A nation of shopkeepers – but for how much longer?

200
Damian Webb, restructuring advisory partner at RSM

Uplifts in the National Living Wage combined with the effects of new business rates from 1 April could spring a nasty surprise for many retailers and restaurants in London and the South East, RSM has warned.

The Institute of Directors has called for further rate relief for businesses based in properties worth up to £100,000, in addition to a special commission to tackle tax anomalies between high street shops and the online giants.

Commenting on the challenges which lie ahead for the high street, Damian Webb, a restructuring advisory partner at RSM said:

‘Many higher value, labour intensive retail and leisure operators will see an exponential increase in their fixed cost base from 1 April 2017. High street businesses in London and the South East are likely to be particularly badly hit as two of their key costs – business rates and salaries – look set to rise. Coming at a time when exchange rate pressure is raising prices and squeezing consumer budgets, some retailers could be in for a very tough time indeed.

‘Napoleon contemptuously referred to England as a “nation of shopkeepers” but the high street makes a vital contribution to the UK economy and to local communities. Since the recession of the late noughties there has been a renaissance in the high street, driven by the emergence of smaller independent retailers and the growth of leisure operators.

‘However, trading on the high street is becoming much more difficult.  Success is being driven by the innovation and diligence of operators rather than any improvement in the structural issues which have undermined the sector since the emergence of online trading.

‘Due to the depreciation of sterling, retailers will see a gradual increase in their stock-buying costs during 2017. Against a competitive backdrop it is difficult to see how far these costs can be passed on fully to consumers, which will likely lead to a decline in margins.

‘Supportive funders, landlords and government initiatives should help soften the blow, but in some cases it may be necessary for retailers to consider other options such as financial and operational restructuring tools which focus on aligning costs with current trading and performance.

‘Many retailers are resilient and innovative and will take the necessary steps. But importantly, those who are struggling shouldn’t bury their heads in the sand. Tackling the issue head-on is a much more effective way of ensuring long term sustainability.’