Who Really Foots The Bill For Christmas Markets?

‘Twas the fortnight before Christmas and all through the town, retailers looked forward to one of those rare periods when turnover outstrips overheads and that wolf at the door finally takes a well deserved holiday.

Except that expectant buzz in the streets and malls of old England has in recent years been supplanted by the sound of lorries dumping small wooden structures in what were once the jealously guarded open spaces of the retail heartland.

Are these timber toadstools some sign of an impending gardening expo? Are they perhaps a portentous re-appearance of the wooden henges worshipped by our prehistoric ancestors? Were they dropped in by pipe smoking, flat cap wearing aliens as part of some elaborate shed-snatching invasion of old duffers?

No. It’s just the make-believe Bavarian market is here again!

Yes, that great British tradition, as ancient as flat screen TVs, is once more being rolled out in virtually every town from Penzance to Perth. City centres and shopping malls are rammed to the rafters with tongue and groove grottos selling food, fashion, jewellery, knitwear and all manner of consumer goodies, just in time to take advantage of the busiest time of the year.

And to prove their authenticity, there’s even a bloke in lederhosen proffering a cremated sausage in a bun. What’s the wurst that could happen?

Oddly enough for most of the permanent stores around the same area, it already has. You see, they were also rather hoping to be able to tap into this festive bonanza themselves. They’d all spent the rest of the year keeping the towns and malls thriving, paying their rent and rates through thick and (mostly) thin, waiting for those precious few weeks when they’ll reap the benefits of this hard work with anything upwards of 40% of their annual turnover.

It’s a shame then that the only acknowledgement of the year-round commitment of regular traders is to have their carefully crafted Christmas themed window displays buried behind acres of cheap garden furniture, housing fair-weather traders focussed on cashing in on the very same goodwill they’ve spent all year building up.

For the most part there’s abject indifference from the perpetrators of these events to the impact they have on trade for everyone else. The rationale of local councils and mall operators seems to be that permanent retailers are already on the hook for rent and rates, so there’s no immediate reason to consider their position when there’s yet more easy lucre to be prised out of a few temporary traders. And at around £150 a day, that’s a lot of Christmas cheer for someone’s balance sheet.

Space Invaders

Besides the be-hutted markets, there’s also an annual boom in the provision of the prosaically named ‘Retail Merchandising Units’ – Or ‘market stalls’ as anyone outside the industry would call them – in the otherwise neutral space that was carefully designed by expensive architects into most modern malls. Again these are mostly populated by people that sit out the rest of the year safe from pesky things like overheads, during periods when there aren’t hordes of customers throwing cash at them.

Not that I have anything against market traders. I was one myself for 7 years before starting my high street chain. But even then I traded all year round, wiping the snow off my pitch in February and standing in the freezing wind and rain to make less money than my stall was costing me. But in those days there was a proper acknowledgement that you’d paid your dues. You got the pick of the best pitches before the seasonal traders got a look in, and you knew your contribution to the annual ambience was valued.

And these ‘parachuted in’ seasonal markets have just as much of an impact on the existing street and market traders, as they’re often run by promotions companies with no connection to the local market management and so little interest in keeping regular traders on side.

There is of course the argument that these events bring in custom who will then shop with the regular traders. Personally I think that’s about as logical as suggesting cheap bootleg DVDs will increase the sales of cinema tickets. I know from my own experience this year, trading in a department store in close proximity to one of these markets, that business has been negatively impacted. And it’s this way every year.

Spread The Good Cheer

The most galling thing for local businesses is that they have no control over the location or the timing of these events. All forward planning for pre-Christmas promotions can be totally undermined by the arrival of these shanty shops.

Isn’t it about time mall landlords and local authorities started to consider the people that help pay their wages for 11 months of the year, instead of how to make a quick buck off those that they only see when Santa’s grotto is wheeled out of the storage cupboard?

Christmas markets have their place. But that isn’t slap bang in the middle of already existing trading areas where hard grafting retailers have spent all year creating the good will these events feed off.  (Or is it?  Register your vote in the poll below)

Let them have their own space in locations not already well served with long term retailers who need the Christmas rush to make ends meet. Or at the very least ensure that the various offers don’t compete with existing traders. Just because it’s only for a couple of weeks, that shouldn’t mean tenant mix policy should be ignored. Like all other traders in mixed developments, they need to ensure that Santa Claus sticks to his user clause.

Better still, involve the permanent retail community in these events. The planning for these markets often starts in the early part of the year, just at the point when most regular retailers start to feel the cold winds of post-Christmas reality blow away that warm glow of the previous few weeks. So if landlords and councils really want to engage with their retail community, now is the time to think about it. Not in the run up to what should be the busiest trading periods of the year.

Perhaps offer special deals to stores that might also want to take a stall. Organise bounce-back promotions to bring customers back to the area in January. Think about pre-Christmas events that could boost trade in the high street before the shed traders arrive. At the very least make sure that there won’t be a clash of priorities on important dates. In short, value your long term stores as more than set dressing for a seasonal smash and grab.

Remember that for many people shopkeeping is for life, not just for Christmas.

Have a happy and profitable 2015 everyone!

Phones 4U – The Winners And Losers

The 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.

There 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.

Pressing The Reset Button On The Commercial Property Market

I have this annoying habit of confusing two recently formed organisations.

Firstly there’s the Future High Street Summit, set up by high street campaigner Clare Rayner to bring together experts and activists concerned about the state of the great British town centre. It currently takes the form of a conference, open to anyone, but especially grassroots imagineers looking to contribute to process of re-building communities around a social and commercial hub.

Then we have The Future High Street Forum, set up by the government, supposedly to build on the work of the 2012 Mary Portas review. They have a smattering of academics and some fringe involvement from trade bodies, but largely it’s composed of vested interests, property investors, large corporate retailers and politicians appointed by a government department with no readily apparent clue about what is actually needed to deal with the problems in our town centres.

As you may be able to tell, even though they have similar names, there is a big difference between the aims and achievements of both bodies. I was fortunate enough to be invited to the first Future High Street Summit earlier this year and found it a very interesting experience. Rather fittingly held in the futuristic environs of the National Space centre in Leicester, it comprised of two days of speakers, discussion groups and networking opportunities.

A number of knowledgeable speakers shared experiences and insights over the two days I was there. Some I agreed with, some I didn’t. But overall there was a good cross-section of exemplars and I’d imagine everyone found something to inform their own activities and responsibilities. I certainly enjoyed the networking sections, chatting with people I already knew and making a few new acquaintances, some of which I’m still in touch with.

Where’s Brandon?

One notable absence though was the then Minister for High Streets, Brandon Lewis. He’d been billed as a speaker for some months, and having missed my opportunity to fire a question or two at him at his whistle stop visit to Retail Week Live conference a few weeks earlier, I was looking forward to getting a second chance in Leicester.

Sadly though, at the last minute he discovered he had to somewhere else to be on that day. An important matter of state perhaps, or maybe it was just his turn to polish the Westminster cat. I remember checking his Twitter feed on the day to find out what could have been so important for him to break such a long standing engagement. I can’t remember it being anything earth shatteringly important. Certainly not as important as a conference bringing together people to discuss options for the very thing he was supposed to be responsible for at the time. Perhaps, like me, he got the two similarly named organisations mixed up and only realised his mistake at the last minute. That might have been an embarrassing admission for him, considering he was the chair of the government forum.

Whatever the reason the DCLG sent along a polished civil servant stand-in to read a prepared speech in impressive cut-glass tones. Rather more of a political treatise than an engaging presentation, it sounded like a lecture he’d already given a dozen times to the politically faithful. The questions piled up on my notepad, poised for moment when he would finally shut up. But, as his boss had done a few weeks before, he scuttled off with no time for in depth discussion of government policy. In the final analysis, perhaps the lack of engagement with attendees on both occasions speaks volumes about the government’s genuine attitude towards the issues.

We’re All Forum

Over the past year or so we’ve had a number of announcements from the Future High Streets Forum. Last year Government Minister Nick Boles suggested that hard to let stores could be re-tasked as residential properties, thus neatly erasing the problem of abandoned high streets and giving property developers free reign to make a lot of money out of the plight of inner cities.

No matter that the Forum was set up to help get these areas back into retail and other community uses. Let’s just solve the problem of over-rented, over-rated retail locations by turning them into luxury pied de terres. In one fell swoop this would provide hope to perfidious landlords who’ve backed themselves into a corner with fantasy loan to asset values and reduce the pool of available retail properties, thus inflating the market even more.

Their latest wheeze yet again involves the property hue of their spectrum of responsibility. A joint announcement from the Forum and the British Property Federation set out a plan for what Liz Peace of the BPF called a ‘collective ownership scheme’. The driving principle being that the disparate nature of property ownership on our high streets didn’t lend itself to the same sorts of controls available to the operators of shopping malls. Unusually for me, I agreed with Liz on this point. We do need curation on the high street. So many towns now are clogged up with the same usual suspect operators. from the ubiquitous mobile phone stores to the omnipresent coffee bars, many high streets are just plain boring.

Attack Of The Clones

The principle of the clone town is not new. It was identified some years ago and the phrase has long since slipped into the national lexicon, in many cases without much concern for what it actually means. Shopping centres have been quick to capitalise on this phenomenon and have applied fairly rigid tenant mix policies within their specific fiefdoms. I say ‘fairly’ rigid as it’s not unheard of for a big bucks offer to banish all concerns over duplicate use. You only have to look at Covent Garden and count the number of multinational perfume and body products brands selling virtually the same thing to see that.

But this more ordered approach to the shopping experience has paid dividends for mall operators and their tenants so it’s sensible that the idea should be applied to the high street. Of course the stumbling block is still the fractured nature of property ownership. Ultimately each landlord is more concerned with getting the best deal from a tenant, regardless of the type of use. What do they care if there’s already 6 other mobile phone store in town. If number 7 is prepared to a ludicrously speculative rent they’ll take their money.

The BPF’s solution to this is a system whereby landlords would pool resources and agree a common lettings policy. In one model being proposed they would each have shares in an overall property portfolio, shifting the focus away from individual lettings to a more holistic trading environment.

Curated High Streets

The idea of a curated high street is something I’ve long championed. But I’ve always proposed controls via more detailed planning laws. Instead of broad brush usage classes being factored into local plans, I’d have specific operator types defined by an elected team of high street managers, drawn from various parts of the property spheres. Town planners, local retail groups, landlords, property advisers and local consultants, maybe something like the town teams we already have, but with more accountability. There would be zoned areas within a well defined tenant mix policy which any new tenancy would have to comply with. This would prevent disconnected property interests simply chasing the money, regardless of duplicated use.

Of course this is something that could be handled by a self regulated body of property owners, but there would be a risk that vested interests could ultimately over-ride the what’s best for the local trading environment. Even if the income from these property groups was pooled by way of a shareholding collective, as suggested in one proposal from the BPF, There would always be potential for larger shareholders to dominate the group. And as I’ve described above, self regulation becomes rather malleable when there’s enough money on the table.

The other danger that I see from allowing such a collaboration between property managers is the possibility of terms fixing. Rents and other leasing policy issues could easily become entrenched, leaving tenants little room for negotiation in a target area. Instead of dealing with one landlord, they’d be dealing with a cabal. Lease negotiations are already skewed enough in favour of the landlords. We don’t want to be fomenting conditions for the construction of a cartel in all but name.

The Big Idea

Fellow town centre campaigner Dan Thompson and I have recently been kicking about a more radical solution to the problem of restrictive practices on the high street. We’ve posited the idea that empty properties could be purchased by a retail property trust and let to independent operators on a non-profit basis. That’s not to say the rents would be at giveaway levels – the idea would be to generate funds for other local projects as well as to expand the property portfolio – but rents would be kept sustainable with respect to other costs and the profitability of tenant’s businesses.

There would be some element of profit sharing involved along with principles of tenant mix, competition, and the curation of the overall trading environment. But small businesses and a variety of uses could be encouraged to keep an area varied and vibrant.

Rents would be pegged to factors other than the usual relentless pursuit of asset valuation. That way we could ensure some longevity for both the local trading environment and the businesses within it. Moreover pioneering entrepreneurs who move into the poorer trading zones, and then revitalise them through their own creativity, innovation and bloody hard work would get to reap the benefits when the locale becomes trendy and profitable. Rather than landlords immediately following the money and moving in yet more coffee bars, mobile phone shops and anyone else who dangles a big wad of cash in their general direction.

Ultimately the goal would be to press the reset button on the commercial property market, providing some alternative dimension to the rental tone and thus undermining the closed shop rent review stitch ups that usually lead to ratcheting rents and more literally closed shops.

I’m proposing a return to the days when landlords and property owners worked in conjunction with tenants to foster a long term relationship. Both were happy to receive realistic returns on their investments and were able to plan for the future, rather than constantly watching over their shoulder waiting for the next rent review or feverishly calculating the chances of your own survival when the shop next door is let at a blue sky rent that you know you’ll never be able to afford.

You can call me naive – indeed somebody did on Twitter shortly after I revealed this idea in my Retail Week column last week – but I really believe that if we’re to encourage future generations of high street pioneers, we need a cultural shift away from the idea that commercial property is the investment gift that keeps on giving.

In my view, the day landlords swapped the value of a solid reliable tenancy for beliefs in such fairytale concepts as upwards only rent reviews and ever increasing portfolio values was the day our high streets started to die.

So there you have it. A brief taster of my idea of a high street utopia. Somewhat different from that proposed by the future High Streets Forum and the BPF, but something that would be about long term, sustainable revitalization, not just a valuation on a balance sheet.

I believe that if the high street is to have a future, in whatever form, we need to be thinking these seemingly impossible thoughts. And if the government and their various advisers are serious about revitalisation they should be encouraging concepts that do more than prop up the property status quo. If anyone else wants to get step outside that box with me, please get in touch.

This blog was originally published as a guest article on the Future High Street Summit blog

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

As 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

The 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.

The 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.

In 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.

Councils Should Stop Using Retailers As Bait In The Parking Trap

Parking in town centres is a particularly thorny issue for me. As a Green I believe that we should curtail car use, especially in congested cities. But as a town centre retailer I know that cars remain the preferred choice of travel for the vast majority of shoppers, and as a pragmatist, I see that we need to balance the needs of local commerce with the modern world’s addiction to the internal combustion engine.

Parking has also been something of a luke-warm potato for local authorities for a while now. Told as they were by the last Labour government to push up the price of town centre parking, many of them saw this as a way of offsetting the swingeing cost cuts now being imposed by a government of a different hue. This has laid the foundations for cost hikes by many a cash-strapped council, and the opportunity to make a political point into the bargain has also not been lost on them, in particular by councillors in Oxfordshire where I’m based.

An RAC survey recently reported that councils taking Labour’s advice to heart have raked in some pretty impressive surpluses as a result. Oxfordshire alone netted a whopping £7.52M last year with the city centre trousering £4.56M after a 15% increase in charges over two years.

The predominantly Labour run city council, points to this as a successful part of a low carbon Oxford policy, something which I support in principle. But as a city centre retailer, I simply see them jacking up parking costs under a nebulous green smokescreen, with little concern for the impact this has on my small business. Whatever the true motivations, it’s inarguable that current policy does little to generate widespread consensus for a business friendly, green agenda.

The same can be said for the other side of the argument. Communities Minister Brandon Lewis recently engaged in an acrimonious and unedifying exchange on Twitter with Labour’s Hilary Benn over claims about their previous guidance to local authorities. Labour’s rebuttal saw them accusing Conservative councils of making more money from parking than Labour authorities, based on figures that are still hotly debated. Whatever the true position is, I imagine most local government officers would have found these criticisms a lot easier to swallow had Brandon Lewis not gone on to announce a further budget cut of 2.9% shortly after his exchange with Benn.

Worryingly, the RAC claims that Oxford is only 32nd out of 353 councils in terms of surpluses being made from parking across the country. Suggesting that many local authorities are now just as dependent on the teat of the parking cash cow as motorists are on the petrol pump. Stories of increases are now emerging on an almost daily basis across the country as councils are placed under further pressure to balance the books.

Underlying effect

Taken in isolation, parking seems less consequential than pressures such as spiralling business rates or rents. But the underlying effect of high charges and swingeing fines are just as corrosive to the goodwill we all work hard to foster. Any retailer will tell you that parking is vital to their business and they feel the pain when this is made more expensive or less available.

Those that question the advantages and disadvantages of parking provision only have to ask why, if it’s such a side-issue, do out of town shopping centres and even some city centre malls invariably include some element of free or cheap parking as part of their DNA? It’s because they know that, given the choice, most car borne visitors will gravitate to the areas that offer the best deal on parking and access, leaving towns where parking is restricted or overpriced playing on a distinctly bumpy playing field.

Convenience

People expect the convenience that easy parking offers and feel very much used by any town that fleeces them for the same service. Most will only be caught out once and then choose to shop elsewhere in future, even if that involves significantly more travelling. And let’s not forget that by pushing shoppers to take longer journeys to reach further flung destinations, we’re increasing the carbon emissions that we’re all supposedly trying to prevent.

Most retailers and restaurateurs have come to regard themselves as the bait in the parking trap and look on with impotent dismay at the damage being wrought on a town’s reputation by local councils with an apparent disregard for the principles of supply and demand. Decisions about parking provision are usually taken in spite of the businesses that rely on them, rather than in consultation with them.

Yet as businesspeople we’re pragmatists and understand the fiscal imperatives. For example, many would be happy to be involved in some sort of parking validation scheme, whereby we contribute to the cost of a customer’s parking if they make a purchase. This is a well established practice in the USA and yet is something that is rarely available here.

Solutions

In the end though, we have to tackle the environmental damage being caused by cars and the most sensible compromise in the cases of over-congested cities is the excellent Park & Ride concept. Even though research in Cambridge has raised doubts about how much reduction in car use they contributed to, Park and Ride is usually pointed to by campaigners as a good first step towards car free cities. This has to be backed wholeheartedly by the local authority though and be integrated as part of an overall strategy that both encourages visitors to the town and ensures they leave their cars on the outskirts.

Here Oxford fares rather miserably again. The council has of late chosen to treat the P&R facility as cash generator in it’s own right. After successive hikes in bus fares and the introduction of a parking fee as well, the cost of short term parking is now roughly equivalent to the cost of parking in the city centre for the first few hours. Such a shame that after leading the way as one of the first such schemes in the country, the council has basically reneged on the bargain with motorists who had hitherto been persuaded to leave their car behind. An example yet again of an ostensibly green policy being perverted as a means of raising cash off the backs of motorists, shoppers and retailers.

Cities can also be made more pedestrian friendly in themselves.  Living Streets, a charity focussing on improving pedestrian usage of cities and town centres, published a report last year that suggested people on foot spend significantly more than those who travel to an area by car. This of course relies again on sympathetic urban planning and a good local residential base. It’s a model that has great merit in many circumstances, but in terms of larger cities who need to attract people from farther afield to justify their higher overheads, it may not be as workable.

A radical idea?

Another option I’ve proposed in the past is a compulsory national parking tariff where public and private parking areas would be legally obliged to charge for parking at a rate set by central government, calculated in a similar way to business rates, depending on location and amenity.  This would have to be charged direct to motorists and not offset by mall landlords against service charges to tenants.  Such a scheme could generate funds from all locales and enable councils to level the costs of parking in their districts, thus reducing the bias towards shopping centres.  It would be a tricky thing to implement, but it might be an interesting exercise to at least consider.

Repeated studies, reports and polices have sought to address the issue of parking.  Many have agreed that it’s one of the most important factors underpinning high street revival.  Yet neither local or national government have seriously grasped the nettle and demonstrated a willingness to sympathetically combine the competing pressures of local finance, business and environmentalism into a coherent policy.

Ultimately the answer to parking, our reliance on car usage, and ways of encouraging pedestrians back into town centres has to be tackled on a holistic basis across the country. It should be seen as part of a commercial eco-system in itself, along with the businesses and services that depend on encouraging visitors to particular areas.

It’s most likely that the answer will lie in a combination of approaches, but it’s certain that it’s not to be found in simply changing a tariff notice and waiting for the obliging motorist to magic away the impecuniosities of local government. That’s an idea that’s already overstayed it’s allotted time, and for which there’s eventually going to be a hefty penalty due from all of us.

Retail Technology – Master or Servant?

As 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.

For 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

Proponents 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?

So 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.

New 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.

When is a U-Turn not a U-Turn? The Parallel Universe of the BRC

Last week’s sudden abandonment by the BRC of calls for a rates freeze came as something of a surprise to most of us, especially those of us who saw a freeze as a compromise anyway.

With business rates increases over the past two years adding over half a billion quid to retailers overheads bills, it didn’t seem too much to ask for government to allow us a bit of breathing space.  Even more so in the face of flatlining high street sales and the erosion of margins by other taxes such as VAT, which have already caused multiple failures this year.

A freeze was never going to be the final solution though.  The growing clamour for a complete revision of local taxation must by now be reaching even the lofty heights of the ivory towers inhabited by the Chancellor and his advisers.  Even so, it seems nothing is to be done to offer a helping hand to retailers.  The closest we’ve come to any direct action on high streets in the last 2 years was planning minister Nick Boles recent proposal that they should effectively be sold off to residential developers and forgotten about.

Now the BRC, an organisation I’d have expected much better of, has not so much blown the idea of a rates freeze out of the water, it’s sent it into orbit!

The reasons for this about-turn, according to Director General Helen Dickinson, is government claims of a potential £1Bn hole in the country’s finances.  This, she says, has led her to see the error of her ways and ally the BRC with the CBI who have been calling for a 2% cap on rates increases, rather than a freeze, for some time now, arguing that this is a more achievable goal in the short term.

Indeed Dickinson came out fighting very soon after the announcement of the BRC’s change of heart, with talk of a ‘step up’ in their campaign over rates reform with a pronouncement that this will be a long term goal.  The obvious disconnect between those two statements didn’t seem to occur to her at the time, or as far as I know, since.

Realistic ideals

Yes it can be argued that in any negotiation there’s little point in holding out for an outcome or a deal that you’re unlikely to be able to achieve.  Asking for the impossible does make you look unreasonable and in some cases faintly ridiculous.  But a freeze was not an unrealistic ideal.  Certainly not if it was applied to retailers only.

The figure of £1Bn loss to the treasury was, it appears, a little over-egged anyway.  The true loss is predicted to be around £840M and that’s only if the freeze was applied across the board to all businesses.  Taking into account rates relief, that figure could be as low as £700M.  But I suppose a figure like £1Billion represents a powerful headline grabbing number, supporting a Treasury polemic that the BRC appears unwilling to challenge.  After all what’s a few hundred million here or there?  Not much it appears, unless you happen to be trying to get the government to reduce the rates burden by a similar amount.

Special Case

In any event, I’d argue that retail is a special case, carrying as it does multiple burdens both in duplication of the charge over multiple locations, and with deference to the amount it contributes in other ways to GDP, not least in terms of employment.  In those circumstances, if the government really wanted to help,  retail could be singled out, thus significantly reducing the overall impact of a freeze.

In fact based on last years increase of £175M, if the reduction was applied to retailers only, it would take something like 5 years before we got close to £1Bn, unless inflation moves drastically northwards.  That’s plenty of time to bring in a new and fairer form of local taxation.

Although I suppose with predictions of next year’s increase running at anything up to £300M it might not take quite so long.  Even a cap at 2% would leave us facing an uplift of around £200M showing just how little would be gained, even if that could be achieved.  Either way the point is an overhaul of the rates system should already be a government priority.  A freeze for a year might sharpen the minds and pencils of those who talk about reform without ever actually doing anything about it, and with potential rates revenue likely to continue declining as many more stores close for good, the need is becoming more urgent every day.

Helen Dickinson herself has acknowledged that :

[a freeze] “wouldn’t be enough to address the significant impact that business rates are having on local jobs, town centres and communities”

Yet somehow she seems to be arguing that a 2% increase would be a better option.  Perhaps that makes sense in some quirky, mathematically challenged, parallel universe, but until the Large Hadron Collider breaks through to a dimension where a 2% increase is better than no increase at all, we may have to file that comment under ‘S’ for Slightly Silly.

Simple ideas like adding ring-fenced increases to VAT or corporation tax might even net a greater income for the exchequer.  But perhaps there’s a hint at what lies behind the BRC’s change of heart.  Would it be outrageously cynical of me to wonder if all those large scale retailers that have the ear of the organisation have just realised that a turnover or profit based taxation system might actually cost them more?  Especially if effective action was taken to reduce tax avoidance schemes at the same time.  Just a thought.

Incredibility

From the comments I’ve received on this move so far it’s done serious damage to the credibility of the BRC, certainly with small businesses.  There’s always been a belief that as a trade body the BRC were rather more concerned with the fortunes of larger retailers, especially supermarkets, than with those of smaller independents.  This wasn’t a view I supported, but this capitulation on one of the most pressing issues on the high street will do nothing to dispel that belief.  The alignment with an institute like the CBI also pretty much puts the lid on any claims that could be made for the BRC being in touch with the grass roots retailers.  That’s all very disappointing, to put it mildly.

Happily though the Federation for Small Businesses does seem to have remained on the side of the little guys and coincidently launched their own campaign for a rates freeze on almost the same day that the BRC backed away from theirs.  I’d urge everyone to sign their petition and get involved with the campaign.

Not a negotiation

And there’s the difference that Helen Dickenson, the BRC and the CBI doesn’t seem to have noticed.  This is a campaign, not a negotiation.  We don’t need to achieve the best result we can by simply asking for what we think we’ll get.  We should be stating a position that is defensible and then fighting for it.  Yes, ridiculous expectations are a waste of energy and resources but we’re not expecting cash handouts to private businesses, jet packs or for Vince Cable to actually bother to research the difficulties that high street retailers face before he makes yet another dismissive speech.

This is a about taking a lobbying stance based on principles and fairness in the same way that campaigners have fought down the years to reform other unfair social inequalities.  Small retailers and their staff depend on the high street for a living.  In many ways reforming the inequities of an unfair taxation system is every bit as important as the fight against sex and race equality, or other socially corrosive political stances.  You can’t negotiate those values and aspirations away just try to save face and score an easy win.  Certainly not if you want to remain relevant to the people you claim to represent.

High street decline – Re-task or re-think?

There’s been much talk  from various quarters about needing to come terms with the idea that the high street is dying.  Bill Grimesy has set this as the starting point in many discussions, and more recently the head of Ocado, Tim Steiner, expounded pretty similar views in a rather unhelpful gush of vitriol to the national press.

The rhetoric characteristically continues along the lines that we’d all better get used to it and deal with the reality.  ‘Dealing with it’ usually involves tacit agreement that shopping malls will be the main destination for consumers of the future and the rest of the slack will be taken up by the direct internet purchases, click and collect and m-commerce.

Ailing high streets, we’re told, will need to re-imagine themselves into areas that will attract people for a variety of reasons rather than just shopping.  Empty retail properties will be re-tasked into other uses, primarily residential.  There’s usually a raft of other ideas that come along in this mix.  Crèches, art galleries, community centres and various other esoteric uses are floated as essential ingredients in a new-age municipal Mecca that will sweep away the tumbleweeds and revitalise areas that people that are staying away from in droves right now.

It’s a view predicated on pragmatism that has some merit.  But I’d ask at what point does pragmatism slip into the realms of defeatism?  I think we’re a long way off from throwing in the towel on the high street, we just need the political will to deal with the underlying problems that have dogged it since investment landlords, property developers and city councillors first crawled out of the primordial slime.

Logical

I don’t argue with the logic of mixed uses in any retail environment, based as it is to a large extent on models already in existence in the shopping centres and mega-malls that are now a ubiquitous part of the UK consumer landscape.  It’s a truism that shoppers don’t just want to shop these days.  They want to drink coffee, browse the internet, have a free makeover or a life-changing experience on a climbing wall.  But with all this already available in the big  retail and recreational cathedrals, one has to wonder why exactly people would return to high streets, even after the proposed transformations are complete.  If all it’s going to take to bring these people back into their local areas is a few new service providers and a community centre, why hasn’t this already been done years ago?

The answer lies in the roots of all the problems currently besetting local high streets.  That of high rents, high rates, poor provision of expensive parking facilities, and the lack of a co-ordinated approach to tenant mix and shared space management.  Yes the same boring old issues I’ve been going on about for years, but they haven’t got any less injurious to retailers fortunes with age.

These shortcomings have already been trumpeted by various commentators and pundits, not to mention being detailed chapter and verse in the Portas Review.  It’s likely that Bill Grimesy will cover some or all of this same ground again when his own report is published in a few weeks.

None of this is news, certainly not to those retailers struggling in such areas, or to the landlords faced with empty properties as a result of previous failures.  The answer is to deal with these issues, not just talk about them.  The answer is not to give up on the high street model and dismantle it by stealth.

Small high streets are incubators for fresh retail ideas driven by entrepreneurs with a good idea and not much capital.  The fall in real terms value of commercial property should be a positive benefit in those circumstances, but by and large this is being undermined by landlords and developers who are desperately holding on, waiting for the boom times to return.

Add to this a government equally addicted to milking the high street cash cow through an iniquitous business rates system, and you don’t need to be an economic whizz kid to see why high street property has become toxic.

Re-model Re-task

By making a case for re-tasking or re-modelling empty shops we simply lay the groundwork for landlords and developers who would love to be able to turn empty shops into ‘luxury flats’ or demolish problem locations altogether and start again.  And who could blame them?

But in doing so we risk losing a valuable resource that we’ll probably never get back.  Stores that right now that could, and should, be let on viable rents to small retailers eager to get a foot on the commercial property ladder.  And I mean on proper long or medium term leases, not the fudgy panacea of the pop-up.

Once these units are gone those opportunities will disappear too.  The large malls aren’t interested in small retailers in the long term, no matter how much they might say they are, and once there’s no other alternative where will independents have left to go?

Yes some small retail units will likely be left in town centres, or included in redevelopments.  But then the reduction in availability will simply serve to support the high aspirations of landlords that have led us down the road we’re currently coming to the end of.  The fact that there are large numbers of empty units being left languishing by landlords and letting agents asking for frankly stupid rents should be seen as a potential resource, not a problem to be erased by sending in yet more deep pocketed developers.

Opportunity knocks

There is an opportunity right now to rescue the situation by forcing landlords back into the real world.  I’ve long advocated imposed rent control and local retail zoning, similar to the systems put in place to deal with down at heel areas in the USA in the 60s, 70s and 80s.  If a property is empty for a certain period of time, local authorities would be able to take over the administration and let the unit on a fair rent.  Landlords would be offered a return on investment at a set level above the current base rate and would of course lose liability for empty business rates.

This would go hand in hand with new planning powers to ensure a sensible tenant mix within given zones, thereby reducing the ‘usual suspect’ nature of small high streets, often populated with the same facades of betting shops, charity shops, coffee bars, mobile phone operators and the like.

I’m all for the free market economy but high street decline is a socio-economic issue that needs to be managed at a local and national government level.  It has knock on effects to the well-being and safety of local citizens and the monetary and social costs associated with those factors.

I’m not averse to seeing retail units turned into other service type uses, but I am very much concerned that once permanent changes are made to retail properties, especially into residential, we’ll see a decline in the small independent sector that will simply strengthen the dominance of  large malls and developments that are far less supportive of those types of operations.

Re-tasking retail into other uses is certainly going to be an interest grabber for politicians and developers keen to make a killing out of empty units in town centres.  But if they also kill off the high street in the process I think they rest of us will all be the poorer for it. As Joni Mitchell once sang, “you don’t know what you’ve got ‘til it’s gone”

Internet Purchase Tax ? Be Careful What You Wish For

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 also 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.

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.

Boiled Frogs and Business Rates

Amid all the recent furore over tax evasion or avoidance and the barely distinct line between them, I thought I’d throw my two penneth in, which of course I will fully declare to HMRC.

Let’s consider a new form of income tax.  One that simplifies all twists, turns and nuances of the current system.  A more straightforward tax that’s easier to assess, quicker to collect and almost completely unavoidable.

My proposal would be that everyone pays tax based their theoretical ability to earn.

HMRC could look at various parameters such as age and general health, but the most important of these would be your past employment history and your level of qualification.  Both of these would of course be indicators of the kinds of salary you could command on the open employment market.  We’d naturally have to assume the market was buoyant and that there would be an infinite number of suitable jobs available for every person able to take such a position.  But as we all know, assumption is the lingua franca of the taxman

I’d propose that specialised analysts would set a tariff for each person, based on what they could earn in these idealised set of circumstances.  This would effectively give a figure that each person should be paying, assuming they were working and in a job equivalent to their experience and education.  Then HMRC could simply issue demands based on these notional figures.  If, for example, you qualified as a teacher, you’d pay what a teacher should be earning.  If you’d qualified as a solicitor or a doctor, you’d pay based on that ability to earn a salary consummate with your potential.

Now the controversial bit : My system would mean you’d pay these taxes regardless of if you were actually doing the job you were qualified for or not.  If you trained as a brain surgeon, but decided that delving around in someone’s skull was no longer for you, no matter, you’d still pay the tax on a brain surgeon’s salary.  Even if you went off to work as a shelf stacker in your local caring, sharing supermarket, you’d still be expected to pay the brain surgeon’s tax.  Remember, your liability would be based on what you could be earning, rather than what you actually made.  Likewise, if your only qualification was  a silver swimming certificate but you somehow ended up as a city trader, you’d only pay tax based on your notional earnings potential, for example as a street cleaner or a career politician.  On second thoughts, scratch the latter example as that screws with my argument.

Fair’s fair

I know that all sounds terribly unfair, but  I’ve got that covered.  Returning to my city trading, swimming certificate holder, he would have his potential earnings re-assessed every 5 years or so, and if it was shown that he could now command a higher salary, due to a newly gained experience at pushing buttons and answering phones on the trading floor, he’d have his taxation level increased, usually to that of the highest paid city trader in operation.  He’d then pay tax at that level forever, even if he lost that fire in his belly and decided to pack it all in and wash cars for a living, he’d pay the tax of a top city boy.  Moreover all this income flowing to the chancellor’s eager grasp would be adjusted annually by the rate of inflation, just to make sure they kept up with current standards of living.  It’s only fair.

You see, under my system there’d be no need to fill out complicated tax forms, no necessity for tax allowances or adjustments based on your true circumstances.  Everyone would receive a tax demand calculated for them by HMRC and they’d have to pay it.  No arguments.  Even if you weren’t in work or you earned far less gross pay than the tax being demanded, you’d still have to find the money – Somehow.  After all, you’d have the ability to be able to earn the going rate for a particular job, so why should the tax inspector have take into account what you actually earn.  That demands far too much thought, effort and energy on behalf of busy government departments.  If you earn less than what you’re qualified for then that’s your decision. Your problem. You still pay the tax.

Sound equitable to you?  No, I thought not.

But then this, in case you haven’t already spotted my laboured attempt at a parallel,  is exactly the way the current system of business rates works for retailers, and other businesses.  It’s essentially a system of taxation based on a notional ability to earn money, regardless of the actual circumstances at the time or of our actual income.

The arguments for such a system as we were told last week on Radio 4 is that it’s easy to assess, easy to demand, and simple for businesses to pay.  Brandon Lewis went to some length in his interview on the BBC’s Face The Facts programme to stress just how important he thought certainty was for businesses, even if that certainty is that you’re being mercilessly ripped off by a complacent under-informed government.  To anyone outside the commercial property world, the idea that you’d pay a tax with no direct connection to actual revenue would seem ludicrous.  Yet it’s something retailers face every month when they have to find the money to pay this fixed, non-negotiable charge, regardless of how much money they’ve taken in the preceding weeks.  This ridiculous conceptual levy is now contributing to the fastest decline in the history of high street retail, yet it’s continuance is defended rigorously by ministers on a regular basis and apparently accepted as a reasonable proposition by the rest of us.

Our current system of business rates is a twisted perversion of what was originally a property tax intended to ensure local residents and businesses paid into local coffers for the provision of the local services they consume.  Refuse removal, emergency services, council officers and the like.  The simple idea being that the size of the property you occupied gave a rough guide to how much of these resources you’d call on in any given year.  It was a bit of a blunt instrument but it was broadly fair and of course we all accepted it as a civic responsibility.

Community Chest

That really went out of the window when the current system of Uniform Business Rate or UBR was introduced in 1990.  Under this system all businesses across the country paid into a central pot which was then shared out between local authorities across the country based on budget and need.  This took into account that some areas may have a lower potential to earn rates from business which meant that more central government subsidies were required.  Under UBR the richer areas would to some extent help support the poorer.  A fair and equitable system, in theory, except that under UBR the rates you paid were now assessed on the value of your property, rather than it’s area.  And there, hiding in the little detail of an adjustable annual multiplier linked to inflation, was the devil.

Now, instead of paying a proportion for your local facilities, you paid a property tax based on a deal you did with landlords on a commercial level, sometimes years in the past.  You were no longer paying into a community chest for your local hospitals and lollipop ladies, you were paying a tax to central government.  Not only that, it was a tax based on an assessment of the value of your property made by another, separate, government authority : The Valuation Office (VOA).  They assessed the rough value of your property based on an aggregation of the local rental ‘tone’ and set a tariff on each property to which the annual multiplier would be applied.  If this wasn’t complicated enough, the government then varied the annual multiplier based on a measure of inflation at an arbitrary point in the calendar, currently six months before any new charge would be due.

The principle of course was that deals agreed to acquire a property in any area would give a rough guide to the affluence of the local population and their likely spending, which in turn would give some indication of the potential turnover of the business paying the tax.  A tenuous correlation at the best of times, one largely based on expectations and aspirations at a given moment.  Even so this probably kept rough pace with reality during times of normal trading, although it was hardly the basis for a fair and equitable system of taxation.  In fact it had more in common with more notorious historical levies such as the window tax or feudal tributes paid to Norman lords.

So, as with my mischievous suggestion in the opening paragraphs above, we have a system of taxation based on a theoretical assessment of earnings potential with no direct connection to ability to pay.  The really odd thing is that we all seem to accept this as a fair arrangement.  The various campaigns launched over recent years don’t seem to focus on the one salient point that for any tax to be fair it has to be related to actual earnings, not the murky notional musings of various self regulated government agencies.

The dictionary definition of a tax is : “a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions”.  Perhaps this is why the government continues to call them business ‘rates’ ; Harking back to the original principles where your property was ‘rated’ in relation to it’s consumption of local resources.  That’s plainly no longer the case, even more so now after recent revisions to rules that allow central government to hold on to a proportion of the rates collected by local councils paid into the central government pool.

Business rates are self evidently a tax in all but name, something we’re expected to overlook as an artefact of historical inertia and semantic subterfuge.  After all, if it was correctly named, we’d all expect there to be some deference to the normal rules by which taxation operates.

Alternatives

Most proposed alternatives to business rates seem to be founded on tweaking what we have now.  Base the annual multiplier on CPI rather than RPI has been the most popular to date, whilst the proposal to change to a land tax rather than a property tax has been around for a good while too.   In fact Green Party MP, Caroline Lucas recently launched a Private Members Bill to that effect.  There have also been a plethora of rebates and deferral schemes down the years for various business types or uplifts for others, none of which really fixes the inherent problems, especially for those businesses that don’t fulfil the very limited criteria.

One partial solution mooted several years ago was to carry out annual re-assessments using the £10M computer system developed by the government at the time, based on the principle of Computer Assisted Mass Appraisal (CAMA).  Although, like something from the Hitchhiker’s Guide the the Galaxy, that apparently now lies unused, gathering dust in the corner of a VOA broom cupboard, probably in a locked filing cabinet beneath a sign saying ‘Beware of the Tiger” .

The most likely shift that anyone has remotely expected from successive governments has been the shift from RPI to CPI, a principle that’s lately been applied to other government measures where it works to their advantage, most notably things like pensions .  It’s also proposal was included as one of the recommendations in the Portas Review (recommendation 8) that the government has assured us all it’s  ‘accepted’ it still seems a long way off.  Yet more semantic tap dancing demonstrating that there’s a big difference between acceptance of an idea and actually doing anything about it.

Personally I think we’re well beyond the point where this would make any significant difference to the problem.  In what is an inherently unfair system we appear to be focussing on degrees of unfairness, rather than pressing for a complete overhaul.  To me that seems like playing into the governments hands.  The difference is marginal.  In January for example RPI stood at 3.3% while CPI was 2.7%.  When and if ministers do finally bend and shift to CPI, are we really all going to breathe a collective sigh of relief over a difference of 0.6% in our annual rates bills?

Keep On Squeezing

None of these, with the possible exception of the land tax idea would re-establish the link between local service provision and the payment that was originally designed to cover the costs for these.  Neither would any of them have any relationship with ability to pay, as with virtually every other fair system of regular taxation.

We all seem to have blithely accepted a liability that has been foisted upon us all by a process of stealthy evolution from a simple local levy to a full-scale income tax.  Collectively we hand over billions to the government on this basis, calmly and with little protest.  The only reason we’re all getting out of our prams about it now is that falling commercial property values are no longer being reflected in this thoroughly disconnected system.

While property values remained flat or were adjusted in line with gradual increases in yield, UBR just about kept pace with turnover.  But the commercial property boom of the past 15 years pushed retail rents beyond sensible sustainability, which in turn drove comparable increases in rateable values.  The property crash of 2008 and the decline in consumer spending has now exposed the high water mark of unsustainable process.  Yet ministers carry on sucking the reservoir dry, terrified of losing a guaranteed income and convinced that this creaky mechanism should lumber on regardless of imminent collapse.

But there are workable alternatives.  Dr Adam Marshal from the BRC has advocated a local taxation regime based on profits, whilst I’ve long argued for a form of local purchase tax, similar to that in the USA.  Perhaps, even more radically, we could combine it with VAT and add the charge at the till as they do over there.  Then, not only would the burden of taxation be transparent to customers, it would show where a large proportion of the cost of operating a retail business lies.  Something I’m sure many of us would welcome in the face of customer and landlord perceptions that we’re all amassing a personal fortune on a daily basis.  Not only that, a direct link between the success of a local business and the income generated by local authorities would provide a sharper focus for councillors over issues that directly affect their performance, such as parking, local road infrastructure, planning, town management and the like.  Given the fact that many retailers trade in areas where they don’t get a vote in local elections, a levy based on local performance would at least partly negate the frequently overlooked paradox of taxation without representation.

Boiling the Frog

Isn’t it about time we all called for a re-invention of the whole process of  local business taxation?  Rather than being complicit in the continuation of the status quo or accepting yet more bolt on revisions to a discredited process.  Rather like the business rates system itself, we arrived at the position we’re in now by a series of incremental assumptions and expectations.  It’s akin to the old adage of the boiled frog, and only now as we start to feel the heat are we beginning to sweat.

Personally I’m all for jumping out of the pot right now, rather than settling for a little more seasoning in the water I’m being cooked in.