By Mark Richards.
In his Budget speech, last week Chancellor Philip Hammond set out his strategy to save the UK high street. Will it work? Or is it too little, too late? Or has Philip Hammond simply got his strategy completely wrong?
Chancellor of the Exchequer Philip Hammond delivered his Budget speech last week, describing it as a Budget for ‘Strivers, grafters and carers.’ He might equally well have made it, ‘Strivers, grafters, carers and shopkeepers’ as he tried to redress the balance between the internet shopping giants and the bricks and mortar retailers.
He not only outlined the Digital Services Tax which the UK will introduce in April 2020 (assuming no international agreement is reached first), he also announced a big reduction in business rates.
What was the reduction?
The reduction in business rates was part of what the Chancellor described as a “£1.5bn boost for small businesses,” with £900m being allocated for business rate relief for up to 500,000 small businesses. In addition, there is a pot of some £600m (some reports said £675m) to rejuvenate high streets up and down the country.
The business rate relief will apply to businesses which have a rateable value of £51,000 or less. Eligible businesses will see their business rates cut by a third and, in widely-trailed examples, a pub in Sheffield with a rateable value of £37,750 will save £6,178 in business rates next year: newsagents in Birmingham with a rateable value of £14,250 will save £1,749.
Will it work?
Am I alone in thinking that the Chancellor may have misjudged this? Clearly, shops like Boots, Debenhams, M&S and WH Smith are under huge pressure at the moment: but they have larger premises and will not benefit from these changes. If shops like these disappear from our high streets – and currently M&S and Debenhams seem to be competing for who can offer the more dire warnings about closures – then the small shops have little chance of survival, irrespective of their business rates.
In the US, Sears, once the mainstay of the American shopping mall, has filed for bankruptcy. Sears was once the biggest retailer in the US, having built its reputation on a ‘customer satisfaction or your money back’ promise – which has worrying echoes of the John Lewis, ‘never knowingly undersold’ price promise.
But in simple terms, it had too much debt and not enough customers – and now plans to close 142 stores across the US.
In the UK there was – yet another – triple whammy for the high street last week as Mothercare announced hundreds of redundancies, Next revealed a slowdown in the third quarter of the year and retail butchery chain Crawshaw’s collapsed into administration.
Why don’t we love department stores any more?
Every high street used to have a department store – a shop where you could buy anything you wanted to buy for your home or for yourself. They were the focal point of the local high street and as shopping malls developed in the UK, they became the ‘anchor tenants.’ Attract Debenhams or John Lewis or M&S (or Sears in the US) to your development, and the smaller shops would follow.
But we have fallen out of love with department stores. Why is that? An article on the BBC website earlier this year detailed the reasons: the shops have failed to innovate, they are too middle-of-the-road and not fashion conscious and they are hard to navigate. Then, rather than address the problems, they have seen discounting and more discounting as the answer to everything.
Most of us would agree with those sentiments. Even I, possibly the least fashion-conscious man in the country, think that my local M&S only sells clothes for people who are at least 20 years older than me. And hard to navigate? Yes. What is your first thought when you walk into a department store? ‘Where the hell is it?’
Amazon, on the other hand, is remarkably easy to navigate. I also know what Amazon does: it sells just about everything you want and it delivers the next day. But ask the question, what does Debenhams do? Or what is the purpose of WH Smith, and you are completely stumped. (Well, I am. No doubt the marketing department of WHS could help me out…)
Never mind: Christmas is coming
Never mind, the department stores – and by extension the high street – used to say. Christmas is coming. The Christmas shopping bonanza will put everything right. (That is the origin of the term ‘Black Friday:’ traditionally it was the day in November when the stores had paid all their costs for the year and moved into profit.)
But this year, rather than Christmas being the saviour for our department stores it could sound the death-knell. Last year, for example, stock market traders bet heavily against Debenhams in the run-up to Christmas: at the end of September last year, the company’s share price stood at 50p. By January 2018 it was down to 30p and this morning it is 8.66p.
There is one certainty and one certainty only about Christmas trading. Receptions at every office in the country will be grinding to a halt under the weight of Amazon deliveries. Every one of those deliveries represents a trip not made to the high street.
The National Living Wage
For me, the Chancellor’s action has come too late – especially when you consider that what he gave with one hand, he may (from the shops’ point of view) have taken away with the other. One thing our shops need is staff, and those staff need to be paid. In the Budget the National Living Wage went up (from next April) from £7.83 per hour to £8.21 – an increase of nearly 5%. It is not hard to see the pub in Sheffield and the newsagents in Birmingham having a large slice of their rate reductions wiped out by the increase in the NLW.
Those pesky millennials…
Finally, I come back to a point I have made previously. My children shop online: they do not shop on the high street. They do not even think about shopping on the high street. We are frequently told that millennials will make up 75% of the workforce by the middle of the next decade – which has huge implications for employment and employers. But they will also make up the vast majority of the shoppers. And all the evidence suggests that they will not be going anywhere near the high street.
This may be a very bleak mid-winter for our high street: Christmas may just give us an eerie glimpse into the future, as the tumbleweed mixes with the tinsel…