done with many other retailers in the past few years.  It was clear from Edinburgh Woollen Mill’s refusal to take on the majority of the Austin Reed portfolio that their stores, and the associated costs, were not an attractive aspect of the brand.  Indeed, as with BHS, they were seen as something of a millstone.

Solutions

In the past many retailers saw pre-pack administrations as the magic solution to these troubles, much to the particular consternation of landlords.  But of late, the CVA has been touted as the magic wand that will resolve problem leases in a fairer and more transparent way.  Something else that BHS and Austin Reed had in common.

magic-tricks

Unfortunately though, these instruments are not the lifeline they appear to be at the time.  In fact they seem to be more a staging post on the road to inevitable demise.  How many retailers have we seen entering into CVAs – sometimes more than one – only to slip over the edge into oblivion a few months or even weeks later?

I know from personal experience that the CVA idea seems attractive when the wolf is at the door and the rent demands are on the doormat.  On face value, a plan that provides some much needed elbow room seems an irresistible prospect.  But it’s usually a false dawn.  In general a CVA is only considered as a last resort, by which time there are too many other problems to overcome.  It then just becomes another drag on any turnaround plan.


In the past many retailers saw pre-pack administrations as the solution to these troubles, much to the particular consternation of landlords.


Ultimately these sorts of agreements are only going to help if the core business is strong enough to service it’s liabilities in the long term.  They are essentially consolidation plans, enabling companies who have hit short term difficulties to ride them out, but they’re not without cost.  If the rot is already widespread they’re really just the last grasp at the straw.

After going through CVA proposals made to us by consultants in 2006, I decided that a lasting solution could only be achieved through direct negotiation with our landlords.  It worked for us, but we were operating in a different climate back then.  Or perhaps I was just very persuasive!

Silver Lining

It’s likely that we’ll see more collapses like those we saw last year, especially as new rates valuations come into force in April.  M&S have already announced the closure of a raft of stores amid advice that property is one of its biggest “headaches”.  Even though they have yet to confirm exactly which stores will close, this might be the first strains of the alarm bells ringing in the retail property market.

The only silver lining in this grim prediction is that this may be a wake up call that there needs to be more open and direct dialogue with landlords, before the next over-rented portfolio blows up in their, and their tenant’s, faces.

Of course there were plenty of eager new retailers salivating over the prospect of taking on some of the more salubrious locations that Austin Reed vacated.  But I doubt any of them will have the same longevity as their predecessors , especially if rents – and their close cousins, business rates – continue to narrow the margin between long term success and sudden death.

We all know that business never stands still and heritage alone is no substitute for innovation.  But if our shopping experience is going to remain vibrant and diverse there has to be enough oxygen in the room for both the old and the new to survive.

A high street monoculture, where success is measured only by how much you can afford to pay per square foot, is fast becoming the norm.  And as with any factory farming ethos, the result is often bland, tasteless and boring.

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Phones 4U – The Winners And Losers

phones 4UThe announcement by Phones 4u’s administrator Price Waterhouse Coopers that it is closing 362 of the retailer’s stores permanently really is an appalling outcome for the 1697 store staff who now find themselves out of a job.

I feel very sorry for these people at the sharp end of what seems on the face of it to be a rather sordid tale. I know from speaking to some of the employees that most had absolutely no idea that their jobs were balanced on such a knife edge, and from what I understand from other reports, senior management had little inkling either.

Perhaps they should have had though. Certainly the company’s main investors could have shown a little more sensitivity to the likely outcome of negotiations with the four main carriers when they explained that they weren’t able to offer competitive terms in the face of a mountain of debt that needed to be serviced. Especially as a good deal of that debt was apparently self imposed as a result of some rather creative financial arrangements.

Equally Vodafone and EE should perhaps have considered the impression their actions would give to their own customers when they, fairly unceremoniously, pulled the rug from under a long-term business partner. Perhaps they weren’t prepared for Phones 4U management to take such drastic action. I know I was personally flabbergasted at how easily they appeared to give up the fight when the Vodafone contract had another 6 months left to run and EE’s wasn’t due to expire for a further year.

Most businesses would have kept trading and explored other possibilities, probably including some hasty re-trenching and fence mending with all the carriers. Of course I’m not privy to all the reasons for their decision to go into administration so eagerly, but it seems to me that a business with over a billion pound turnover and profits in excess of £100M might have been worth a little more effort than a press of the nuclear button without further attempts at diplomacy. I’ve certainly seen many much smaller businesses struggle to stay afloat for a lot longer than these guys.

Easy Money

Maybe that’s the problem. For those companies already staked in the game, the mobile phone business has been seen for some time as easy money. The phones and tariffs are laid on by other companies and an obliging public pitches up every time one or the other produces another subtle flavour of hardware or call package that in essence does the same thing as the last, only slightly better. These carefully stage managed increments keep the punters hooked and the cash rolling in. Perhaps when things got a little tougher than that for the board, it’s just wasn’t worth the trouble.

Now the very same carriers that precipitated this situation are reportedly picking off the juicier fruit from the P4U property cherry bowl for their own standalone stores. After an epiphany, undoubtedly born of the internet, they’ve discovered that cutting out the middle men means the money tree just grew a bit taller.

It’ll be interesting to see if tariffs are reduced accordingly now there’s one less bite out of the pie. But somehow I doubt it, especially as most of the carriers have of late been furiously re-writing their contracts in ways that haven’t been particularly advantageous to their customers. And let’s not forget that, with a reduction in competition on the high street, the consumer is going to have less opportunity shop around. As the carriers take more of a direct sales approach, the choice will be limited to service and coverage rather than tariff with fewer independent resellers to stir the pot.

I suppose grabbing the tastier morsels of the Phones 4 U portfolio is a pragmatic move, but it still looks like opportunism born of fancy footwork on their part. In the final analysis the people who have, justifiably or not, pulled the plug are now picking over the bones of a business that previously appeared to be thriving.

A Dream Outcome For Dixons Carphone

Dixons Carphone don’t come out of this smelling like roses either, even though I suppose they can’t be held accountable for the actions of their own suppliers, it does look like a superlative bit of luck on their part that shortly after announcing the closure of 160 Phones 4U concessions in their Currys stores, their main competitor loses all support from their mutual partners. I’m not suggesting there was any collusion involved, but it does seem like the kind of dream outcome that many a rival company would have to pinch themselves hard to believe.

To be fair, Dixons have offered jobs to many of the former concessions staff, which does of course also provide them with a ready made workforce. They’ve also been making efforts to acquire a number of the Phones 4U locations and have been promising jobs for the staff involved in those locations. However it’s understood that the administrators have been less than enthusiastic, so one can only speculate as to the kinds of offers Dixons Carphone are making for the properties. Dixons taking over the stores could of course safeguard of a number of jobs, but they still stand to gain a lot out of the deal themselves.

bad smellThere were undoubtedly a lot of contributory circumstances leading up to this meltdown, but it still leaves a very nasty taste in my mouth and a hell of a stink under my nose. A ludicrous situation and a sad outcome that could have been avoided at so many key points. I only hope all parties concerned, including the P4U investors and management, the carriers, and Dixons Carphone are as uncomfortable about all this as I am.

Although I doubt any of us will be as uncomfortable as the store staff and their families who suddenly find themselves without an income so close to Christmas.

The Undercover Analyst – How Focussed is Fashion on the High Street?

main logo blueAs part of a new project in association with retail analytics experts ShopperTrak, I’m going to be looking at the retail landscape in areas around the UK and sharing some insights through regular blog posts. Taking a broad cross section of market sectors and visiting specific but unnamed stores, I’m going to be commenting on how they fare on certain operational areas identified by ShopperTrak as being key to a successful and customer responsive store. I’ll be looking for good and bad practices, innovative ideas and exemplars for all of us to either follow or avoid in our own businesses.

My starting point was my home town of Oxford where I looked at mid-range high-street fashion. I’ve run stores in Oxford myself for nearly 20 years so I’ve witnessed the evolution of the local commercial environment at first hand.  The central retail core in Oxford is not much larger than you’d find in any town centre high street and consists of three main shopping thoroughfares, two indoor shopping centres and a covered market catering almost exclusively for independents. The main shopping street is Cornmarket, where most of this survey was based. Around six major stores were visited each with large footprints and each selling quite similar products to a broad demographic of fashion conscious 18-35 year olds.

Same difference

910484_23238014The overriding impression across most of the mainstream stores was that they all bought their shopfits from the same generic contractors. With the exception of one store, well themed towards their target customers, store layouts were similar to the point of duplication. It may be the nature of the beast that there are only so many ways you can support a clothes hanger, but shop-fittings generally looked like they were ‘off the shelf’, even though I’d imagine they weren’t.

Considering the size of some of these companies and their large marketing spend, brand identification in some stores was not as strong as it should have been. You could have dropped me blindfolded into any one of these stores and I’d have had a hard time telling you which one I was in.

ShopperTrak says : Differentiation is key. Location-based analytics provide retailers with the tools they need to understand the customer profile better, especially how shoppers are moving around the shop floor. As Ian points out, many stores have similar layouts but this is often down to guess work rather than knowing exactly how customers are moving through the store. Understanding the customer journey improves the overall experience so retailers need to have an accurate view of what is happening in store to help them measure effectiveness and constantly make improvements. By doing this we may see an end to all stores looking the same.

SALE SALE SALE!

Some of this anonymity might have been down to the fact that it appeared to be the height of the summer sales in the hallowed city with the main shopping areas a sea of red and white signage.

These days it’s quite difficult to pick out more than 2 consecutive weeks when someone isn’t on sale. The necessity to strip window and internal displays down to the bare-bones during such promotions left no real indication of how attractive the window dressing would normally be. Window displays have somewhat fallen out of favour in recent years, dividing between the bog standard or the eye-popping retail theatre. Of course your window display is supposedly the thing that draws customers inside your store, so outside of sale periods it has to be an important consideration.

ShopperTrak says : Traffic patterns change over different periods – particularly so during a sale. Even though the store feels busier retailers need to be sure that their promotions are actually driving the maximum number of customers to make a purchase. By analysing draw rates, or the ability to bring people into the store, retailers can measure whether promotions and merchandising are helping to entice their fair share of shoppers over the threshold versus competitors. If the draw rate begins to fall it’s a sure sign that visual merchandising is not working as effectively as it should be.

Location, Location, Location!

Internal store layouts seemed to be quite ad hoc. Most large stores use pre-planned merchandising plans produced by head office but none of them seemed particularly well suited to traffic flow in store, neither did they look like they could be responsive to dead zones that were fairly evident. For example, retail environment guru Paco Underhill has identified the area around your main entrance as the ‘landing pad’. His suggestion was that nothing should be placed here as customers are usually looking further into the store to see where they were headed. That seemed pretty much the case in one store where a large gondola had been plonked right in the entrance-way – it was pretty much ignored by everyone coming through the door.

1215579_52407894The other obvious fail in my opinion was the tendency to place items that were in the sale at the back of the store. The intuitive logic is of course that this will draw customers further into the store, presumably wowing them with the non-promotional stock on the way. Personal experience combined with this particular visit tell me that this strategy is far too simplistic. Most customers looked straight to the rear of the store and bypassed everything else on their quest to get to the cheaper goodies. There may have been a method in this apparent madness. Keeping the sales hysteria at the back of the shop along with the associated mess and mis-matched merchandise may be a good move in some cases. Also I guess there’s a chance that customers may give the full priced stock another look on the way out after perhaps finding nothing in the sale to their liking.

In these days of eye-watering rent and rates, customer flow within a store is something that needs careful analysis. It’s really not something that can be left to gut instinct or rigidly pre-planned merchandising charts.

ShopperTrak says : Heat maps help retailers determine which areas customers are dwelling in and how long they spend there. This is crucial when analysing the effectiveness of merchandising and product placement. It also enables stores to re-invigorate quieter zones or analyse changes to determine the optimum store layout. On a micro-level retailers can examine conversion rates within specific areas of the store to gain a deeper level of insight into overall performance.

Customer experience

The general customer experience in all but one of the stores visited was pretty good. Stock displays were generally well maintained, apart from one rather tired looking mannequin that personally I’d have pensioned off years ago.

One of the more mainstream stores was a fairly recent opening so had the benefit of newer merchandising displays. This certainly gave a fresher look which was enhanced by the large airy feel of the store. They also had a good layout of stock with accessories and handbags at the front where they can be easily browsed and selected ‘on the hoof’, with items such as shoes at the rear where more time and interaction with staff would be required. However here, as with all the stores visited, staff engagement with customers was nigh on non-existent. Perhaps the labour intensive nature of the display floor meant that sales adviser’s saw maintenance of displays as a higher property than talking to customers.

Personally I’ve always trained my staff to aim at somewhere between intrusive and attentive. Many of the stores I visited could have benefited from tasking particular members of their sales teams with approaching customers on a one to one basis. There’s an obvious ethos with many of these stores that it’s self-service and customers only receive service when they ask for it. But these shops are semi-aspirational in design, they’re not supermarkets. They’re selling desirable fashion, not tins of sweetcorn. In that environment there’s nothing worse than leaving customers with the impression that interaction is bottom of the service remit.

827556_46291532In general though customer service was OK. We saw one person leave a pay point empty while a customer waited patiently, which wasn’t great, but as it was our fault for sending them on the hunt for a different size of a T-shirt that might be an unfair observation. It’s a dilemma for any sales adviser when there’s only one of you but two people who need your help. Perhaps something that could be sorted with better planning of staffing patterns.

ShopperTrak says : Understanding how many people are coming in to the store and which areas they’re dwelling in is a crucial reflection of the overall customer experience. Increasing the average time that shoppers spend in store helps to drive both conversion rates and average transaction sizes. If they stay in the shop longer it means they’re having a better experience.

Retailers can use interior analytics to measure dwell times, looking at whether shoppers are spending the right amount of time in the right areas, how staff are engaging with customers, how well queues are being dealt with or how effectively promotions are working.

Messy but busy

Only one store had significant queues at the pay point and this was also the store with the most untidy shop floor. Perhaps an indication that tidy displays don’t necessarily mean better sales. Or maybe the trashed shop floor just shows how busy they were. However they seemed to be a victim of their own success with at least one case of abandonment being observed as customers tired of waiting to part with their hard earned cash. Again I suspect proper deployment of staff and maybe a re-think on merchandising strategy would help with problems like this.

ShopperTrak says : Retailers need to have an accurate view of their power hours – i.e. their peak selling times. Only by having insight into this can they plan accordingly. Any re-stocking or staff breaks should take place outside of these times in order to ensure the most effective shopper to assistant ratio. Put simply, the fewer the staff available in store during peak traffic times the worse the customer experience is going to be.

As a first outing it was an interesting exercise for me. There are obvious compromises between function and form and many competing demands on the time of the floor staff. But there were many obvious improvements that could be made, perhaps with the assistance of some location-based analytics, particularly in terms of customer flow data and staff movements.

Join me next time when I’ll be looking at how luxury brands fare.  In the meantime you can check out ShopperTrak’s full range of analytic services by clicking the link below.

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Retail Technology – Master or Servant?

Facetime-Video-Phone-1950sAs I approach 20 years as a high street retailer I think I may have reached that age when I look back through the Vaseline smeared lens of nostalgia to simpler times when summers were longer, life was sweeter, shops were called shops, rather than stores, and the only channels we talked about were the 4 we had on our 20 inch TVs.

In those barely remembered days, window shopping meant standing with your nose pressed to a plate glass shopfront rather than your Microsoft phone, Android was a morose character in the BBC version of The Hitchhiker’s Guide to the Galaxy and a web browser was someone who took rather than more than a healthy interest in arachnid architecture.

I’m not sure if it’s the change in the weather, the recent march of the souls of the undead on Halloween or simply the calm before the chaos of Christmas kicks in, but the last week or so has seen a marked increase in the proposal of ideas that will supposedly elevate the retail industry from these humble roots to previously undreamed of pantheons of technological supremacy.  Personally I’m not convinced.

Dynamic Pricing

Firstly we had Kingfisher’s Ian Cheshire and his predictions about dynamic pricing systems.  LCD shelf edge labels connected to a central computer will, he believes,  revolutionise the high street, allowing prices to be changed by the hour in response to demand, the presence of a particular customer demographic or even the proximity of a particular customer.

This was coincidentally backed up by a piece from Roy Horgan in the same edition of Retail Week Magazine, holding forth on pretty much the same hokum. I guess we can’t blame Roy, considering he works for a company that would likely be at the forefront of a roll-out of such technology, but as a retailer I’d have thought Ian Cheshire would have had more sense.

Comparing the day to day retail proposition with the pricing flexibility of an airline ticket or a hotel room is to miss the fundamental point by a nautical mile.  With the exception of some food uses, consumers are just as able to be flexible with their custom, so changing prices at particular times will only shift buying patterns.

To me this just sounds like the holy grail that RFID was held up to be some years ago.  Back then we were told that we’d have radio tags in everything from T-shirts to teabags but in didn’t happen.  Why?  Because ultimately the investment in the technology required didn’t justify the expense.  Sure, it would be great to be able to scan an entire shopping cart in one go, but if you need to ensure everything down to your last tin of beans has a tag on it that probably costs more than the contents, it’s never going to fly.

Click and Print Bling

Next we had the idea from Argos digital director Bertrand Bodson, that within 15 years we’d not have to worry about having our online purchases being shipped to us.  No more waiting for the delivery man or picking up that irritating ‘while you were out’ card.  No, according to Bodson we’ll all be furnishing ourselves with 3D printers where everything will appear like magic from within.

This was either a very transparent attempt at grabbing a few column inches during a slow news week, or Bertrand had been watching far too much Star Trek in his spare time.  He certainly didn’t seem to understand how 3D printing worked or what it’s limitations were.  The idea that anything other than the most simple products could be delivered in this way is plainly ludicrous.

handmade-jewelleryFor example, one of the products Argos will apparently be sending to us via this new channel will be jewellery.  As a jeweller myself I found this a heroically ill-conceived statement.  Presumably the idea is that we’ll all be sitting with a stack of gold or silver in our 3D printers, along with an equally dazzling collection of precious or semi-precious stones. Then, once we’ve ‘printed’ out all the components for the necklace of our dreams we’d only have to gain the knowledge of an experienced jeweller to polish them, finish them and then put the whole thing together.  That should take 2 or 3  years study on a good jewellery making course, plus the access to a small workshop, but that’s got to be better than waiting from the completed article to come through the letterbox right?

Why Fi?

Broadly this idea that technology will be the answer to all our problems seems to be taking hold across the industry.  A major plank of the recently published review by Bill Grimsey and his team suggested that one of the key innovations that will save the high street from ultimate demise is a wireless network that will apparently have customers prowling the streets with their noses pressed to mobile devices informing them of offers in the stores in the locality.  Presumably this will be a far better option than just raising their heads and looking in the shop windows.  I don’t dispute that Wi-Fi provision will play an important role in any future community area, but the idea of bombarding shoppers with local offers and adverts via a mobile device has been tried before without much success.  Perhaps it’s an idea who’s time will come, but the practical aspects of armies of people tapping palm pads rather than simply wandering about the shops seems to me at odds with what I understand as normal human behaviour.

Google Glass

google-glass-the-jerkProponents of Google glass have similar aspirations, with digital commerce solutions provider Venda recently publishing a report entitled “Wearable Technology: The High Street’s Secret Weapon?”.  Again the idea seems to be that wearing a clunky bit of face furniture with it’s origins in the 1970s children’s TV show Joe 90, will give you far more insight into available offers and promotions than simply looking at a sign next to the product.

I can appreciate blue sky thinking as much as the next person.  I know many of these seemingly unworkable ideas need to be thrown into the ring to allow them to be torn into digestible pieces that at some point may help to construct the next must-have innovation.

I’m by no means a technophobe either.  I’ve been working with computers since 1973 when the processing power we now take for granted in a microwave oven would have needed two huge rooms to house it, along with team of technicians on 24 hour call to periodically hit things with hammers.

I’m an early adopter of most new tech.  My company has had a website since 1995, and I designed and programmed from scratch the EPOS system than has run our inventory control and customer interfaces for the past 20 years, after finding a dearth of such software in 1994.

The good old days?

greengrocers1945So this isn’t a lament for the ‘good old days’ when ruddy faced greengrocers weighed out veg by eye and knew every customer for a 5 mile radius (although that was a golden era I can almost remember).  No, I fully understand that as modern retailers we all need to get our heads round at least some of this newspeak.  But my fear is that as ever more of these technologies are heralded as the answer to engaging an increasingly jaded consumerate, are we not also in danger of confusing the humble shopper as much as ourselves with an overload of ineradicable data and jargon?

It seems like every day there’s another start-up company or new think-tank that re-invents the retail wheel with yet another concept or strategy.  From the plethora of competing payment methods to new ways of presenting products in store.  When in essence the people we’re all selling to haven’t really changed from those we served before all these clever bells and whistles started dazzling us with their white hot potential.  More often than not I think we’re witnessing the birth of technologies for their own sake.  Answers looking for a questions and solutions looking for a problem.

Blind Alley

In practical terms it’s likely the very people that will be embracing these technologies, the young, may be the very demographic that in the future will have much less disposable income with which to buy all the stuff we throw at them.  If that’s true, I’d say we’re in danger of disappearing up a very dark and potentially rather empty alley in the not too distant future.  At the end of it we may see nothing more than our own hubris blinking back at us.

So let’s not forget the basic tenets of retailing as we launch headlong into this technological Valhalla.  The old aphorisms of customer service and personal interaction are often trotted out at this point in these discussions, and I’m afraid I’m not going to be any more original than that.  But in the final analysis I still maintain that we should only use technology if it enhances those two most basic functions of the humble shopkeep rather than seeking to find replacements for them.

Air_Conditioned_Shoes_Crazy_Inventions-s650x595-337964-580New technologies do of course offer fantastic opportunities, but ultimately we still need to be good retailers with all the same skills and motivations that were needed by that greengrocer back in the 1960s.  New ideas are of course exciting and innovation is always needed to keep our industry moving forward.  But I think we need to be certain that we’re responding to customer aspirations rather than confusing them with unwanted information, interaction or propositions.

Technology has brought us as much pointless gimmickry as it has opportunity, and as someone much cleverer than me once said, just because we can do something doesn’t mean that we should.   We should driving innovation, rather than being driven by it.

Internet Purchase Tax ? Be Careful What You Wish For

Funny_Internet_Tax_Cartoon

Sometimes I’m baffled by the workings of the human mind.  For example, why would a retailer in the UK, already burdened with some of the most onerous and inequitable taxes imaginable, not least business rates, actually propose to the government that they introduce a new one, specifically aimed at retail?

Well it seems that’s exactly what Justin King, the Chief executive of Sainsburys has done.  He’s recently called for an internet purchase tax to be applied in the same way he thinks it’s being applied in the USA.  I say ‘he thinks’ because he seems to have misunderstood the reason this tax is being called for over there.

As I’m sure many of you will know, the US don’t have business rates like we have.  They have local purchase tax, which is often added only at the time of purchase.  Items are priced ‘plus taxes’ which are often variable from state to state and region to region.  Because websites can make sales across state and regional lines, many of them have been charging a different rate of tax to what should be paid in the areas where the purchase was made.  In some cases they haven’t charged the tax at all.

Is this right?  No of course it’s not.  But it has pretty much zip to do with the way retailers pay local taxes in the UK.  In the US they are probably quite right to be considering the Marketplace Fairness Act in order to ensure online retail is contributing to local coffers in the way it should.  Here we pay business rates at a flat rate based on the valuation of the property you occupy.  Internet retailers pay these too for distribution warehouses, offices and the like.

What gets up the nose of many retailers, me included to some extent, is that these companies can be based in locations where local rents and by association, local business rates are lower.  Whereas anyone in a high profile high street location would pay a lot more.  That’s because we pay rates based on notional valuations and not as a tax on revenue.  I’ve gone to some lengths to explain how batty I think this system is, but I don’t think introducing a completely new tax is going to make it any more sane.

Golden Goose

Yes it’s annoying and yes it seems unfair, but in essence it’s not.  Online retailers are still paying rates and taxes, but just not at the same level as a normal retailer.  I agree taxes and overhead costs for bricks an mortar retailers are too expensive, but I don’t agree that we should fix that by making online retail just as ridiculously costly.

That’s not levelling the playing field, that’s digging ourselves into a hole in the middle of the penalty box.

Many online retailers are golden eggalso bricks and mortar operations who already pay a fair share of business rates.  Their online sales may to a large extent be supporting other parts of their business.  Taxing them more isn’t going to improve that situation.  Increased taxation would also have to be passed on to customers, hence neatly strangling the golden goose that may be keeping many parts of the retail industry aloft.

There also seems to be some sort of naïve belief by Justin that ministers will conflate this new tax with business rates and seek to reduce one at the cost of another.  Whereas I don’t have quite the same touching faith in any chancellors spirit of fair play.  Especially not one who’s faced with the biggest book balancing challenge since Margaret Thatcher left charm school.

I’ve been warning about the prospect of an internet purchase tax for the past couple of years.  It’s low hanging fruit that I’m surprised the chancellor hasn’t already started to salivate over.

Governments consistently support the mantra that taxing success should not be the way to go and I largely agree.  Why apply what amounts to a punitive tax on internet based operations rather than reduce the taxation being applied to bricks and mortar?

Yes, retailers in the UK pay far too much tax, well the ones who actually pay tax do,  and certainly far too much in business rates.  But adding to the tax burden elsewhere is not going to solve that problem.  Even if such a tax was sold on the basis of a reduction in business rates across the board, it’ll be a safe bet that pretty soon afterwards that whole relationship will slip into the same grey area that local taxation resides in now.

Sunlit Soccer Net

Leveling The Playing Field?

It’s more likely that an internet purchase tax would be applied in the same way as airport tax, or insurance premium tax.  Just slapped on at a nominal rate which will then be increased gradually in successive budgets.  Pretty soon we’ll just see it as another one life’s certainties, just like any other stealth tax.  We’ll moan but we’ll pay it and maybe a few more businesses will go to the wall.

Moreover any government that introduces such a tax is effectively agreeing with me and many others that applying a flat tax business rate to every other business premises in the country is wrong.  If online retail should pay an overhead tax based on revenue then why not the same for bricks and mortar retailers?

If the conclusion to this debate is a fairer system of local taxation based on ability to pay and it’s applied to ALL retail operations, then I’m all for it.  But I very much doubt there’ll be any change to business rates as they stand now if such a tax were introduced. Maybe I’m just not very trusting of government ministers.  Or maybe I’m less naïve than Justin King.

Either way, let’s stop putting such ideas out there shall we?  After all you have to be careful what you wish for in this life, as sometimes you might just get it.

Freefall retail?

Shop to letWelcome to my new blog.   For my first post I thought I’d jump right in the deep end!

Evidence from the Local Data Company and Price Waterhouse Coopers yesterday highlighted the unprecedented number of store closures that have been seen in the last 12 months.  This was driven mainly by the gathering pace of large retail chains turning up their toes and other struggling companies letting leases lapse when they come to an end.

It’s hardly surprising to most of us out there at the sharp end of retail that the status quo can’t continue unabashed in the way that most property investors and some analysts seem to think it can.

Only last year I was embroiled in something of an online spat with the author of a report from CBRE who in my opinion was whistling in the dark over the idea that chain retailers would continue to open stores at the same rate they always had.  The whistling later achieved deafening proportions as the idea that the internet had not had any major impact on the high streets was laboured in this lengthy tome.  Given the opportunity,  I think it may have gone on to prove that black was white and that dogs could do basic arithmetic, but they probably needed to get the report out before reality overtook the theory.

Killer catalogues

The fact is the internet is having a pervasive effect on all aspects of the high street.  It’s been eating away like concrete cancer at the foundations of what we’ve all came to know and love as shop keepers, and we’re only now starting to see the cracks on the surface.

CataloguesIt’s effect was probably underestimated in the early years as we all continued to ride a wave of unbridled consumerism within traditional channels.  The idea that the internet could take over from ‘real’ shops was treated with the same disdain as the unfulfilled predictions from the 60s and 70s that catalogue shopping would prove an overall category killer.

But what wasn’t factored into these assessments was the ease by which technology would  pervade all aspects of our lives.  Even that wouldn’t have been enough on it’s own, but what really started to incubate the disease was what was happening to the real world property model and just how quickly that was going push things beyond the tipping point.

In previous retail revolutions there had been no viable alternative to shops.  Now there was.  As consumers embraced online, more retailers, new and old, saw it as an opportunity.  This in turn facilitated more choice and more ease of use for consumers which in turn encouraged more people online.  It became self fuelling.

Meanwhile at the other end of the fulcrum, property costs were starting to look like a burden you didn’t need to be carrying.  If all these pure-play retailers were making a killing online, what was the point in paying eye-watering rent and rates?  In fact as these costs continued to go up, the internet was forcing margins to become slimmer with the retailer squeezed in the middle.   Something that the catalogue revolution didn’t have going for it back in the days of brothel creepers and Beatlemania was the effect that these unrealistic property values would have on the whole DNA of retail.

Property Bonanza

The plain fact is that the costs of running shops is now too high.   Business rates are the current hobby horse, being as we’re coming up to the time of the year when the chancellor traditionally tells retailers to sod off when they ask him to consider a rates reduction or freeze in his next budget.   This year his two fingered salute will be amid our pleading on a collective bended knee for him to take his foot off our neck and maybe, just maybe, take a look at the real world from behind that rictus grin that he seems to be afflicted with at most public engagements.

But rents are the root cause of these problems, responsible in the first place for the level of rates we pay due to their effect on property valuations.  The cost of stores has been ratcheting up over the past 20 years like some sort of medieval torture device.  Landlords and property developers knew a good thing when they saw it and they capitalised on the rush to the high street.  Not really something any of us could really blame them for doing, bearing in mind that all us business folk are money grabbing, capitalist toe-rags at heart.

And I don’t really blame them, well not entirely anyway.  They wouldn’t have got away with it if there hadn’t been a veritable swarm of  eager fresh faced retailers, thrusting fistfulls of easy-come cash into the air, desperate to stake out another corner of a foreign concept shopping mall that will forever be Clinton Cards or Blacks or LaSenza or Jessops et al, without a thought for how long the retail bubble could last.  Of course we all now know how long it lasted for them, and it was quite a bit less than forever.

For sale signsIn turn these snow-blinded captains of industry were having their pockets lined by investors, venture capitalists and banks who were convinced they’d discovered the secret to alchemy.  In league with eagerly complicit surveyors they could make any deal, no matter how stupid, look good on a paper.  Right before they’d make a toy aeroplane out of it to carry them all off to bonus heaven.  Based on this sort of economic fairy story, valuers pretty much doubled the number they first thought of and used that as the basis of equity to debt deals that would have made even the most brazen ponzi scheme look like a charitable foundation for orphaned kittens.

Now with shopping centres and retailers being funded by roughly the same financial institutions, we’re all hurtling down the mountain side together waiting for either a tree branch to slap us in the face or the sheer drop to open up beneath us.   I say all, not because everyone has bought into the madness, I know many haven’t, but because we will all feel the impact when those that have hit the rocks below.

The only way is up

Despite claims to the contrary, landlords are still locked into forcing up rents at every opportunity.  Often with huge debts to service, they have no choice but to look on the current situation as a temporary blip.  They spin the crisis while convincing themselves and the markets that ideas like pop-up stores are a great new innovation, even though when they were simply called temporary lets they were regarded as far less desirable.  Self delusion has become an artform.  Accepting the new reality is just too terrifying for them and their financial backers to contemplate.  Whilst government is apparently still convinced that they can continue to enthusiastically milk the retail cash cow, even if it does have BSE and an advanced case of mastitis

All the while customers are becoming ever more savvy at negotiating the new retail seascape, and in the most part they’re looking for the shallow waters.  Price is king on the internet, quality too, but price usually trumps quality if you chuck in a nice over-used euphemism like ‘Value’ wherever possible.  And we all know how well ‘Value’ beefburgers have worked out recently don’t we?

These customers don’t care if your shop is going under, why should they?  They care about where they can get the best deal, and now more than ever that’s on the internet.  Why?  Because those traditional retailers stuck on the high street are locked into a death struggle with recalcitrant landlords and ignorant politicians and can’t afford to match the razor thin margins of pure-play online retailers.

Where will it all end?  That’s something I hope to be around long enough to find out.  There are some perhaps positive glimmers on the horizon, but right now it’s not possible to know if that’s the new day breaking or the sun exploding on the other side of the world.

Will we need sun cream or a nuclear bunker?  Stick around, I think I can hear the dawn chorus.

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