Thursday, 23 September 2010

Business Rates

It is not the first time that I have commented upon business rates but it is worth mentioning them again because the BRC have issued a warning about the impact of rises. I believe that the BRC members are well capable of withstanding some rises but that is not the issue with Business Rates, or Non-domestic rates as they are more correctly known. The issue is the manner in which they are assessed and the apparently spasmodic manner in which the revaluations are applied. There is also a serious associated issue about appeals; the sad fact is that it is not the average BRC member who is most at risk with this arcane and discredited system it is the smaller business (SME) - and I believe that I can demonstrate that fact.

In a paper that was published in July 2009 (Hallsworth A and Orchard J, 2009, Retail regeneration in Southampton: seeking the bigger picture, Journal of Place Management and Development, Vol 2 Issue 2, pages 140-153, Emerald Publishing) , John Orchard's work in reviewing the entire functional city centre of Southampton demonstrated that SME businesses are most at risk of higher relative valuations and are less likely to appeal. He demonstrated that the valuations are not correlated to position within the town or of any other factor that might be regarded seriously as relevant to such a valuation. In more recent work in Barnsley he has identified that the highest rateable value rises for the current 2010 list were applied to SMEs in a street which is demonstrably not a thoroughfare that would ordinarily attract an increase in excess of 70%. This apparent unfairness is not justified but when challenged various authoritative sources have rejoined that there is a discount for small businesses!

Well, they are right of course, there is a small business discount. The question then is "Is that the logic of government that you provide a hefty discount and that justifies a even more hefty rate hike?"

The problem lies with the arcane system of basing a tax upon a notional rental value. There is a correlation between the paper value of properties owned by landlords and the rental returns that they expect of them - true it is in some degree mitigated by market forces, but when the main drivers for decades are the landlords with 'upward only' rent review clauses then it is not difficult to see that market forces are being manipulated against the interest of just one side in the contract. I have listened to the arguments from landlords saying that if retailers had only one price rise in five years they'd be wanting upward only clauses, but that, put simply, is hogwash. If retailers charge other than a market rate then their customers simply go elsewhere - if a retailer who is entailed in a ten year lease, or longer, then they are not in a position to just change landlords, but they'd have to pay higher rents irrespective of the condition of the trading environment - and they would have a higher rates valuation because the rents are higher.

Many smaller businesses, wishing to ensure the survival of their businesses for a long time (and as a retirement fund) purchase the freehold of their businesses - in these cases the 'tone' of the area is applied, meaning that the landlords of other shops, who are not retailers themselves, will effectively force a decision of a rateable value on the landlord who does happen also to be a retailer. If this new government really wants to show that it is in support of small businesses then it will radically overhaul the business rates system and provide a taxation system based on matters that businesses feel that they have some control over.

Tuesday, 24 August 2010

Local Enterprise Partnerships

During this past week there has been a vast amount of comment being made about the forthcoming launch of Local Enterprise Partnerships (LEP) which the Government has announced will replace the Regional Development Agencies (RDA) during 2012. The RDAs have had a chequered history as have other agencies that are being scrapped by the new Government in its bid to cut the expenditure plans from what they perceive as unnecessary gatekeepers for public funding.

This blog is not going to make a comment on the rights and wrongs of the scrapping of the RDAs since I am ambivalent about them - they have been costly and overly bureaucratic, and at times in my own dealings with them have actually totally lost sight of the funds and the end-uses; but they have also been able to act strategically across a region which has sometimes been immensely beneficial.

In the time beyond RDAs we will have LEPs; these we are told will be made up of councillors and of business leaders, led by the Council Leaders and they will have a geographic coverage to suit local needs but will be based largely on the major cities of England (Scotland, Wales and Northern Ireland having devolved administrations will thus be able to think and act in a regionally strategic way, but not so England). They will, we are told, be able to cover natural economic areas. I have to report that I am deeply unhappy about these airy fairy definitions and have, elsewhere, predicted that in all likelihood the development of LEPs will pass through a number of stages before it is realised that they will not deliver effectively to many places and eventually they will go the way of the RDAs, but with less dignity.

The first stage, which is where we are right at this moment, is the horse-trading stage. Following an invitation from Government, local authorities up and down the land are pausing to consider the best approach to the problem - if any. They are considering the problem of critical mass, to address the strategic planning issues; they are considering bids merely on a lone borough basis to offset the potential loss of influence if the more dominant neighbour in a city region becomes the dominant partner in the local LEP; they are even falling out with each other as they draw up newly imagined boundaries between 'natural economic areas'. Imagine, the Government believes that there is an actual definable concept as a 'Natural Economic Area' within the scales that the LEPs will be working. I wonder how those LEPs with multiple local authorities in membership will divide the council representation, and will the Leader of the Council that is dominant in the particular 'City Region' automatically be chairing the LEP? What when Eric Pickles vision of elected Mayors for all is a reality, will we have the likes of the Mayor of Barnsley battle it out for supremacy with the Mayor of Rotherham whilst both looking over their shoulder for the better equipped Mayor of Sheffield?

The second stage will be the introduction of the 'business leaders into the equation - I have yet to find an easily indentifiable 'business leader' who would, in my mind, be those who have made significant sums of money in their businesses or contributed significantly to the development of a tangible business idea or area, or have a proven track record in understanding the economy in their geographic area and the ability and erudition to champion the issues. My guess is that the 'usual suspects' in any area will be brought on board in the same game of jobs for the boys (or girls) but in a less prestigious location than the current RDA office facilities. How these people will be selected and how their performance measured is seriously unclear.

The third stage will be more horse-trading - where the pet schemes of the principal stakeholders of the LEP will be aired and haggled over to determine which of them will be most likely to gain the most value for that particular LEPs share of the £500 million pot. Naturally these decisions will be scrutinised but to what extent remains a mystery. Currently the monitoring is done by a range of organisations - too many in fact, but they include the Audit Commission (do you remember them, they were set up to monitor local authorities in the wake of the excesses of Liverpool City Council during those heady years of the Derek Hatton era - but they are being axed, so Derek could make his comeback on an LEP any time soon!); the RDAs own monitoring teams (but, of course they'll be gone); the Government Offices in the Regions have done some of this work (but, hang on, they're being scrapped too!); so it'll all be down to Whitehall then - that's Ok then, we know how they never get it wrong.

The fourth stage (which could start even before the third stage) will be the problems of the administration of the funds and the servicing of the LEP itself. It will not be funded for its own organisation, so the constituent local authorities will have to service them and provide the administration support. In a period of severe fiscal constraint in the town halls this must have an impact - something must suffer. I fully understand and acknowledge the statistical arguments about inefficiencies in local authority administration that have been much discussed in the press during the past few weeks - I am wondering how this will help in that regard. The councils are already giving notice that jobs will be made redundant, even before the autumn review that the Government is undertaking. So there is a double whammy - have fewer people and have them double up for the LEP.

Then the fifth stage - the bit where the work of the LEPs begins to be measured. This will be the bit where the publicly announced spending plans will become an actuality. Remember that the only PR people will be those employed in the reduced PR departments at the competing town halls - it will be interesting to see what happens, especially when the high profile projects fail to materialise - and that is not a cynical swipe against the proficiency of the embryonic LEPs but a pragmatic expectation that with complex projects things can go wrong, and statistically somewhere it is highly probable that a high profile project will fail.

The Government is taking away Quangos and replacing them with - well, Quangos on the cheap! It will be of immense interest to dispassionate spectators to see how the competing interests and aspirations between the local authority members of these bodies will compromise; it will will be similarly interesting to see how strategic regional planning takes place in this environment. As a perfectly passionate spectator I have no less interest but may be considerably more alarmed at the potential for real problems.

Tuesday, 20 July 2010

Changes in town centre management - a silver lining?

For some weeks now Welbeck has been exploring the range of difficulties that will impact upon the management of town centres because of funding constraints which are evolving as local authorities gear themselves up for the Government's spending review in the Autumn.

There seems to be a great deal of real worry amongst staff, managers and elected members in councils across the land - here they talk of probable job losses, of retrenchment of programmes and cutting services. Welbeck is not entirely convinced that there is not actually a silver lining in this cloud somewhere - not for any staff losing their jobs, which is an awful experience at any time, but for the town centres and actually, in the longer term, for councils too!

In any period of relative prosperity processes and organisational traits develop in many larger organisations that in more straitened times would not be adopted for reasons of cost. That's not to say that anyone is necessarily guilty of profligacy but if it make life easier, why not take a more costly but eminently affordable route. When the economy hits the buffers then things change, and they change rapidly. The most important thing at that point is to be clear about what is necessary - because it is all to easy to make the opposite mistakes during periods of constraint and the proverbial baby gets ejected with the bath-water.

The challenge now for town centre management schemes and for their managers is to produce the levels of service that you would aspire to in the good times but without the cost implications. The issues for TCMs and their authorities are many, but especially include communications with all stakeholders - from council tax payers (and voters) to businesses and other organisations operating in their areas, especially those with whom they are in some sort of 'partnership' arrangement; they include also the need to support drivers to the local economy; they have myriad legal responsibilities as an authority, alone or in concert with other statutory authorities, which each bring a crop of underlying problems that are aggravated by a reducing expenditure budget. During the past few weeks Welbeck has been undertaking an investigation that is highlighting some interesting conundrums and for which answers may already be at hand. Watch this space, or if you are a local authority or other major town centre stakeholder contact us for a more in-depth conversation.

VAT crisis?

At the time of the 'Emergency' budget, the Chancellor of the Exchequer, George Osborne announced that the VAT rate on standard rated goods would rise in January 2011 to 20%. Without missing a beat there followed the predictable shouts of horror and predictions of gloom from among many in the retail industry. On 23 June in the Retail Bulletin there was a note saying that 81% of UK retailers believed that the Government would increase VAT and that if this were to happen then disaster would be manifest.

The costs of changing the rate in practice on the shop floor price indicators was cited as one of the major and most costly difficulties with the suggestion that one in fourteen retailers would slash jobs being another. These rather horrifying predictions were dumbed down a bit post-budget with the BRC amongst others saying that the retail industry did not want the rise but realised that the Government had no easy options - but jobs will be hit, consumer spending will be hit and these would contribute to a slowing of the pace of recovery and also fuel inflation. OK, so now that the dust has settled, the VAT increase will be with us in six months time; what is really likely to happen?

Clearly there is no precise model on which to base a fully reasoned appraisal, and it is entirely reasonable to suppose that the rise will have some effects. The effects on the retail industry concerning the implementation are real, there is always a cost when the standard rate of VAT is altered, but any retailer will tell you that a rate change is a real possibility at every budget and this risk therefore ought to be part of every retailers normal risk management strategies with their sytems geared up to enable a cost efficient rate change implementation. If it really is so burdensome that the implementation would take months, as some have suggested, then their systems are either poorly devised or badly executed.

Losing jobs is an emotive threat. I don't doubt that there will will be implications for jobs in some sectors, but mostly those firms who lay people off will be doing so for reasons of corporate efficiency rather than merely the impact of VAT rises - I have seen no arguments put forward yet that are not open to serious question except the more general trend arguments that the rate rise will impact on discretionary spending and that this and related issues may depress the levels of trade in the short term sufficiently to warrant reductions in overall staffing. Even with these though, the most efficient of firms will be able to withstand the impact with perhaps the need to minimise hours worked rather than actual job losses.

It is easy to understand why the government has decided to take this step, and it is only the cynic deep inside me that believes that at least part of this has been to provide the government with a wonderful tool to use towards the next election - the announcement that the fiscal measures taken by them have been gloriously successful and they are now able to reduce the rate to say 17.5%, which will be hailed by all as a miracle - and will, I guess, promote far fewer complaints by retailers about the costs of implementation than the rate rise has done.

Tuesday, 11 May 2010

Reporting Trade Figures

I am sorry to have to report that those upon whom we rely on much of our news and information seem to have developed a process by which they inform us of 'facts' that are nothing more than speculation.

For example, Retail Week is reporting that a dip in the 'retail sales' in the past week or so was due to pre-election jitters. It is possible that the election was a factor, but to what extent and in what way that effect was felt would need to be researched thoroughly to determine anything approaching a precise conclusion. What would be easier would be for the journalists concerned to read the work of their colleagues - for instance the 'ash cloud', the outpourings of the volcanic eruption in Iceland is stubbornly refusing to abate and in the Retail Week it is reported that a 16% fall in international trade through the airports can be directly attributable to this natural occurence.

I have absolutely no idea what percentage of the whole of the UK retail trade is made up of airport shopping, but my guess is that it is a factor and we must remember that the context of the 'dip' is only 0.2% against the previous figure. It must be remembered also that these figures being reported are about the month of April - a notoriously difficult month to make comparisons with on a year to year or a month on month basis - the Christian calendars make sure of that! The date of Easter, being a truly movable feast, ensures a marked inconsistency in results every year! In fairness to Retail Week, they do mention that Easter came early this year, but have they considered providing a measure that truly encompasses the entire Easter period (by that I mean the period in which Easter falls in every year in the Western church calendars, probably taking in all of March and April together!)

Another factor is the weather - this is the UK and what we can rely on in March to May is unreliable weather patterns. This has nothing to do with climate change, although it too may be making its mark steadily, incrementally, year on year, but at this time of year with the days getting longer and the ground being warmed for longer, but with the danger that slow moving high pressure weather systems in the North Atlantic will bring winds across the still cold northern land masses of Scandinavia and the ice fields of the Arctic; the weather is inevitably going to act in the most irritatingly changeable manner at the most inconvenient of times. This too will affect retail sales - especially if all the goods from the new Spring collections are pushed to the fore and the weather suggests that snow boots would be good.

Then there is the 'sales' - the effect upon the general High Street sales performance is inflated or deflated by the proportion of outlets with 'sales' in progress. Journalists are wont to cite exceptional sales figures in the midst of a traditional 'sales' period, so why is there a reluctance to report when the opposite may be true? Is it because they really have bought in to the nonsensical belief that if you mention key words then magically they become true - omitting in consequence the mention of: recession, depression and others that describe a perfectly ordinary state for a particular part of any economic cycle. This was not a flippant statement, we were told in the early stages of the recent recession by leading BRC members that we must not talk ourselves into that recession - as if retailing was the core economic activity on a global scale that dictated these things and that there was actually something that retailers could do to prevent the myriad problems in the global economy.

The point is that these 'factual' statements about the retail sales are probably based on limited sources - i.e. BRC members and other larger groups whose EPOS systems facilitate data analysis but excludes SME retailers whose turnover experience may well be at odds with their larger neighbours. These statements do not acknowledge the composite nature of economic determinants in a field as narrow as 'retail sales' and the underpinning evaluation of the figures appear to be based on a limited understanding of the nature of them. I suppose what I want to see is either a more realistic assessment, a health warning about the limitations of the data and synthesis or an altogether less grandstanding approach in what I have come to think of as sensationalist journalism.

Sunday, 9 May 2010

Expert advice

In these straitened times it is very possible that your skills as a retailer will be tested well beyond their normal range. It is not something that you should give yourself a bad time over, rather you should consider a review of your business with a view to making the best of the opportunities that will be confronting you and minimising the threats that will jus as assuredly be coming along.

Welbeck's advice is to make use of those funded opportunities that are available - speak to Business Link in your region or ask the local Chamber of Commerce about other agencies who might help. If you are lucky enough to obtain funding for your business review or your development idea, that you insist on a specialist retail adviser to help you - all too many advisers are generalist business advisers and the needs of the retailer are often too specialist to be dealt with by them, although they are really useful if you want generalist advice such as 'how to develop a business plan' or 'how to develop your IT skills'.

These times will present peculiar circumstances, specialist retailers with success in steering businesses through previous fiscally doubtful periods will probably have the skills that you need to bolster your own. Don't be embarrased about asking - no-one can be an expert in everything, and yet most SME (small to mediun sized enterprises) seem to believe that others will judge them harshly if they admit to not having a particular skill - nonsense, you just ask. It is those who do not ask that will probably not survive.

The people have spoken

The election has been and gone, and the country still waits with bated breath about who will govern in this forthcoming Parliament. This blog has no interest in the partisan politics of the past few months but has a great interest in the state of the economy and about the nature of the threats and oportunities that face our small retail businesses in the UK.

It is to be hoped that the outcome of the 'behind closed doors' deliberations between parties will eventually result in a stable government and, a government that understands the pressures that are already applying themselves to small businesses.

The most important thing for SME (small to medium sized enterprise) retailers is to be positive in your marketing and cautious in your expenditure. The need to control costs is paramount for those that intend to survive the coming weeks, months and years. Welbeck is willing to buck the trend amongst commentators in the world of retailing and to be honest in the appraisal of the situation. There is no point in following the advice of ccertain prominent figures associated with the British Retail Consortium and accepting that to face reality is to talk oneself into a downturn - we have already been there for many months already and it will not ease by hiding from the facts. What is essential is to measure the impact that a protracted period of fiscal constraint is likely to have on your own business (you can bet that the BRC members are doing precisely that!)

Consider the effects on your customer base of the probable reduction in the number of public employees - if your business is reliant on a customer base in which public and civil servants are a major factor, then it is probable that your trunover may be affected unless you change what you do. Consider the effects of increased pressure on your supply chain, especially if it is reliant on the UK or other nations where the fiscal pressures are most pronounced. Will the suppliers be forced out of business, will their terms alter unfavourably towards your business - have you checked to see if your supply chain can be made to work better for your business? Consider the effects of any increases in taxation on your business - VAT, Income Tax and National Insurance, Corporation Tax and taxes on fuels and commodities such as alcohol.

It is possible that none of these will have any impact at all on your business, but it has to be admitted that that is extremely unlikely. It does not mean that we all need to panic and run for the hills; it does not mean that we need to give up now ( a tough period in your own business is better than an even longer period on diminishing state handouts!). What it all means is that we all need to be extremely conscious of carrying out practical risk assessments on our businesses.

Take a look at your processes are they cost effective and achieving what you need them to? Look too at your supply chain - it's amazing how often SME businesses fail to negotiate, or even to look beyond the suppliers that they have used for years - now is not the time to base buying decisions on so-called personal friendships; personal friendships are for personal life not for business life.

It is sensible to review all of the costs in your business to ensure that the investment that you have is being made to work most effectively - question and challenge every expenditure and keep a close eye on the cash flow. That is not to say that you will not sepnd, that would be inviting a business death by a thousand cuts - you must still invest; invest in marketing (but remember to measure the performance of your marketing activities so that you repeat only those that give a good return on that investment), any business that fails to communicate with its customers will simply! Invest in your staff - that does not mean pay rises all round and taking on extra staff, but it does mean ensuring that they are performing to the best of their abilities and achieving what your business needs them to do. The investment will come in well targeted training, in building upon the skillsets that individuals have and in rewarding improved perfomances - even if only with a very loud thanks!

Welbeck will be watching the state of the High Street with extra interest during this period.