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.lf-WeatherRock

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 ideBus_Twitas 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

 

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Let’s Not Plan Any Retail Street Parties Just Yet

bunting_2242499bFor many retail and economic pundits the term ‘anal-yst’ seems very apt.  So many of them seem to talk out of their backsides that it’s rare for me to find one that I agree with in broad terms.

Jon Copestake is one such individual, and I frequently find myself in agreement with the majority of his comments in Retail Week Magazine.  His comments today – Despite optimism, a UK retail recovery remains fragile – are no exception.

Along with many others, he’s quoted the LDC and Springboard figures that show a very tiny improvement in high street vacancy rates as part of the general consensus of optimism that seems to be building.  There were equally modest positive increments in retail sales figures which, whilst being better than expected, are still in the order of 1%.

Last week we saw breathless reports that the nebulous and somewhat metaphysical indicator known as ‘consumer confidence’ had finally recovered from the negative position it had been in for 10 years.  We were presumably expected to rejoice that this number had now reached a big fat zero, all of us clapping with one hand whilst frantically grasping handfuls of straws with the other.

Having spent a small portion of my academic career designing questionnaires, I’ve never been convinced by such a slippery concept.  Quite what real use a number based on asking a select sample of people if they’re likely to spend a few quid in the coming weeks is supposed to be eludes me.  I think it’s more something that retailers and investors cling on to as a comforter, intended to give the impression that we know the unknowable – the inside of a consumer’s head.

It’s hard to ignore the conclusion that the effort we all put it to predicting doom and gloom around the time of the collapse ultimately led to a self fulfilling conclusion.  But now we seem equally eager to ‘big up’ minuscule vacancy level movements in the order of 0.5% or a 0.4% – which in statistical significance terms are pretty much static – as evidence that good times are just around the corner.

The overall assessment from many retail analysts is that we’ll never see a return to the heady days of the early noughties.   ONS figures suggest that even though wage growth has edged ahead of inflation, most households are still around 10 years behind in real terms spending power.

Even if wages do rise in real terms there are just too many other ways for people to spend money now, assuming the average person ever really gets back to a point where they’ll feel they have the cash to splash around.  Factor in an ever imminent increase in mortgage rates, along with another housing price boom and the whole scenario starts to take on the familiar twists of the path that led us to disaster last time.

There are so many artificial factors driving the so-called recovery I think it’s far too early to be planning the next major roll-outs.  Low interest rates, the property bubble being inflated by government help to buy schemes, changes in weather patterns, even mis-sold PPI payouts are all shifting winds blowing across the sands of the retail landscape.  And we all know where building on sand gets us.

Whatever the numbers are based on there seems to be a mounting roar of expectation that the bunting will be out for a great big retail street party any day now.  Something of a turnaround from the interminable reports of the exact opposite a couple of years ago.  Personally I’m far from convinced that what we’re feeling are the positive winds of change and more worried that the rush of air could just be the prelude to another almighty slap right in our over-eager little faces.

Talking Shop

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Monday saw the first meeting of the The Future High Streets Forum.  Yet another talking shop put together by the government to talk about…shops.  This of course comes hot on the heels of the Portas review which pretty much identified all the problems and then set about trying to convince us that they could be dealt with by the judicious application of some showbiz fairy dust.

Of course when I say ‘hot on the heels’ I’m using an approved government timescale.  We’re now something like 18 months on since the Queen of Strops published her initial findings, and just over a year since the first audition tapes for her Pilot bandwagon were submitted and considered by an X-Factor panel comprised of herself and a certain Mr Green (AKA Grant Shapps).  Judging by the glacial speed of most government initiatives that’s probably Olympic standard.

After Shapp’s promotion to apologist-in-chief for the coalition, Mark Prisk was handed the delicately poisoned chalice of Minister for the High Street, a position created shortly after the Portas review was published in an attempt to show just how seriously the government regarded it.

Even though at first glance Prisk seemed like a much more able candidate for the position, his apparent lack of understanding about the problems we face seems to have eclipsed even his predecessors total ineptitude for effective policy making.  This has only been matched by his hitherto monumental lack of action, which may be why he’s letting a whole heap of ideas flood out now, like a backed up colon after a dodgy curry.

According to Mr Prisk, discussions at the first forum meeting focussed on speeding up the mentoring initiatives supposedly established during the set up of the Portas Pilots.  He also wants to offer Town Teams workshops, secondments and mentoring from over 30 organisations, including the British Council of Shopping Centres, the ACS and the British Parking Association to provide advice on aspects such as retail and tourism, the night time economy, public space design and age-accessibility.

So a veritable smorgasbord of limited options topped off  with a selection from the sweet trolley of the bleedin’ obvious!

Bedtime stories

As always this new improved super-forum is taking the approach that all the problems the high street faces are of it’s own making.  They start from the premise that none of us have the first idea why we ended up in this mess.  We’re all such terribly naive and inept businesspeople that we need a big brother or sister to hold our hands, read us a bedtime story and tell us where the monsters are hiding.  Apparently, reduced consumer demand and a failing economy can all be swept away with a few tired ideas, such as market days and pop-up shops.  Greedy intransigent landlords, hocked up to the eyeballs, and councils and governments ignoring economic imperitives can be dealt with by creating  a new logo and installing some extra street furniture.

That’s not to say that the people on the panel aren’t qualified to offer effective advice.  Far from it.  In fact I’ve got a lot of respect for most of them, even if they do seem to be predominately rooted in the property industry.  It’s just that there’s really nothing new to bring to the table now.  Most of the problems now being faced were identified and listed chapter and verse in the Portas review and most people, me included, agreed that the key areas for concern were in there.  If those in power chose to sideline the important issues with circus tricks and razzle-dazzle why should we think it’ll be any different this time around?

At the launch of the Portas Pilots both Mary and Grant Shapps were fond of saying how they’d accepted “nearly all” of the the points in her report.  Carefully  and disingenuously avoiding mention of the 3 main areas they ignored – high rents, high rates and high parking charges.  Without dealing with those points, the kinds of suggested improvements that are frequently trotted out by various experts are far removed from the key issues that have undermined the viability of the high street.  Superficial changes and local initiatives are all very well, but they’re cherries on the cake.  The problem is we don’t have much cake left after local and national government have finished taking their slices.

Why the government is so reluctant to take positive action on things like business rates really is beyond me now.  They seem to do nothing but thrash about looking for any option other than the most expedient solutions open to them as the people in charge.  The argument seems to be that they can’t be seen to be directly supporting private enterprise with public money.  Yet in the same breath they happily justify shovelling skip loads of cash in the direction of bankers who’ll just as blithely trouser huge wedges of the stuff in the guise of bonuses or just stack it up in the corner and gaze lovingly at it.  Not only is that direct support for one of the most unpopular and bloated sectors of private industry, it’s the very same sector that brought most of us to the door of ruin just a few years ago.  Yet we’re all supposed to be in dread of bankers moving their cash skimming operations to foreign climes, whereas Vince Cable seems to be pretty keen to see retailers head overseas as soon as humanly possible.

Do the math(s)!

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Business rates are, along with rents, the two most corrosive factors eating away at the heart of the high street today.  In a few days the second of two massive hikes in business rates will kick in, leaving the retail economy shouldering the burden of over half a billion pounds worth of additional taxes imposed over the past two years in this single tax alone.  Yet Mark Prisk seems not to have noticed.

In a statement about the new forum he said “Over the last year this Government has worked hard to help boost the high street, including initiatives to simplify planning, revamp the public realm, cut the business rate burden and revive local markets”.

Now I don’t know if he’d normally describe an increase of £525M as a ‘cut’ but if so I think perhaps he needs to buy a new abacus or at the very least have a word with a professional about providing appropriate medication.  Self delusion is one thing, but trying to drag the rest of us into his fantasy world is probably a step too far, even for a government minister.

Although to be fair, this isn’t the first time this bit of spin has been thrown out there.  Whilst watching the Andrew Marr show a year or so ago I almost pebbledashed my TV with fruity granola after hearing  Call-Me-Dave Cameron announce to all the world that his government were “tackling business rates”.  Again a definition of ‘tackling’ that I don’t think would have got him very far on the rugby fields of Eton.

Peddling this kind of PR piffle serves to demonstrate just how little the government really wants to tackle the core structural issues that are undermining every high street retailer today.  In the past 2 years they talked a lot and walked very little.  To put this into sharper context we need to realise that the sum total of all the cash handouts given to towns under the various soundbite schemes dreamt up by Shapps and Prisk amounts to little more than 8% of the increases in business rates imposed since they were announced.  If there really was a will to fix the high street we all know what would be the first demonstration of intent – a freeze in business rates in the last budget.  That hasn’t happened so just like last time we’re expected to be satisfied with the sop of yet another inquiry.

And timing is everything.  The deadline for last years Portas Pilot audition video submissions was coincidentally the day before £350M worth of extra rates bills had to be paid by retailers.  This year we have a new talking shop that meets less than a week after the chancellor smacked us in the mouth with a further £175M hike and expected us to to smile about it through broken teeth.

Lies, damned lies and politics

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We all know that no amount of pop-up talking shops and secondments are going to solve these structural issues.  Those in government know it too, and every time we swallow another piece of bullshit pseudo policy we’re letting them get away with the subterfuge.  There’s no substitute for proper action from a motivated and principled  government.  That’s something we need NOW, not in another year, not after yet another report or another raft of hair-brained ineffectual political stunts.

It’s going to take a lot more than just talk to get these problems solved.   Sadly though, it seems talk is still all we’re going to get.

Freefall retail?

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

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

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

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

Killer catalogues

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

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

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

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

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

Property Bonanza

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

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

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

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

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

The only way is up

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

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

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

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

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

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