Here’s how we save the high street
It wasn’t the sentiment you might expect from a retailer with over 1,000 outlets in the UK, but Sir John Timpson was probably right when he claimed UK high streets have “twice as many shops as needed”. Around 14 shops are closing every day, but Sir John’s response is pragmatic and upbeat. Survival lies in “communities and creating a hub for entertainment, medical facilities, housing,” his 2018 High Street Report said.
Traditional retailers today face myriad challenges. Commercial rents are burdensome, the living wage has pushed up staff costs and the Brexit mess is skewing consumer confidence. Indeed, while the growing might of the internet has been undeniably detrimental to UK high streets, government policy is at fault for many of retail’s woes. It must remove barriers that hinder the success of bricks-and-mortar retailers while taking on board Sir John’s words: “I have learnt, from my own business, that the best way to get things done is to give people on the front line the freedom to get on with the job in the way they know best.”
We have long called for government to reform the business rates regime. The solution lies not in cutting rates, but in reassessing rateable values upon the underlying land value of a commercial site rather than on the value of the property itself. Because the incidence of business rates falls on landlords, the biggest winners from a cut in business rates will be the biggest landowners — the Duke of Westminster, the Queen — and not high street shops or their customers.
By focusing on property, rather than land value, the current system creates perverse incentives by penalising shopkeepers looking to drum up custom by investing in productivity-enhancing improvements — for instance, by installing a nail bar in a clothes store. Companies — whether they sell to consumers or businesses — are finding that the next competitive battleground lies in staging experiences.
There is a tendency among some groups to manipulate business rates data to pressure government into “levelling the playing field” by introducing a digital sales tax. The New West End Company, quoted in the Guardian, calculated that M&S, “a company with a turnover of £9.6bn [in 2017], paid £184m in business rates, whereas Amazon, with slightly smaller revenues in the UK of £7.3bn, paid substantially less in rates — just £14m. A 1 per cent sales tax on online businesses could raise more than £5bn, which could go some way to levelling the retail playing field.”
But even Sir Charlie Mayfield, chairman of John Lewis, is opposed to a policy that would penalise internet companies for having managed to carve out a more efficient business model, and many traditional retailers have built online propositions: we don’t want to penalise the shops that are adapting. The savings made by companies like Amazon through a lack of physical presence translate into gains for the consumer in the form of lower prices and, often, added convenience. In a competitive economy business models become leaner over time. While weakening online retailers may make our high streets stronger in the short-term, it comes at the expense of the consumer, productivity and future innovation.
It’s not all doom and gloom for British town centres. Despite alarming headlines, online sales make up just 17 per cent of total retail sales in the UK. We have vacant shops and a housing crisis: the two issues can be the answer to each other’s problems. The introduction of “Permitted Development Rights,” which allow a change of use from office space to residential was good policy. But a number of councils — among them Islington and Westminster — have sought and obtained exemptions. Others are trying to follow suit. PDRs should be defended and preferably expanded, with exemptions removed.
We should take comfort that there will always be a market (albeit a shrinking one) for buying things in shops. A recent Centre for Cities study found that while some high streets face shop closures, others are “thriving with shoppers, eaters and drinkers”.
Online and physical shouldn’t be an either/or proposition. Instead, retailers should look to innovative technologies and online shopping to increase sales. The role of physical stores may increasingly be that of a “shop window”. John Lewis has partnered with an app so staff can take part in social media marketing. And some retailers are experimenting with AR “smart mirrors” to let customers change the colour of their clothes virtually.
Meanwhile, online giants are moving into physical retailing: Apple has shops across the world showcasing its products, Amazon has acquired Whole Foods and Google is setting up retail outlets. Claims we are on the cusp of our own retail apocalypse are overblown — for many retailers the hurdles are not insurmountable. In short: we are a long way from an online-only future.
