Recent retailers’ results – such as M & S (announcing like for like sales 1.4% down for last 13 weeks of 2017, with food sales down 0.4% and clothes down 2.8%) emphasise the continues pressure upon UK retailers.
According to calculations by Colliers, fixed costs, like business rate bills at M & S will be another issue the retailer will need to contend with. Business rates liabilities at M& S are now based on a Rateable value of over £570 million and rate bills are set to continue upwards over the next five years. Because the Government allowed a seven-year gap between the last Revaluation in 2010 and this year’s Revaluation in 2017 (normally the gap is 5 years), retailers saw some massive increases on particular stores, which they are needing to now finance, particularly those with stores in city centres. For example, M&S stores in Hampstead, Westfield and More London saw business rate rises of 170%, 133% and 111 % respectively.
Whilst coping with rises in these stores, the situation has been made worse by the fact that those stores in locations in the UK, which should have actually seen relief from the 2017 Rating Revaluation are not yet seeing the impact. This is due to the Government’s policy of phasing in reductions, whereby it takes five years of “transition” until businesses in England are allowed to pay their business rate bills at the new revalued levels. As a result, many retailers with stores which should have benefited from the 2017 Revaluation are still paying much more than expected.
In M&S’s case, stores in Shrewsbury, Altrincham and Stockport which should have seen reductions in their rates liability of 52%, 47.7% and 46.5% actually only saw their rate bills drop by 3.5%, 3.4% and 3.3%.
John Webber, Head of Rating, Colliers International, said, “The government decision to delay the business rates revaluation to 2017 and to introduce the policy of transition is certainly impacting on UK retailers, either by giving massive rises in some areas and little relief in others. By delaying businesses rates reaching their true levels, retailers with stores in the less attractive areas have been forced to pay for the better ones for far too long.”
And, adds Webber, “Marks & Spencer is by no means alone.” Colliers has analysed the business rates liabilities of other major retailers with stores around the country – such as House of Fraser and Debenhams and the same pattern is arising. Debenham’s total Rateable Value is now £150 million following the 2017 Revaluation. Some stores also saw RV rises of over 50% or 100% (Westfield +133% and Oxford street +57%) whereas those such as Newbury who should have seen a reduction of 20% are actually only seeing a tiny reduction in their rate bills – 1% in 2017/8 and -3% in 2018/9 due to downward phasing.
As such businesses struggle against the competition from the internet providers such as Amazon, who do not pay such rates on their stores and cope with uncertainty over Brexit, wavering consumer confidence and the rise in the NLW for staff, it is no wonder they are feeling vulnerable.”
“Retail pain has not stopped and is on the increase. Whilst a 1.4% drop in sales might not seem enormous, it does equate to a serious issue when fixed costs, such as business rates remain the same and are rising. ”
Colliers is still campaigning for genuine business rates reform including more frequent valuations and the need to offer more support to the Valuation Office Agency (VOA) so it can deal with the estimated 200,000 outstanding business rates appeals in the system.
Colliers Manifesto for Business Rates Reform:
1. More frequent revaluations, three-yearly, at least, by 2022;
2. Increase funding for VOA in order to deal with existing appeals’ backlog;
3. Release VOA from pressure exerted by local councils and HM Treasury;
4. Introduce a register of appeals professionals – removing the ‘cowboy’ element;
5. Root and branch reform of current business rates exemptions and reliefs.