Return of business rates will bring carnage to high street
If ministers make the right choices, this crisis could be the catalyst for a wave of new retail entrepreneurs
One of the most important measures that has helped retailers survive the impact of Covid-19 has been the suspension of business rates. It has enabled us to get through a period when all our stores were forced to close, and the subsequent period when footfall has been subdued and will inevitably continue to be so.
As it stands though, business rates will return to normal next year. Even worse, the Government has announced that the next rates revaluation will be delayed from 2021 to 2023. What this means is that when rates come back, they’ll still be based on shop rents from 2015, which bear no relation to today’s much reduced levels. The situation could be compounded if Tuesday’s report in
The Daily Telegraph that the Government is considering a higher business rate for larger shops becomes a reality.
I believe this will be a disaster for the UK’s high streets. This isn’t just an issue for retailers – healthy town centres are essential for the wellbeing of our communities. Everyone can see what is happening today with stores closing all over the country, and if the Government doesn’t take action now, it will be too late.
I’m not the first chief executive of a big retailer to highlight the threat the current business rates system poses to bricks and mortar retail. In a post-Covid world that risk is multiplied. But what has not been highlighted is the damage it will do to the next generation of retail entrepreneurs. I have some experience in this regard. Superdry may be a global brand today but I spent the first 15 years of my career as an independent retailer.
Independent retail could play a really important role in the economic recovery after Covid, with people who have been made redundant becoming the next generation of retail entrepreneurs, filling gaps left on the high street as tired brands either move online only or close altogether. But that won’t happen without reform of business rates.
Of course it’s right that retailers pay their share towards local services, and no one’s arguing with that. But there is a huge imbalance between what physical retailers pay and the minimal rates paid by the online giants on their warehouses. That might have made sense in 2015 when retail rents were at their peak and warehouses hadn’t become the epicentres of online retail they are today. But it doesn’t make sense any more.
There needs to be a levelling of the playing field between stores and online, which as well as reform of rates should also include a tax on online turnover to ensure the pure-play e-commerce giants are paying their share.
The irony is that, to their credit, many landlords are accepting the new reality, adjusting rents downwards and agreeing to new models like turnover rents. But they too are victims of the business rates system. They are seeing the value of some stores reduced to nothing, or even becoming negative, as the rates alone make occupying them prohibitive for any retailer, and then fall to the landlord.
It doesn’t have to be like this. When I travel to our international stores, I see them surrounded by flourishing independent retailers. That’s because unlike the UK, countries like Italy and
France have a sensible system of taxation on retail property that encourages entrepreneurs.
I am still a believer in the future of stores. My view is that if you create attractive destinations filled with great products, then customers will come. I’m pleased that we are seeing early evidence of this at Superdry as the lockdown gradually lifts.
But there’s no getting away from the reality that retail is changing. Online is where the growth is and for brands like ours, a compelling online proposition is as important a shop window as our flagship stores. All retailers have seen dramatic e-commerce growth during lockdown and the reality is that not all those sales are going back to stores.
If rates return next year at their previous level, it will unleash a whole new wave of carnage on the high street. All retailers will need to look again at their store estates, and those stores that are marginal will not reopen. For those independent retail entrepreneurs with one or two stores, the return of rates could represent a killer blow. Not just to their stores, but also to the high streets where they create the vibrant and diverse retail scene our struggling towns and cities so desperately need.
The reality is that for the high street to be sustainable, rates need to be half where they were before the pandemic, which would reflect what has happened to high street rents. The Government can’t keep putting it off – we need action on rates now.
We are at a crossroads, and the future of our town centres and high streets is in the Government’s hands. I desperately hope it makes the right decision. If it does, this crisis could be the catalyst for a wave of new retail entrepreneurs who would breathe life back into our high streets. If it fails to act, our high streets face a future of decay and depression, which will be impossible to reverse.
‘The reality is that for the high street to be sustainable, rates need to be half where they were before the pandemic’
Small shop: for independent retailers, the return of rates could be a killer blow