Starbucks - Quarterbridge

‘Market Matters’ – August 2018

Consider the UK’s High Streets. Hard on the heels of House of Fraser’s announcement of dozens of closures and the rumours about Debenhams you could almost forget how long they’ve been a bad news story. It was back in 2012 the penny finally dropped they were in trouble and it couldn’t be blamed on the 2008 banking collapse or the previous Labour government. Grant Shapps MP, the keen young DCLG Housing and Local Government minister launched the ‘Portas pilot towns’ competition backed by David Cameron and Mary Portas banging on about Markets as the saviour of High Streets. But what happened then? Not much. The money and policy initiatives fizzled out as attention shifted to Brexit and Cameron and Shapps disappeared faster than a Blockbuster store.

The traditional heart of a town survives despite the oversupply of ‘Bricks ‘n Mortar’ retail and Landlords bleeding to death on empty rates.

And yet somehow the High Street still staggers along. The traditional heart of a town survives despite the oversupply of ‘Bricks ‘n Mortar’ retail and Landlords bleeding to death on empty rates. Here are a few Losers, Movers and Bruisers we’ve seen over the last few years….

The Losers:

Woolworths: Founded in 1909, 830 UK stores in 1995 then administration in 2008. What happened?

Our Price: Crashed out of Vinyl, DVD’s and Cassettes in 2004 thanks to online streaming. At about the same time Radio Rentals (remember them?) finally threw in the towel, followed by Blockbuster Video in 2013.

British Home Stores: Closed it’s 160 stores in 2016 amidst allegations that owner Philip Green starved it and the staff pension fund of investment. Well over half the former BHS stores still remain empty today.

Poundland: Owned by South African retail giant Steinhoff with 700 stores, many being former Woolworths units. Currently involved in a major accounting scandal – rather like Tesco 18 months ago.

New Look, Carpetright, Monsoon and Mothercare: planned closures announced.

The Movers:

Marks & Spencer: 280 stores in 1997 and now over 1,000 – shifted from fashions and clothing to luxury foods at edge of town locations.

Argos: 380 stores in 1996, now some 850 mainly at edge of town and retail park locations. Bought by Sainsbury and central to the Asda merger because of their excellent distribution network.

Currys/PC World/Carphone Warehouse: Merged then downsized and bailed out of the High Street to retail parks where they’re doing OK. Mind you Carphone Warehouse on the High Street is having a rough time with 100 closures expected.

Boots Chemists: More than doubled their town centre outlets from 1,000 in 1995 to 2,500 today by adding another 1,500 edge of towners.

The Bruisers:

Charity shops: over 11,000 in the UK at the last count. Welcomed with open arms by High Street Landlords desperate to avoid empty rates liability.

Coffee shops: Costa now have 2,200 stores across the UK. Don’t mention Starbucks, Vat and Corporation tax in the same sentence.

BooHoo: Doing very nicely online thank you amongst 16-30 year-olds thanks to no business rates and ‘Bricks ‘n Mortar’ overheads. A fine example of how to target a specific consumer group and their lifestyle.

Mergers, consolidation, moving online and relocating to the edge of town is THE pattern

What this shows is just how little sentiment there is amongst the big boys. Mergers, consolidation, moving online and relocating to the edge of town is THE pattern. According to the Centre for Retail Research the number of online retail sales as a proportion of total retail sales has risen from 2.5% in 2004 to 22% in 2018. That is a simply staggering growth rate and any retailer who ignores the trend is dead in the water.

So who will replace multiples on the High Street?

So who will replace multiples on the High Street? The Centre for Retail Research says don’t despair – it will become a social centre. It will shift from commerce to leisure with more space given over to restaurants, ‘artisan’ foodstores, health & beauty and ‘lifestyle’ outlets. Less errr…’glamorous’ locations such as Mudford-on-Sea will have to make do with Charity shops, bookmakers and vape stores. ‘Lifestyle’ retailers such as Joules and Ted Baker are doing well, but only in top 100 towns. Future casualties will to be shoes, household goods, furniture, textiles and music/games. Those offers are increasingly replaced with Amazon collection boxes.

E-commerce is like one of those creepy robot lawnmowers

The CRR also highlighted the rise in ‘Showroom’ and ‘Concept’ stores. These are sparsely-staffed display units which allow Customers a hands-on experience but retain the cost advantage of selling online. E-commerce is like one of those creepy robot lawnmowers – it works for you 24/7 whatever the weather and if you’re a home producer selling on Ebay or Etsy gives you a physical showcase for your products.

Dyson have just launched an Oxford Street demonstration store where you can test drive their vacuum cleaners and hairdryers, helped by charming young men who can’t do enough for their lady customers – or for the men either come to think of it. Note the cunning combination of hairstylist and vacuum cleaner salesperson. Wow.

You can’t underestimate how activity stimulates confidence

To attract leisure-users and investment High Streets need to differentiate– offer something which makes them more attractive than the High Street in the next town. The easy fix is to spend zillions on repaving and relighting but to my mind it is better to spend it encouraging small businesses. More rent and rates caps, pop-up shops in empty units, Town Council and landlord partnerships, events and Markets. You can’t underestimate how activity stimulates confidence. There are some towns where an energetic and innovative B.I.D or Town Centre Partnership is really making a difference.

Don’t feel you need to spend zillions on retail demand surveys

And finally, if you are a B.I.D. don’t feel you need to spend zillions on retail demand surveys. Henry Ford, the mastermind behind mass-produced automobiles was once asked what he thought about Customer research. He replied: “If I’d asked the public what they wanted they’d have said faster horses….’

Keep looking on the bright side of life…

The Chancellor’s Autumn statement was small-business friendly in a modest sort of way. There’s no need to dwell on the revised forecasts for UK economic growth or government spending cuts – we all knew they were coming – but the good news is the extension of the Small Business Rates Relief scheme. Extending this for another 12 months until April 2014 is doubly-welcome at a time when HM Treasury and the District Valuer insist on individual business rates assessments for Market hall stalls, despite it being of dubious legality.

Business premises with a rateable value (RV) of £6,000 or less (i.e. most stalls in a Market hall) will now continue to enjoy complete exemption from business rates, i.e. 100% relief. Those with RV’s between £6,000 and £12,000 will continue to enjoy between 50% and no relief according to where they sit on a sliding scale. If you haven’t done so already then now is the time to contact your Council rating department to find out what your RV is and if you can apply for small business rates relief. The RV records and an application form can usually be found on your Council website.

But before you do so, get out your tape measure and check the floor area of your stall. This is used to calculate the RV and it’s surprisingly common for the assumed area to be anything up to 20% out. That can mean the difference between half-rates payable and none payable at all. If you find your stall is smaller than records suggest then you can appeal against the assessment. If you find it’s bigger than they think then it’s usually best to stay shtumm.

The Chancellor shelved the increase in fuel duty planned for January which is good news for your delivery costs.

Now might also be a good time to replace some capital equipment. The Chancellor increased the annual investment allowance for small businesses from £25,000 to £250,000. Talk to your accountant as this may allow you to claim tax relief on plant and machinery and be a good time to treat yourself to that replacement van, display counter or computer with all those Christmas takings. You can then set-off the capital cost off against your tax bill. And finally, the Chancellor shelved the increase in fuel duty planned for January which is good news for your delivery costs. Overall then, not a bad budget statement for small businesses – just try to avoid looking at the UK economic growth forecasts.

Starbucks paid only a paltry £8.5 million in corporation tax on £3 billion of sales over 14 years.

On an equally cheerful note the tax affairs of Starbucks, Amazon and Google continue to entertain. What with the Chancellor’s tough statements on the economy and reaction to news that Starbucks paid only a paltry £8.5 million in corporation tax on £3 billion of sales over 14 years, their MD Kris Engskov tried to avoid a PR train crash.’We’ve listened to our customers and we know we are not perfect’ he announced before closing down the Customer Comments section of their website and volunteering to make an additional payment of £10 million.

Tax experts described the offer of £10m as ‘commercially gob-smacking’

It’s just as well he did close the feedback section because at this point the wheels fell off his wagon. Tax experts described the offer of £10m as ‘commercially gob-smacking’ and politicians waded-in to protest at his treating the UK tax system as ‘a complete joke’. Several Starbucks shops were occupied by members of UK Uncut – a grassroots direct action network well-known for targeting corporate tax avoiders.

Activist Sarah Greene said: ‘It is an outrage the government continues to let multinationals dodge millions in tax while cutting vital services like refuges, creches and rape crisis centres. Women – in families, homes, communities and jobs – bear the brunt of austerity. They could easily bring in billions by clamping down on tax avoidance’. She and her sisters then demonstrated how several Starbucks shops could be converted into a childrens creche or refuge for the homeless. Mr Engskov now says he is in discussion with HM Revenue and Customs to rearrange their corporate tax position. Very sensible, Kris.

Online sales are great for sales and profits but equally good at holding you to account.

All of which goes to show how the internet works both ways. Online sales are great for sales and profits but equally good at holding you to account. Step out of line and social media such as Twitter quickly create mass movements that kick back against tax dodgers, interest rate fixers and phone hackers.

There is no suggestion that Starbucks have, technically-speaking, broken any UK tax laws but they did build their business around being a good corporate citizen – ethical purchasing from third world coffee producers etc. The Company is an easy target for protestors because of it’s High Street shops so a threatened boycott and a few occupations was a real spur to offering the Treasury a cheque.

Now that Starbucks is being fixed is the mighty Amazon next in line? One way to achieve that is to use the German tactic of occupying Luxembourg. But in the UK there are no Amazon shops on the High Street so that means no picket lines and protest occupations. Should the public resort to boycotting Amazon online sales and if they do so will they be shooting themselves in the foot? Many independent retailers have come to rely on the Amazon sales platform for a large proportion of their turnover and they still need public support. If you want to be nasty then be selectively nasty – use the ‘Seller information’ tab on the Amazon website to select an independent instead of Amazon.

And don’t forget to tell them why in the Customer feedback section. They’ve not closed that yet.