BHS – The ‘Dead Store Walking’ That Never Really Had a Chance

I greeted the news of the sale of BHS to Retail Acquisitions with the same feeling of incredulity I’d previously experienced over Gordon Brother’s purchase of the ailing Blockbuster chain in 2013.

It seemed like a crazy buy, not least because if a canny businessman like Philip Green wants to shake hands on the sale of a major company for £1, you’d better count your fingers carefully afterwards.

The CVA details, released last month, revealed just how crazy it was. With a massive pension fund hole, debts of around £1.3bn and ongoing trading losses, it was going to take a miracle of biblical proportions to rescue the company for even the most experienced retail turnaround specialist. For someone like Dominic Chappell – a retail novice with several failed companies and a personal bankruptcy behind him – it was totally doolally.

The other thing that bothered me was the name of the company – Retail Acquisitions – which suggests that its primary aim was to acquire the stores, rather than to actually run them.

BHS was a dead store walking and I suspect Sir Green knew that when he sold it. Even the previously over-optimistic Gordon Brothers refused to sanction a £60m loan to Chappell for BHS, which if nothing else at least shows that they did their sums properly this time before leaping head first into another obviously doomed turnaround fiasco.

Dodging the Bullet

There are very few upsides to any of this, but I can’t help thinking how much worse things could have been had Philip Green also managed to buy M&S back in 2004. Already 4 years into his stewardship of BHS by then, one can only wonder if both these venerable old stores would have ended up in the mincer.

M&S still has it’s problems, but it’s taken a far more robust route towards re-inventing itself than was ever evident at BHS. Updated, more up-market branding, a re-positioned clothing offer and a far more efficient front of house has kept Marks and Sparks out of the clutches of the receiver. Above all though it seems that dodging the bullet of being added to the Green portfolio was a far greater benefit to it’s survival.

The tired, confused and cluttered shop floor that greets you in BHS these days screams underinvestment and shredded staff morale. It’s been clear for years that Sir Phil had no idea what to do with BHS. In it’s final days under his stewardship, it was stuffed with poorly executed Arcadia brand concessions making it even less likely that shoppers would cross the threshold.

Essentially there was little inside that wasn’t already available elsewhere. This would also prove to be an Achilles heel for the new owners, leaving them very little room for manoeuvre in re-inventing the stock offer to attract new customers.

A late-to-the-party, rather shonky website did nothing to lift the image of a brand that was already years past it’s sell by date by the time it hit the net. The last gasp flirtation with a food offer shortly before selling the chain suggests the company had finally resorted to plagiarism of the more successful sectors of the M&S operation in a half-hearted attempt to turn the super-tanker before it hit the rocks.

Questions Need Answers

Given Sir Phil’s legendary retail acumen, it’s a conundrum as to why he wasn’t able to breathe new life into BHS rather than bail out. It’s almost like he wasn’t trying. Ultimately his priority was not to be on the apple cart when the wheels came off, which in business terms was a great move for him, but rather a bad one for his staff and creditors.

As shadow business secretary Angela Eagle has pointed out, there are still questions that need answers, especially if it’s it’s going to be left to the taxpayer to make up shortfalls in redundancies and pensions.

I hope in the spirit of openness and transparency recently inspired by his friend David Cameron, Sir Phil will be just as forthright about his own personal financial arrangements. I’m sure speculation that, during the 15 years of his ownership, he trousered remuneration roughly equal to the hole in the pension fund is just a random quirk of inconsequential coincidence.

Likewise, there’s also some concern about pay-outs to Retail Acquisitions that may not have been entirely appropriate in the circumstances. It’s now expected that the company will be called before MPs to explain some of its actions in the run up to the collapse.

Even if there was a plan to relaunch the brand after the buy out, it’s become apparent over recent weeks that this was secondary to re-financing the company. Something that should have been in place long before the new owners picked up the keys.

Speculation

Speculation will now be rife about the future for BHS. A pre-pack resurrection deal seems unlikely considering the complexity of the situation and the continuing dead weight of the pension fund. That would also seem to preclude the option of a buyer being found for the company as a going concern. Even so, according to the administrators, there have been numerous expressions of ‘serious interest’ from prospective buyers. But I suspect it’s the nature of that interest that will be the rub.

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I’m sure speculation that, during the 15 years of his ownership, he trousered remuneration roughly equal to the hole in the pension fund is just a random quirk of inconsequential coincidence.

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If it does shutter it’s doors, it’s likely that BHS sized hole in our high street will be more difficult to fill now than it was after the demise of Woolworths in 2008. Not just as physical space, but in terms economic and societal impact of so many job and creditor losses. The announcement a few days ago of the collapse of Austin Reed will make that even more acute.

When Woolies went down there were plenty of takers from the bargain end of the retail spectrum eager to gain extra floor space. That sector is largely saturated now, although B&M Bargains are apparently eying some of the BHS portfolio.

Dominic Chappell himself is also reported to be keen to extend his BHS pipedream by buying back the majority of the company from the administrators using yet more borrowed money, this time from the USA. This smacks to me now more of obsession than sound business sense and I can see no reason why we wouldn’t just see a re-run of the last 14 months.

Let’s hope then that reports of viable rescue plans prove to be more than the wishful thinking of the administrators, and that if any part of the company can be saved, the future owners have pockets deep enough to allow them to concentrate on the business of retail rather than of finance.

We Need Rates Reform Not Magic Rabbits

Maybe it has something to do with the proximity of Easter, but it’s long been the tradition for chancellors to pull a rabbit out of the hat during a budget speech, and last week there were leporidae leaping about all over the place in Westminster.

Speculation is that the abundance of feats of fiscal phantasmagoria this time, were simply there to divert attention away from the fact that George Osborne has spectacularly failed to hit any of his own arbitrarily set targets which we are supposed to be judging him on.  But whatever the reason, the showstopper for most retailers was the changes to business rates.

As usual, in the run up to this budget, there were calls from retail pressure groups for  there to be some serious moves towards rates reform, rather than yet more promises of reviews and recommendations.  I, along with other campaigners, joined that chorus, although I have to say that this time round I wasn’t expecting much in the way of harmony.  I thought the indications were there that we’d not see any real structural  change in the current broken system of local taxation.

On the whole I think I was right, but there were some more helpful than usual measures in George’s big red box this year.  Unfortunately though, on closer scrutiny they’re not quite as positive as they first seem.

Move to CPI

The one element of the package that could be described as structural was the move to CPI from RPI in the setting of rates multipliers.  CPI is the main indicator used in most other government departments to set things like pension increases, so it’s long been indefensible to use RPI for payments going the other way.

Indeed the last government’s own tame celebrity consultant, Mary Portas, had this as one of the key recommendations in her high street review back in the heady days of 2011.  Although, like many of her recommendations, this was also ignored.

So on the face of it, it’s a good move, until you realise that it’s not going to be implemented until 2020.  The subtext of that for me is that we’ll be keeping the same anachronistic system of setting a tax using notional valuations for at least another 5 years.  Something I had hoped would have been consigned to history some years ago.

Revaluation Cycles 

More evidence supporting that depressing assumption came with the plan to change revaluation cycles to 3 years rather than the current 5.  Again reaffirming that the Chancellor sees a long term continuation of the current arrangements, albeit in a slightly more responsive way.  Although, as he’s been seen to play fast and loose with these cycles when it suits him, including delaying the 2015 revaluation by two years, one wonders how much value there really is in this commitment.

Doubled Thresholds

The other course in this smorgasbord of rates tweaks was the doubling of the threshold before properties become eligible to pay business rates.  This was increased from £6000 to £12000 in one fell swoop, with tapered relief on properties up to the £15000 mark.  Something I’m sure Osborne hoped would give him the wow factor with the small business community.

And yes, it’s a bold move.  But considering the speed with which rental tones have continued to move, even through the recession, this change means the system will have just about caught up with reality only to see it speed off into the distance again.  This is especially true of the very high rented areas like London where decent retail properties below £12000 are going to be even rarer than magic rabbits.

The subtext of that for me is that we’ll be keeping the same anachronistic system of setting a tax using notional valuations for at least another 5 years

And let’s not forget that there are still many relatively small retailers who will continue to fall between two stools, in premises too large and over-rented to benefit from these changes and yet not large enough to have the economies of scale to cope with other challenges on the horizon, such as changes to pension liabilities and the new National Living Wage.

Someone Else’s Money

We also need to remember that in these times of austerity and dwindling local authority budgets, Osborne announcing these generous reductions in tax take is really him writing cheques he knows he’ll never have to cash.  As we all know, it’s always easier to play with someone else’s money.

Having told councils last year that they will be retaining 100% of business rates in exchange for further reductions in central government grants, making changes that will significantly impact that income seems like a breathtakingly cynical bit of game playing.  And this will have a knock on effect in town centres and local communities where small stores are trying to do business.

So, as much as I’m pleased that, by some estimates, as many as 50% of smaller retailers could be taken out of the current business rates madness altogether, I’m struggling to accept these measures as anything other than a sop to distract us away from the real prize of proper, lasting and equitable local taxation reform for all on the high street.

Piecemeal

Until we do have that, I can only see more piecemeal concessions being bolted on to a system already creaking under it’s own inefficiencies.  We still need a mechanism that’s responsive to local business conditions.  One that can be influenced for good and bad by local council policies and can be applied equally across all types and sizes of business.

My personal preference is for a system of local purchase tax, similar to what we see in many US stores.  But I know I’m in a minority in favouring that.  Indeed the very idea was discounted early on in discussions over reform last year.

Much as I support small retailers, I also believe that all sizes of business should pay into the local economy through such taxation.  But a system that took proper account of trading patterns, would mean that smaller businesses would pay an amount appropriate and, above all affordable, in their particular circumstances.

My personal preference is for a system of local purchase tax, similar to what we see in many US stores.

I’m happy for those businesses that will benefit from these changes, and I hope that they will stimulate local economies and help small independent retailers weather the continuing storm on our high streets.  But I remain concerned that these measures are not going to divert us from the goal of seeking a root and branch reform of a rotten system that should have been retired many years ago.

If anything I think the measures announced in the budget suggest that rates reform is going to be kicked into the long grass for at least the term of the current parliament.  If that’s the case I guess all we can expect in the immediate future are a few more rabbits emerging from that undergrowth, making a leap for the Chancellor’s top hat.

Are Small Retailers Becoming an Endangered Species?

The illegal killing of Cecil the lion has generated many column inches about the protection of endangered species. In an admittedly tangential intellectual leap, I’ve been wondering if we should be adding another dying breed to the danger list – that of the independent retailer.

It seems that just like many animal populations in the wild, retailers who colonise once abandoned areas and make them fruitful again, tend to attract the unwanted attention of bigger game looking for an easy kill.

Currently the country’s richest landowner, the Duke of Westminster is planning to bulldoze a chunk of the Pimlico Road, regardless of the fact that he’ll be rolling the heavy machinery over a raft of long established and successful independent stores.

Unfortunately for them, it’s not enough that the property is earning more than it’s keep and probably appreciating faster than Tracy Emin’s unwashed bed socks. The assets must be sweated, even though they’re already soaked in years of perspiration, squeezed from the brows of those who’s businesses trade from them.

Passport to Pimlico

The Pimlico Road has become a magnet for interior designers and anyone looking for something a little out of the ordinary. The antithesis of what chain stores provide, by their very nature. Yet buoyed, no doubt, by the increased footfall these niche stores have inspired, Grosvenor’s plans are reportedly to develop gargantuan retail units that they believe will be more attractive to larger international brands.

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Developers now fish in a gene pool that is becoming progressively more shallow, producing a retail mono-culture where they no longer understand or apparently care about the requirements for smaller operators, except as pop-ups of convenience or a bit of garnish to their main offer, usually in the form of RMUs.

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And this isn’t an isolated case. We’ve seen similar changes in character to destinations such as Burlington Arcade, Spitalfeilds and Covent Garden. In central London, galleries in Cork Street and Dover Street have been lost, and even bespoke menswear stores and tailor’s workshops that gave streets like Savile Row their iconic status around the world have been ground under the developer’s heel. While London may be the vanguard for these culls at the moment, it’s a strategy that’s starting to gain ground, literally, around the whole of the UK.

When I entered the high street over 20 years ago, I remember even the most hard nosed property managers being supportive of smaller operators. Not only did they appreciate your staying power, but they saw your business as providing that extra spark and diversity that kept their developments attractive to both consumers and prospective tenants.

Retail SSI

There now seems only to be a headlong pitch towards bigger, brasher and more expensive spaces with scant regard for anything a smaller retailer, let alone a start-up, could occupy. New malls for example now rarely offer spaces small or affordable enough for indies to even contemplate.

Developers now fish in a gene pool that is becoming progressively more shallow, producing a retail mono-culture where they no longer understand or apparently care about the requirements for smaller operators, except as pop-ups of convenience or a bit of garnish to their main offer, usually in the form of RMUs.

So where does that leave the small retailer of the future? If every time a secondary or tertiary location is popularised that’s taken as a cue to erase their existence, where will innovation and verve come from on the high street? Certainly not from the ‘me too’ generation of international brands, over-hyped and over here, rolling out virtually the same products and service models as every other chain store.

Perhaps in the same way that sites of special scientific interest are protected by government statute, we should have sites of special retail interest, where smaller businesses can be shielded from the worst excesses of re-development.And this isn’t just starry eyed idealism. Without space for new entrants into the retail landscape, where will our chain stores and national retailers of the future come from? We can’t expect every successful online business to have a yen for a more physical presence.

In the same way that vulnerable animals need to be protected from the sophisticated firepower of modern hunters, business innovation needs space to breed and expand, outside of what is rapidly becoming a very one sided fight.

Most conservationists will tell you that habitat erosion is one of the largest causes of extinction events. Maybe the world of retail property management also needs to learn that lesson before it’s too late.

This article was also published as one of my regular columns for Retail Week Magazine

Unrealistic Rents Are Risking The Future Of Our High Streets

The British Retail Consortium warned recently that a failure to deal with our broken business rates system could have a devastating impact on our economy.

In a stark prediction to the Chancellor, they estimated that up to 80,000 shops could fall empty over the next 2 years, putting 800,000 jobs at risk.

This is based on the assumption that 60% of stores facing lease renewals over the next 2 years may simply walk away from what has become an unsustainable commercial property model in the face of climbing rents and falling sales.

I’ve previously highlighted the perfect storm that is brewing up towards the end of 2015, with 40-50% of commercial leases falling due to for renewal.

The BRC’s predictions may be pessimistic, but there’s every reason to believe that a huge dent could be put in the retail economy very soon. This is especially worrying, considering consumer spending and the associated debt shift to private borrowing is what appears to underpin much of George Osborne’s plans for our economy over the next few years. Likewise many local authorities now rely more heavily on business rates as cuts in central government funding bite even deeper.

I’ve often been critical of the BRC. I see them as an organisation geared heavily towards protecting the big boys in the retail hierarchy, with only the odd glance back down the ladder towards small independents and medium sized chains. But on this occasion I’m in complete agreement with them, although for slightly different reasons.

Rates Burden

Business rates are of course a huge burden on high street operators and an issue that urgently needs to be addressed by the Chancellor – indeed it’s something I rarely tire of saying myself. But this has been the case for at least the last 10 years now.

However all this is largely irrelevant to the overall problem. The main reason why many store leases may lapse at the end of this year has less to do with rates and more to do with the ridiculously out of kilter valuations of the properties themselves.

It’s often conveniently forgotten that business rates are based on historic rent agreements. Many of them made by companies financed by the very same people who also bankroll mall developers and institutional landlords, both of whom have a vested interest in keeping rental expectations unrealistically high.

The driving force behind our inflated rating valuations are the equally avaricious demands by landlords who would rather see a store empty than see it’s theoretical value fall.

Bluff And Deception

Anyone who has had experience of lease renewals over the last 5 or 6 years will tell you that there’s very little sign of pragmatism from landlords or property advisers. Any hopes of the market being reset after the financial crash have long been abandoned.

This is partly down to the way that commercial property has become the vehicle of choice for the disconnected behemoths that are multi-national investment funds, but mainly because most such organisations are hip-deep in the same quagmire of over-leveraged debt that led to the spectacular economic swan dive we all witnessed a few short years ago.

There has long been a fragile framework of bluff and deception underlying the retail property market. More than any other commercial property transaction, store leases and rents are teetering on the edge of an abyss created by property advisers and fund managers who simply refuse to give any quarter to such mundanities as fiscal viability or long term tenant relationships.

The general principle seems to be that as long as they can keep the music playing, no one ever has to count the empty seats. The problem now of course is that a raft of impending lease expiries means there may soon be a lot more chairs and a lot less people willing to play the game.

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The driving force behind our inflated rating valuations are the equally avaricious demands by landlords who would rather see a store empty than see it’s theoretical value fall.

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There was nothing tangible in the recent budget about business rates reform, and that’s something that we must continue to demand from a government that has been consistently phlegmatic about, despite promises of action.  But that’s now only half the story. Without effective commercial rent and lease control, or some voluntary injection of common sense into the equation, these other costs will simply expand to fill the vacuum created by any reduction in the rates bill.

If we’re going to avoid thousands more empty stores and hundreds of thousand of lost jobs, we need a comprehensive review of the entire bricks and mortar proposition. In the meantime property taxation will only be a part of any retailers decision to stay or walk away.

Hope or Hype? – Why I Never Trust Economic Reports

Economic reports seem to be like buses. You wait for ages and then four turn up at once.  Last week they seemed to leave the depot together, all promising to take us somewhere nice for the summer.

Nielsen’s report on consumer confidence was the first to pull up to the kerb with figures that seem to back up those released last month by GFK. Both showed consumers looking at the high street with a more optimistic gaze, with Neilsen putting consumer confidence at a 9 year high as opposed to GFK’s more buoyant outlook of a 13 year peak.

Then came the CBI’s quarterly Distributive Trades Survey – a measure I’ve never been particularly impressed by – reporting expectations for June riding on a 27 year high, although in reality orders were only growing at their fastest pace since 2010.

Footfall monitoring company Springboard also announced footfall on the high street over the bank holiday weekend eclipsed that of shopping malls with an increase of 4.4% as opposed to an almost equal drop in retail parks and shopping centres.

Finally Asda’s income tracker proclaimed that us lucky Brits now have around £17 a week more in our eager mitts than we did this time last year.

Rosy View

If we’re to believe these statistics, high street store operators can at last cast the rose tinted spectacles from their reddened eyes and peer at the horizon with renewed hope. We now just have to for wait for those armies of revitalised shoppers to beat down our doors with fists so full of cash we’ll barely be able to fit it all into dusty till drawers previously inhabited only by moths and a few dog-eared copies of the last set of reports that promised us roughly the same thing a few months ago.

You might guess from my barely disguised flippancy that I don’t personally put a great deal of store by these reports. And you’d probably be right.

Nielsen’s epistle for example was carried out using a sample of respondents from online shoppers. A group who are already looking to buy (or why are they on the internet being asked about shopping?) so will naturally be pre-disposed to making a purchase.

The CBI’s survey is a constant source of bemusement to me, and many of my own suppliers that I have conversations with. They appear to have their heads in much loftier clouds than most of us, being twice removed from the actual consumer transaction. In my mind the impact on the high street of an estimate about probable orders is tenuous at best, and has been proved to be such on many previous occasions.

In terms of footfall I’d say that Springboard are one of the more accurate companies out there, but a broad headcount usually leaves me shrugging my shoulders, as such a number isn’t much use without the associated conversion data.

Wet Seaweed

Income trackers are the statistical equivalent of the wet seaweed barometer, based as they are on a set of constantly fluctuating, notional measures. And in the end is a figure like £17 a week really going to make that much difference to the behaviour of the average consumer? Not if other analyses are to be believed which suggest that people are more likely to remain in their current pre-programmed behavioural loop of saving more and spending less after being ingrained with fiscal paranoia for the past 7 years.

And to a large extent those people are right. There are so many factors in the shifting economic landscape right now that basing any predictions, let alone business decisions, on these sorts of analyses would be somewhat precarious.

This was neatly demonstrated on Friday when the comparison between Neilsen’s and GFK’s figures seemingly evaporated after GFK released new numbers showing consumer confidence fell to a 5 month low in May, ostensibly dented by uncertainty surrounding the General Election.  And as the pollsters showed us in that election, predicting outcomes based on what people tell you in surveys is a very tricky business.

Optimism Vs Realism

I’m all for a bit of optimism, but it seems like we rarely have realism in terms our business expectation these days. A few years ago I was bemoaning a similar level of ill-founded pessimism as being the harbinger of more doom and gloom than was healthy.  I’m equally sceptical about skeins of upbeat predictions.  Is a happy medium too much to ask for?

With rent and rates still at record levels and unrealistically low interest rates just waiting to be let off the leash, I think a healthy sprinkling of caution needs to be infused into any ideas that we’re about to see a renaissance in high street retail.

I could be wrong. In fact I hope I am, but in the end the only reliable statistic for a business is that figure on the bottom of your profit and loss account.

Personally I’d prefer to see what’s in the emergency budget before I invest in any bunting. Or maybe wait for the next report to see what that has on board. And just like the Clapham omnibus, I’m sure there’ll be another one along any minute.

This article was also published online as one of my regular columns for Retail Week Magazine

 

Selling Democracy by the Pound

Some of my more regular readers will have noticed my absence from the these pages over the past coupe of months as I took some time out from retail cogitation to try my hand at politics.

My nomination came at a transitional point in my career as my company had just closed it’s last high street store after making the decision back in 2013 that we would move our business into other channels. I’m also looking at more ethical areas of retail so again the Green Party seemed a good fit.

I had actually intended to take a few months off to relax before launching a new business, and really accepted the candidacy as a paper exercise. But as with so many things I become involved in, I couldn’t just go through the motions.

Many people found it odd that I should have stood for the Green Party in one of the safest Conservative seats in the country. Firstly because The Greens aren’t generally known as great lovers of business, and secondly because I had about as much chance of winning as I had of joining The Spice Girls on their next reunion tour.

But I didn’t go into the campaign expecting to win. I did it for the experience and to make a point. The point being that business can be a force for good in society. I’m currently exploring a concept that I, and a few others, have come to call social capitalism. It’s a movement I believe small and medium businesses should be an integral part of, and a party like the Greens, being so far untainted by the guiding fist of big corporates, seemed like a good place to start.

Familiar Ground

Political campaigning felt strangely familiar to me as a retailer. And really that should have been less of a surprise. An election is essentially a marketing exercise with yourself as the product. So it soon became obvious that many of the skills I’d learnt at the helm of a multi-channel retail business could be easily applied to the more esoteric ideals of politics.

This was an election that many people predicted would be won online, with social media playing a big part in the campaigning process. It certainly seemed that way to me as Facebook, Twitter and Email accounts became integral to my political routine using software that was obviously based on CRM systems that would be familiar to any customer service manager. And I did indeed find these channels to be an essential element to getting the message out there, just as I do in my retail business.

I also saw many other candidates fall foul of not paying enough attention to these avenues, as well as some that used them entirely inappropriately. Branding has also become an important aspect of any political party and The Green Party really seemed to get it’s act together on standardising the look of logos and marketing material, which was encouraging.

Hustings were no different in my mind to a simple sales pitch and I even found myself back standing behind a market stall, although this time my stock in trade was leaflets, manifestos and my own personality, such as it is.

Too Big Data

The other familiar aspect to all this though was that frequently cited phenomenon – Big Data. This is a buzzphrase I’ve never been entirely comfortable with. To me it should really be called ‘Too Big Data’.

I’ve always been suspicious of the idea that the more analysis you do, the more data you have, the more accurate your forecasts will be. This is self evidently not the case. And the plethora of polls, super-polls and polls of polls during the election on served to underline this point by being so spectacularly wrong. Not a single published poll correctly predicted the correct result. Although there are reports that some pollsters did have results that reflected the actual outcome, but they were so far adrift from others that they were nervous of publishing them.

As many retailers will attest, analyses are all very well, but ultimately there’s nothing remotely predictable about the great British public, as voters or consumers. In that context I suppose it was a stroke of genius on behalf of the Conservatives to employ a former market analyst as their campaign manager. One who arguably used these inaccurate polls in a feat of misdirection worthy of any accomplished prestidigitator.

Or maybe it just goes to prove that it’s not how much data you have, it’s how you choose to interpret it that counts.

Money Back Guarantee!

So there you have it. My brief political career dashed on the rocks of our rather arcane electoral system and a bit of good old fashioned market manipulation.

With so many unexpected parallels with the worlds of marketing and retail, it has left me wondering even more about what really constitutes democracy.

If we’re increasingly going to be sold ideology and aspiration like packets of soap powder, maybe there should be the same sorts of checks and balances as there are in the world of consumer protection.

Perhaps if politicians were made to operate under the same stringent regulations that retailers have to abide by every day, we may see a few less un-kept promises and bit more attention paid to customer satisfaction.

In which case will we be entitled to a full refund if yet another government fails to perform as advertised?

Oxford Finally Flips The Switch On The On/Off Shopping Centre

Oxford is an ancient city.  Even by medieval standards things move slowly here.  So after what seems like centuries of wrangling, planning applications, withdrawn projects, hand shaking and head banging, Oxford is finally set to join other cities with a giant shiny shopping centre nobody really needs any more.

Having experienced the damage that these behemoths can do to small local retailers, myself included, this is a moment I and many others have dreaded.

The council of course has applied a heavy spin on the whole project, whilst ushering the developers and large multi-nationals into the city with wide-eyed certainty that a new shopping centre will solve all the problems we now have.

We know at least one of those problems – that of affordable housing in the city centre – won’t even be dented by this grandiose project.  In a move that is frankly baffling from a socialist led council, planners have dashed all hopes that the accommodation element designed into the revamped centre would be for social housing or affordable homes.  Whilst Green councillors opposed this move, others apparently felt that poorer people won’t be able to keep the new apartments up to the standards they expect to be demanded.

So no comfortable inner-city pied-à-terres for the ordinary folk of Oxford then.  Which is a shame considering Oxford City Council provided virtually nothing for that sector last year, despite claims that this was a priority policy.

Jobs are not the only thing to consider

Judging by the analyses carried out over the past 10 years it looks highly likely that the new Westgate extension in Oxford will have a significant impact on other retail destinations both in the immediate vicinity and county wide.

The council has claimed that 3400 jobs will be created by the opening of the new centre, which seems like a rather optimistic number to me.  Even if one accepts that figure, previous analyses have suggested that the number of jobs created will be far outweighed by those that will be destroyed elsewhere in the city and the surrounding areas.

It’s very easy to focus just on the number of jobs created, but when similar centres have opened there have been many casualties in other areas. This doesn’t even take into account the damage that’s likely to be done to trade during the building and infrastructure works and the impact of additional competition for small retailers that attracting large multi-nationals into the area will provide.

Until the council addresses the systemic issues with people visiting the city, such as parking, local transport and city centre management, a revamped shopping centre isn’t going to add that much prosperity to a town encircled by much better alternatives.  There’s also some question over likely losses to the council in terms of business rates which could run in to hundreds of thousands.

The new shopping centre will likely have some novelty value for a few months, but once the realities of trading in Oxford begin to bite, I doubt it’ll be anything more than another usual-suspect clone-town brand zoo.

Years of disruption

According to a recent article in the Oxford Mail, a scrutinising committee of city centre councillors are due to meet to discuss ways of keeping businesses alive during the hugely disruptive infrastructure works needed for the new extension.

So Oxford City Council wait until AFTER the works have begun to think about how to mitigate the problems that will inevitably be caused by the works?

Another great example of the forethought and careful planning we’ve come to expect from our wonderful city council!

I was at a meeting with both the city and county council leaders over a year ago where I highlighted the potential damage that will be done by the infrastructure works required for the Westgate extension. Having already experienced the same in Bristol a few years before, it was clear to me and many others that the likely upheaval required for the Westgate works were going to do more damage than they were likely to be worth in the current climate.

Seems like it all fell on deaf ears. As usual.

Empty shops

My business in Cornmarket Street closed it’s doors for the last time after 20 years last year. Despite numerous pronouncements in the press that the city council was eager to support local businesses, we got zip-all support, even after asking on several occasions.  Indeed, at one point their planning department were very close to scuppering the only deal we could achieve to sell the store. Had they not done a last minute U-turn there would have been one more empty and un-lettable shop in the city centre.

In an era where many retail chains are looking to reduce their portfolios, the time for this centre has been and gone.   At the end of this year, 40% of retail leases nationwide will come to an end, sparking speculation that many large and medium chains won’t renew them.  The costs of retail space in many towns, Oxford included, is now at odds with likely returns on investment.  A new mall plonked into the middle of that scenario risks hoovering up any viable city retailer, leaving the existing shopping areas a wasteland as companies let leases lapse and move on.

There’s already plenty of retail space in Oxford city centre, some of it lying vacant even now.  Not least the huge former HMV store, empty for most of last year in what should be a prime location on Cornmarket.  The new Westgate development will seriously shift the focus of the town away from the existing shopping areas with the main anchor store, John Lewis, being located well away from the current main shopping destinations.  Again this is a very similar scenario to Bristol’s Cabot Circus development, which saw most of the legacy retail locations abandoned en masse by any store that could afford the move.

Councillors are also now apparently worried about the growing number of empty shops in the city, despite previous claims that there were queues of businesses eager to take space.  Perhaps news has started to filter out that retailing in Oxford is not what it once was.

In that context one has to wonder who is going to populate the new cathedral of consumption when it is finally completed, and for those that do take up residence, what kind of trading environment will they find?  With one of the worst December trading periods on record just behind us and radical changes in consumer habits continuing apace, it really does beg the question about how much space will be required when the Westgate centre is completed in 2017.  Moreover what will the rest of the city look like once all the remaining viable stores have de-camped into the waiting warmth of a lovely new mall?

With council plans to push up the cost of parking YET AGAIN and the negative impact of roadworks, and the city centre looking like a building site, it’s likely most consumers will continue to go elsewhere to shop, surrounded as we are by much more attractive and easily reached locations around the city and the county.  And once again, experience tells me that once people find better alternatives, they’re unlikely to return, other than for a quick nose around the new development.

A committee composed of councillors with absolutely no idea how businesses in Oxford operate, setting out to ‘examine’ how to deal with these issues now, is tantamount to closing the door after the horse has bolted, lived out it’s natural life and ended up in a dog food tin.  This project as has been in the planning stages for so many years it’s truly staggering that the implications are only being discussed now.

Oxford is of course known as the city of ‘dreaming spires’.  It seems that in terms of strategic planning, many of our councillors have also been asleep on the job.

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