The Government has kicked off yet an investigation into the retail sector - its second in two years.
The Parliamentary Select Committee inquiry into the retail sector is separate from the much vaunted, and much criticised, Portas Review. But we believe this one will not just be PR puff for the Government but will prove far more important.
We’ve said elsewhere here, and more than once, that online retailers big and small could easily find themselves in the firing line this time.
Much of the rhetoric has already focused on the high street’s burden of business tax and that online retailers pay very little by comparison. The British Retail Consortium, a lobby group that represents all the major retailers and also lots of smaller retail trade organisations, has moved in swiftly to try to direct the tone of debate - ie that all retailers should pay less tax.
But the situation is complex and will ultimately affect everyone in myriad ways - not least because town centre shops are often owned by local authorities or landlords that are also pension funds. A drop in rents can therefore have unforeseen circumstances if either of those are over-reliant on retail property as a source of income.
But from a purely retail perspective we believe the Select Committee will help focus the issues. In our opinion the debate should focus on four areas.
But, as we see it, the main issues are as follows.
1. Trying to manage the inevitable decline of the worst hit shops and high street from recession and structural change brought on by the internet;
2. Re-energising Britain’s town centres with a credible plan as to what they might become (and we don’t agree that leisure and services are key - housing must play a significant part);
3. Thirdly, resisting the urge, in a bid to punish Amazon and Google for their (quite lawful it must be emphasised) tax planning, to hamstring online retailers with a ‘warehouse’ tax;
4. And, finally, giving resources to develop Britain’s entrepreneurial online skills base with real Government support funding to create tech-savvy professionals that will allow Britain to develop a truly exportable service industry.
We have here a link to the first Business Select Committee hearing on the subject which was published about a week ago.
Some of the specific issues around local policy (free parking is a key issue in encouraging shoppers to pop in to town) and local authority practices (for example, the British Council of Shopping Centres argues towns should have a single town-centre manager) probably won’t seem that relevant to online retailers.
But it all feeds in to what some see as a direct battle between the High Street and online. Most sensible people will of course remember that high street decline began with the advent of the hypermarket (Tesco Extra anyone?) and the unfettered march of out-of-town shopping parks - long before anyone was taking the internet seriously as a way to shop.
But we believe this second investigation will result in actual change - unlike the first one (we suspect the final copy of the Portas Review is still gathering dust somewhere in Westminster).
In essence, Select Committees tend to be more charge with the possibility of change than departmental reviews - which is what the Portas Review effectively was. One way or another, directly or indirectly, any action will have a knock-on effect for the online retail community large and small. We suspect the effect will very much be direct.
In the first hearing the Committee cross examined the British Retail Consortium (BRC), the Association of Convenience Stores (ACS), the British Council of Shopping Centres (BCSC) and the Distressed Retail Property Taskforce.
Scrutiny of the impact of online retailing:
MPs focused in fairly rapidly on the issue of online retailing, what effect it is having on the high street, how the high street could benefit from the advent of electronic retailing and, something we’ll talk about further down, the issue of tax and business rates.
Not all of it negative - how high street retailers can harness the power of the internet, for example, or the potential of ecommerce to create jobs. The BRC said it believes the situation may not be a cut-and-dry as it seems.
'There are two schools of thought in the answer to your question. One is that a more digital retail economy will involve fewer people, but the other argument is one that says, actually, in a more digital retail economy, the need to differentiate on customer service, for example, and those IT skills we were talking about earlier are absolutely key. That will require the continued need for very significant numbers of individual jobs,' says the BRC's director general Helen Dickinson.
Actually, we think we know the answer: convenience stores. The convenience sector is in growth and that is because supermarkets are opening more stores. Clearly we cannot substantiate this theory without further information. But Tesco now has more than 3,000 stores and most of those are very small stores than are often more heavily manned per square foot than a larger store. Even adding Woolies, HMV, Comet, Blockbuster and another dozen chains that have gone bust in the past year wouldn't get you to 3,000 shops.
Funny how all roads seem to keep leading back the to the same thing. Not the arrival of online shopping but supermarkets.... All online has done is expose the cracks in a much weakened high street subjected to 20 years or more of structural change.
On the bug bear of business rates:
It's worth noting that the off-line retail sector has been pressing for a change in business rates ever since we can remember. But only now have they had cannon from which to really fire their argument. However, the BRC - who would argue represent the entire retail industry - are slightly conflicted. They represent B&Q (Ian Cheshire, B&Q chief executive is the BRC chairman), Tesco, Marks & Spencer - all the big retailers.
They all have a huge vested interest in big retail, but also out-of-town retailing - ie not high street retailing. Most of them want to cash in online, so don’t want drastic action to curb growth.
Whereas the Post Office lobby, notably the National Federation of Subpostmasters, which represents the majority of 11,800 Post Office outlets, wants a curb on big retailers and a reduction of business rate taxes on essential high street ‘services’ to zero. They also want a levy placed on large retailers to subsidise redevelopment of the High Street. Not something Tesco and the BRC would argue for.
So, the survival of the High Street and the needs of the retail sector are clearly at odds - and even in direct conflict from some perspectives.
But, one thing is clear. Those that didn't capitalise on the online boom to its fullest extent, would like a broadening of the tax system. The burden, they say, should fall on the online boom industry, rather than the poor old, struggling retail system.
Mark Williams, chairman at the Distressed Retail Property Taskforce, told the Committee: 'From our perspective, the biggest issue that members face, both on the retail side and the owner-investor side, is around the business rates system. In a changing retail climate, where more and more sales are online, it does not feel right that property tax at that level is increasing by inflation every year. I think something fundamental has to be done with the rates system.'
That voice is being echoed across the retail sector.
The inescapable conclusion that there is too much retail space:
Let’s bear in mind that even the optimists think that online retail sales will at least double in the next seven years. Shops are, whether we try to delay the inevitable or not, on the way out - at least as far as their current space commitments and running costs are concerned - and online is on its way in.
However, we don’t believe that this is the end of the shop. Quite the opposite. High streets - as in the area in town centres devoted to shops, must shrink and the area at either end must be offered up as housing. Give responsible local authorities the power to de-classify high streets.
As Mark Williams of the Distressed Retail Property Taskforce argued to MPs: 'The fundamental issue is we have too much retail space [in Britain], so how do we make vibrant town centres? There was a discussion about long parades of secondary retail. How do we shrink them and put relevant uses back in? It will require local authorities to decide what they want to do for their local area and then, probably, use compulsory purchase powers in order to assemble land to then allow that remodeling to take place, which the private sector is very supportive of.'
If it were that simple, the high street might have a chance. I’m sure everyone reading this could redesign their local high street but ask your local authority, your local butcher, publicans, residents etc etc for their opinions, and each project would take years. Meanwhile, the online juggernaut continues to roll on ever faster...
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