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'Crunch time' for business rates, say retailers

UK retailers have told Drapers that business rates are becoming an increasing burden on their store portfolio decisions, and called on the government to act to support investment and save the high street.

“It really is beyond belief that we still have to bang the drum on this issue with the apocalypse on the UK high street,” Chris Wootton, CFO of Frasers Group, told Drapers. “Politicians need to do something now. Not next month, not next year: right now. It is surely obvious with all the boarded-up shops making town centres look like war zones that something is wrong. 

“Ignoring the truth staring them in the face is not acceptable and, if it continues, there won’t be a high street, at all.”

Frasers Group CEO Mike Ashley said a failure to reform could lead to the closure of loss-making House of Fraser stores “within months” when announcing the group’s half-year results in December

It will stop us opening stores that otherwise we would have opened

Julian Dunkerton, Superdry

Other high street players have now revealed to Drapers that business rates are directly impacting their store portfolios, and investment decisions. 

“This is crunch time,” said Superdry co-founder and CEO Julian Dunkerton. “It will stop us opening stores that otherwise we would have opened. We would be expanding space if the rates bills were more sensible.

“This is the key factor in decisions that will be made up and down the country every day and there’s no point just giving relief to a few small businesses. [The current system] is completely out of step and the [government] needs to act now, otherwise they’re going to be looking at bankrupt landlords.

“If the chancellor needs to balance his books, he needs to so do through other commercial properties and some kind of [tax] on internet sales.” 

Nick Vance, chief operating officer of accesories brand Radley, voiced similar concerns: “When we’re taking any new locations, we’re tending now to jump to the rates line before we look at the rents and service charges. At times, business rates prevent us from renewing leases or taking a new location because it’s just too prohibitive and completely out of touch with how rents are rebasing.

“It will be another thing that slows down the recovery of the high street. Now, if you’re trying to create positive operating cashflow to afford to reinvent yourself at a bricks-and-mortar level, you can find yourself in a catch-22 because there is not enough profit to be able to go to the shareholders and say, ‘This is worthy of a meaningful refit to create that interest that we need on the high street’.”

It’s absolutely crunch time for the government to make this a priority. They aren’t being receptive at all

Tony Brown, Beales

For department store Beales, which collapsed into administration in January, business rates “played a large final role in the closure of all its 23 stores”, CEO Tony Brown told Drapers. 

“Over the last two years, Beales has paid £1.3m more in business rates that we should have done. Over those years, that’s half of [Beales’] losses.” said Brown, who noted that while landlords were flexible on rents, councils were immovable on rates. “Every council we spoke to said they couldn’t help, quoting state aid rules as the reason.” The government defines state aid as “any advantage granted by public authorities through state resources on a selective basis” that could affect competion in the European Union.

“We’ve run models on the new rents and half business rates, and the model works,” added Brown. “[Beales] is predominantly in market towns and, as those stores disappear, those towns will start to dry up because the main player won’t be there any more [to attract footfall].”

“It’s absolutely crunch time for the government to make this a priority. They aren’t being receptive at all.”

The Conservative party pledged to reduce the burden of business rates as part of review of the tax in its first Budget, to be held on March 11. Ahead of this, the British Retail Consortium penned a letter to the chancellor, signed by more than 50 high street retailers, calling for transitional relief reform. The letter urged the government to take the steps towards fixing transitional relief as part of a fundamental business rates reform. 

New Look CEO Nigel Oddy told Drapers: ”As one of a number of signatories of the BRC’s recent letter to the chancellor, we are urging the government to make changes to the business rates system.

”The current system is simply not fit for purpose in the tough trading environment that retailers are operating in, and fundamental reform is needed. Ahead of the budget, and as a first step towards fundamental reform, we support the BRC’s call to scrap downwards phasing of transitional relief so that businesses immediately pay their ‘true’ rate liability.”

A Treasury spokesperson said: “We are committed to levelling up the country and want to see thriving high streets in every region. 

“That’s why we’ve committed to a fundamental review of business rates and are halving rates for small shops at the Budget. Since 2016 we’ve cut business rates across the board, with reforms that will reduce their cost by £13bn over the next five years.”

Readers' comments (2)

  • Theres only one way to solve the issue in my opinion.... make business rates variable based on time..... thus rates are based on opening and closing times.... online pure play working 24/7 pay rates for 24/7.

    Physical store opens for a 12 hour day it pays a 12 hour day biz rate charge, omni channel retailers can pay the store and online separately.

    This way the rates can still be based on the property valuations but stores only pay for the time they are open and working.

    Online retailers could be metered by visitor levels that take into account reduce activity between say 9pm and 7am...

    I think it would be fair and really easy to set the system up... we have water meters ..why not biz rate meters.

    All in my opinion.

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  • darren hoggett

    This is a rather one sided article, as it fails to offer the counter point held by some that no government should prop up a dying industry. It throws blame, rather than looking closer to home for the deeper causes.

    Do rates need reform? Almost certainly.
    Are they going to make a significant difference to retail? Probably not.

    Physical retail will not 'recover', let's be clear about that. The absolute best one can hope for is that things ‘level off’, but that is in hope, more than expectation. Shopping habits that have changed faster than some retailers could cope with or understand. Coupled with business models that have been a decade of more out of date in some cases, retail doesn’t deserve much sympathy, as those businesses have simply not been run properly.

    Using Business Rates as an excuse in this instance is cheap and disingenuous.

    While there is still money to be had in bricks and mortar, especially the ones that make a real effort with the shopping experience and understand the needs of their customer - I can think of Norwich's Jarrold's as good example of this - it is quite clear which way the wind is blowing. It is convenience first, second and third for an increasing band of people and that does involves not making the effort to go to a store. More the pity.

    Business Rates are an issue and we see an array of articles on this subject, in this publication and others. However, they must not be used to distract from the collective failure of retail as a whole and how it has been managed in the last decade. If that is not understood, it will not survive.

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