The retail sector has frequently been in the news in recent years due to store closures concerning some of Britain’s biggest high street brands. Thankfully, the government has provided notable concessions for bricks-and-mortar businesses to help reverse this decline, although short-term problems still remain.
The 2018 Budget saw Chancellor Philip Hammond pledge around £1.5 billion to help rejuvenate the UK’s high streets. This includes £900 million of business rate relief for small businesses, one of the primary reasons behind store closures. Further details on all the announcements can be found in our Budget 2018 summary.
The efforts to support traditional retail across the UK were widely welcomed, although some feel that the support offered is not enough to reverse the decline. The Chancellor recognised this, and delivered a strong message to the sector:
“The High Street lies at the heart of many communities. And it is under pressure as never before as Britain adopts online shopping with greater alacrity than any other large economy. So, if Britain’s High Streets are to remain at the centre of our community life, they will need to adapt.”
£675 million pounds was set aside by The Treasury to create a ‘Future High Streets Fund’, an initiative designed to support communities who are ready to modernise their shopping locations. However, many larger firms feel neglected by these benefits aimed at assisting small businesses.
The high street is a complex ecosystem that is deep in a period of change, instigated by the economic crash of 2008 and the subsequent boom of internet shopping. As traditional retail takes its next big step, we take a look at where the opportunities will lie in the sector going forward:
The Positives
Ultimately, the measures that have been outlined in the latest budget are positive for bricks-and-mortar retail. While on the face of it there are no tangible benefits to major retail chains, the aid supplied to small independents should help to generate more footfall in areas that were previously lacking. This improved traffic combined with a re-energised audience will create increased sales opportunities for major brands which ultimately attract the majority of consumer interest.
Another notable reform was the relaxing of town planning rules. Previously seen to be stalling the redevelopment of high streets that can sometimes date back hundreds of years. The easing of planning rules will make it much easier for retail spaces to be turned into residential housing. This could create unique prospects for established retail businesses as residential apartments become physical parts of a diverse shopping location, building a community of frequent consumers that would otherwise have to travel from afar.
The Challenges
The government admitted themselves that there is no easy fix to the transformation of consumer buying habits. According to reports, 1,000 stores closed on Britain’s 500 largest high streets during the first half of 2018, at a rate of 14 a day. Many of these are in the fashion sector, where major businesses such as Debenhams and John Lewis have faced significant difficulties. In March this year, Next chief executive Simon Wolfson said that the company was in the toughest period he had experienced, citing the potential termination of 240 shop leases over the next three years if they couldn’t agree cheaper rent deals.
The major complaint of the retail sector regarding Philip Hammond’s budget concerned business rates for the largest companies. With no support outlined for national and international brands, these vital components of the high street will continue to face similar problems regarding leasing. While the regeneration of Britain’s high streets may offer long-term hope for these businesses, it doesn’t solve the immediate issues. It is crucial that these businesses are evaluating what ways they can reduce retail operating costs in the short and long term, which will help them in avoiding the pitfalls outlined by many previous store closures. At ERA, we have years of experience working with national retail chains, helping to reduce costs in areas such as logistics, packaging and banking & payments thanks to the knowledge of our specialist teams.
Not only will major businesses struggle to see the immediate benefits of reduced business rates for small independents but there could also be future ramifications due to the relaxing of property regulations. With a new potential for retail spaces to be turned into high-demand residential housing, there could be long-term increases in the rates that businesses are expected to pay as more opportunities become available to property owners.
There is even an argument to suggest that the business rate relief, while seemingly notable, will be impacting so few businesses that very little impact will be felt across the retail spectrum. As Keith Cooney, head of rating at Knight Frank property agents, explains, “The chancellor has only offered relief to small retailers who have a rateable value of £51,000 or less. Around 60% of retailers in that band will fall below the exemption threshold of £10,000, meaning they do not pay business rates anyway. As such, the chancellor’s gesture will support the few rather than the many.”
“This is set against an overall increase in business rates of £680m from April next year. Given the market and economic uncertainty, there is a strong argument that the chancellor should have grasped the nettle and frozen the tax at the current level.”
The Opportunities
For proactive businesses, the outlined changes to the future landscape of the high street present new and exciting opportunities to improve business efficiency. Whilst online shopping is becoming increasingly important to retail, evidence shows that bricks-and-mortar stores still play a significant role in the buying landscape. After Amazon and eBay, the leading online retailers in the UK all have physical stores, whilst GlobalData confirmed in April that out of the top 10 retail firms in the UK, only Amazon (5th) did not have a national high street presence.
The reality is that whilst companies strike a balance between traditional and online sales, retailers also need to examine their expenditure to make sure they are in a position to take advantage of a future upturn in high street performance. At ERA, we pride ourselves on the ability to save major retailers money in non-core spending areas that are easily neglected in reviews. Our specialist teams have countless years of experience working with some of the biggest names in UK retail, saving millions of pounds in areas such as fleet, packaging, utilities and many more. If you are currently looking at improving your procurement processes, why not contact our team today and see how much money your business could save?