Retailers face pressures on many fronts and with the rise in inflation rates they will only increase.
The publication of the latest ONS Retail Price Inflation (RPI) figure revealed that inflation in September stood at just under four per cent. This would have meant that September’s RPI rate would have been used to determine the uplift in business rates next April.
However, Chancellor Philip Hammond in his Autumn Budget brought forward the plans to switch RPI to CPI (Consumer Price Index) by two years to April 2018.
The Treasury says this move will save British companies £2.3bn over the next five years.
This follows this April’s business rates revaluation which saw a massive hike in bills for some retailers.
There have been calls from some retail organisations for a freeze on business rates.
However, Leigh Sparks, Deputy Principal (Internationalisation and Graduate Studies) and Professor of Retail Studies at the University of Stirling has a different approach.
Get rid of them completely – but he believes that the issue of business rates can’t just be taken in isolation regarding the pressure that retailers are under.
So what can retailers do about the problems they face?
Professor Sparks said: “Business rates are clearly an issue, as is rental - depending on where they are.
Retailers can sometimes negotiate with landlords and get some of that cut down.
“But, basically costs are under great pressure in terms of the land costs, the supply costs, inflation, all products and sourcing. Brexit is going to throw a huge spanner into those works, as well, because no-one knows where that is going.
“You’ve also got increase in the national living wage and then the minimum wage and all of that feeds in. It’s just not the base rate but it is the extra things that go on top of that as well.
“So retailers are looking at everything they do. One of the things they can do is look at labour costs - so it’s scheduling, it’s volume, it’s about full-time/part-time. If you are an independent business it’s often about an owner spending even more time in the business and that causes a problem, obviously. It is one of the costs they can manipulate but, of course, the more you cut labour the more you run some other costs risks - whether it’s shrinkage, so that’s a technology solution, or whether it’s through lack of customer service – so it is a difficult balancing act.”
So what do retailers need to help them through these difficult times, Professor Sparks has one solution:
He said: “What do they need – they need the rates system completely abolished. It’s an analogue system in a digital world and we need to understand what internet retailers are doing and bring them into the fold.
“We need to move away from that really tight version on property which is almost always an upwards increase, make the system far less complicated – if you want to promote small businesses and small retailers.
“We have a small business bonus scheme in Scotland, for example, which takes most of the small retailers out of it, but you have to apply. So, I would always argue, why are we building a system where you are forcing someone to do something when you really want an outcome, why not get rid of that part of the system and change it.”
And what about the future, is there a ray of light for our hard-pressed retailers?
Professor Sparks added: “All the signals I see are very much that, as a sector as a whole, it is going to continue to be go under enormous pressure. Does that mean it’s all going to be doom and gloom – no. There will be places that will work – London and the south-east is doing far better than much of the rest of the country. And that bubble doesn’t often see some of the real damage in some of towns in other locations.
“But there will be winners in all sorts of different places and there will be losers in all sorts of places. The big thing is, it looks as if we have bottomed out in terms of interest rates, if the cost structures aren’t sorted out and the government doesn’t do something around the cost structures, particularly with rates, but the whole cumulative affect of all the things that retailers now have to do – then I think retailers will increasingly react, Some of them will just disappear, some of them will put more technology where they can afford it into the business.
“So it will change the nature of retailing in that way. All the signals are that the drive is more to digital and online and that seems to be the preferred solution but there is a problem there for places and the social equity around places. Do I see that changing in the next five years – no. I see some of the trends accelerating but the cloud, and the unknown, is what sort of Brexit deal does happen. What does it mean for the pound? What does it mean in terms of, therefore, inflation? How does that feed in to interest rates? All of this – it’s those macro factors that are hanging over the sector. One of the problems is does that mean retailers won’t invest because they have no real certainty about the future.
“There will be some who will take a punt on it and go one way and be really well off at the end of it, there will be others who do the same thing and it may go badly wrong – its turbulent times.”