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.”