Brexit and the ‘F**K Business’ Approach

Boris Johnson’s view of the importance of business to the economy and to the care and concern he gave the business view on Brexit was well covered at the time.  Dominic Raab’s more recent revelation that Dover was actually quite important to trade as an island nation also received some attentionMichael Gove has now joined those who realise that negative impact that Brexit will have. But the real questions that should be asked have not seen the light of day:

“What planet are these people on”? and “How the hell are they qualified to make decisions for themselves let alone the country”?

The recent pathetic shennanigans from the two “main” parties in Westminster would be comic if it was not so tragic for the economy and therefore for people’s lives.   The drift to a “No-Deal” Brexit and the cavalier approach to people’s lives by Government ministers (Minister can’t guarantee no deaths because of no-deal Brexit) is simply unfathomable. 3,500 troops on standby – presumably not all will be burying the bodies?  We are simply unprepared for what could be the biggest disruption to the supply of products, including medicines and food, that we have ever seen. but worse than threat, there are some politicians that seem to be actively advocating and embracing the potential chaos.

We joined the “Common Market” in 1973 in order to gain trading advantages and benefits for the UK.  This over a period of 40 plus years has seen the removal of trade barriers, the sharing of standards and approaches and the development of seamless, frictionless supply chains.  Concepts such as just-in-time and quick response have been built on this pan-national and trading group approach. Retailers, and especially UK retailers, and through them consumers, have gained enormously. Much of what we take for granted in our retailing is based on this frictionless supply.

Putting all this into reverse and placing barriers on trade and supply will have an immediate effect.  In due course this will be worked around, probably at considerable cost and effort, and with a more expensive outcome than at present. But in the short term there is likely to be massive disruption to the ’flow’ (the clue is in the word) of products.  We can not replicate the set up nationally without years going by.  Amelioration by stockpiling will work for some products (if there is any space left).  We can wait it out at the ports and the airports and hope things move (good luck on the M20 by the way).  But all remedies add cost and operational implications and make it less likely products will be supplied when they are needed.

And this is before we consider exports. And the tariffs that will be placed on our products going to Europe (and those coming here). Guess who ends up paying? Or an immigration policy that runs the risk of denuding warehouses and distribution centres of their staff. There is a good bet that things will simply grind to a halt.

Longer term there could be other supply chain considerations. In the 1970s, and for some time after, Britain maintained its own standards and systems.  In logistics for example we had the British and the Euro pallets.  Different sizes and shapes (just like the passport).  Handling systems could not cope with both sizes seamlessly and multiple handling was required. Inefficiencies abounded. Standardising reduced costs and sped up processes.  Going back (even accidentally) to such differences is a massive risk. And now we are in the computer age so it is not just physical handling.

For almost 40 years I have been researching and examining supply chains in retailing.  A particular focus has been Tesco and the changes they brought to product supply since Operation Checkout almost destroyed them in 1977.  A chapter in our recent book summarises these changes and the benefits to consumers and the company that have resulted.  Brexit (especially if No Deal) runs the risk of reversing such changes, company by company.  The net effect will be an inefficient, broken supply system incapable of delivering what consumers want, and at an increased cost/price. And if we can mend it some way down the road and build the alternatives, it will inevitably come at a considerable price.

“F**ked business” indeed. And “f**ked customers too”. I just hope when the next elections come by, those who have suffered take it out on those in Westminster who have caused it. Don’t blame business or retailers; they are every bit as much victims of the politicians.

A longer, slightly more considered piece of mine on Brexit and retailing appeared here just after the referendum. 30 months later and little if anything has changed, and much has got worse. Is it any surprise given the Westminster politicians we have?

For the avoidance of doubt, the views above are personal (and professional).

Posted in Brexit, Consumers, Disasters, distribution, European Union, Frictionless, Just in Time, Logistics, Politicians, Resilience, Retailers, Supply Chains, Uncategorized | Tagged , , , , , , , , , , , , , | Leave a comment

HMV – predictable or what?

125 stores, 2200 direct employees, an unknown number of individuals and businesses also linked to, and supplying, the company;  the administration and likely demise of HMV would be problematic at any time but between Christmas and New Year it has a special resonance perhaps.

Much has already been written about the situation so what follows are some figures and comments that attracted my attention, with some added thoughts of my own.

The BBC News coverage was nothing if not predictable; some vox pops with people under 30 outside the Oxford Street ‘flagship’. Do you buy CDs? No. Dvds? What are they? Do you go into HMV? Why would I? Whilst predictably partial there is a truth underlying this. For many, especially young, consumers of music and films, the purchase has nothing to do with physical product, but is online and is likely via a digital streaming service such as Spotify or Netflix.

A tweet by Patrick O’Brien from GlobalData Retail captured this shifting market. Whilst a rough calculation of mine, the figures below suggest that the market is now only 60% of what it was five years ago, That is a precipitous decline.

HMV1

The Times followed that up by providing the figures for HMV sales over the last five years. Whilst they may have gained market share over this period, it was of a rapidly declining market. Sales decline at a time of cost pressure and margin erosion is not a good look – though underlying performance might still be positive, just (though sustainable, no).

HMV 2

A couple of components of costs have emerged in the coverage on twitter and the media. A particular focus has been the £15m per annum paid in rates by HMV and the c £50m fees taken by HILCO (who took HMV out of its first administration six years ago) over the last five years. A rising rates bill on a declining sales base – anyone should be able to see the problem.  Plus the fact that competitors such as Netflix and Spotify don’t pay rates at all and thus do not have this cost. And whilst it is easy to criticise HILCO, without them would there have been any HMV over the last 5 years? (and the fees do seem to move in line with sales).

HMV Rates

It is also easy, and virtually all the media did this, to see HMV’s demise as the final nail in the “high street” coffin.  But a retailer selling something that increasingly consumers do not want (the physical product) and which can be obtained more cheaply and easily from other channels, is not a great advertisement for the high street, or any other retailing. This market is becoming niche and specialist in physical spaces (and seems to be working there), and digital elsewhere.

Some final and not purely HMV thoughts. Springboard said that footfall was down on Boxing Day this year; something reported as a negative performance. But, given the structural changes in retailing, was this a bad performance? Online sales are increasing annually – ONS say they are c16% market share, but over 21% in Nov/Dec. Given this substantial and ongoing shift, why should we be expecting footfall to stabilise rather than continue to decline?

Next week will see some of the larger retailers report on their Christmas trading. In all likelihood it will not be pretty, but does depend on what sales over what period at what level of margin, something that will not be clear for some time yet. Yet, at the local level some retailers (often independents) and places are reporting strong sales  and through a focus on the distinctive and service are providing things people want. There is light within the restructuring underway and this is often forgotten.

timpson

We need to recognise the imbalance and societal impacts and disparities that we are exacerbating by not guiding the scale, scope and pace of this change. Leaving it solely to the market, ignoring our dysfunctional rates and tax system constrains people who do not have money and access to physical stores and diminishes us all.

Happy New Year!

 

 

Posted in administration, Amazon, Boxing Day, Closure, Competition, Consumer Change, Customer Service, Government, High Streets, HMV, Internet shopping, Local Retailers, Online Retailing, Rates, Record stores, Retail Change, Retail Failure, Tax, Technology, Timpsons, Town Centres, Uncategorized | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

Some thoughts on the ASOS profit warning

The ASOS news this week was to many something of a surprise, but in reality it really shouldn’t be.  A profit warning on Monday wiped almost 40% off its share price and impacted other retailers as well.  Many of these were those with internet exposure, including Next as well as specialist internet retailers.

A number of elements of the story and its impact struck me as interesting and worthy of some further comment (see The Guardian, The Times and the BBC amongst others for a flavour of the coverage).

From the High Street to the Internet

A common refrain was surprise that the woes on the high street had now extended to internet retailers.  I really don’t see how this should be a surprise – many (and I’ll include myself in this) have been repeating ad nauseum that labelling recent retail trading and performance as only a high street crisis is wrong.  As Mike Ashley pointed out last week, retail as a whole is in trouble and the high street is simply an extreme example. Internet retailers have been opening and closing for years; ASOS is simply one that has been able to grow sales almost continuously so far.

From 8% to 4% to 2% to ?

ASOS are a big retailer; they sell lots of stuff, some £2bn plus last year.  And the profit warning simply reflected sales growth being cut to 15% this year.  But ASOS has been here before a few years ago.  Margin had to be halved to build infrastructure.  Now margin is being halved to fight the competition.  But 2% on £2bn sales is not going to create a sustainable business.  This is the business model coming home to roost.  They will not be alone in profit problems in the internet space.

Blame Black Friday?

Black Friday began as a day sale to kick start the Christmas period over which retailers made most of their money.  Some headline bargains to get people interested and ‘in the mood’.  But that was then.  Now Black Friday seems like a month long lingering self-sacrifice of margin.  ASOS seemed surprised that 20% discounts was not enough to compete and so had to give away even more margin.  This desperate race to the bottom has eaten the profitability of many retailers and in some cases the entire Christmas period. Consumers have got wise to retailers and have learnt the lesson that full price is not necessarily the final price.

Consumers have Changed

Ten years of austerity, squeezed incomes, a general boredom with buying stuff, worries about Brexit and altered patterns of behaviour have shaken up the market and forced retailers to think again about what gets consumers’ buying.  There are plenty of good retail stories around and it is not all doom and gloom.  Those retailers who are succeeding are focused on consumer demands and providing excellent products and services at prices and values consumers want.  Those that can’t work this out are suffering. But retailers have to work this out and make a sufficient margin; tough when others are willing to beat you to the bottom for short term gain.

Makes one wonder what ASOS would be like if taxation of online retailers was brought in to “level the playing field” or to get out of the business rates problem?

 

Posted in Asos, Black Friday, Brexit, Christmas, Competition, Consumer Change, Customer Service, Internet, Internet shopping, Online Retailing, Profits, Rates, Retail Change, Retailing, Tax, Uncategorized | Tagged , , , , , , , , , , , , , | 4 Comments

Dead or Alive?

A few weeks ago I was reading an interview in the Guardian and the interviewee, the writer Barbara Kingsolver, said about the Great Barrier Reef:

“You’re hearing about everything that dies, you’re not hearing about everything that’s still alive.  If you think it’s dead already then you’re not going to be bothered.  I almost think people gravitate towards “It’s too late” because they then don’t have to put themselves out.  Only if you love something will you inconvenience yourself to work on its behalf”.

I think it is a great quote and on reading it thought immediately about our work on towns (and to a degree on high streets).  As we have debated here before, the narrative about the high street in the media is almost universally negative, mainly around the metaphor of ‘death’.  The blame is attributed often to the rise of online shopping and its seemingly inevitable grab of market share.

Yes, this is happening.  But even if current growth rates continue, 80% of retail sales will be through physical stores in 2025.  Yes, out-of-town retailing is a presence and we have too many shops in the wrong places.  But some high streets are thriving and new businesses are springing up and testing the ground.  Some of these are previously online only businesses. Quite a lot of them are local businesses.

If you only hear bad news, you believe the retail world has caved in.  And you won’t be bothered to do anything.

What though can you do?  Every time you shop online you should ask, could I make this sale locally, through a “real” store and with a “real” person?  Could this be an independent store with the spend kept in the local area?  If you shop online for convenience then ask yourself do I actually need that product now, this instant, or even tomorrow?  Why has speed become the single vital factor in shopping?

But more than that, you can ask whether the online and the multiple mundane provides what you are looking for?  I love towns and places and markets – and yes I do despair at the state of some of them – and find they provide novelty, difference, exploration and experiences (I write this seated in Grainger Market in Newcastle and having bought great local bread and cheese, as an example of difference and experience).  They are worth valuing and I am inconveniencing myself in working to make them better places, through our Scotland’s Towns Partnership activities. It is a tough road and will take time. Some places may prove stubbornly intractable. But there are real signs of community led local regeneration and a re-localization and development of towns.

We must change the narrative if we want vibrant social and economic spaces.  Show you care by your actions and don’t succumb to the over-stated negative. it is not too late.

Posted in Community, Consumers, Local Retailers, Localisation, Regeneration, Reinvention, Scotland's Town and High Streets, Small Shops, Small Towns, Town Centres, Towns, Uncategorized | Tagged , , , , , , , , | 5 Comments

“Destination High Street – Restoring Vibrancy to Scotland’s Towns”

destination_high_street_better_image_500x875

The invitation from the Architectural Heritage Society of Scotland (AHSS) and the Scottish Civic Trust was to present a keynote address to their conference on ‘Destination High Street’.  As both Professor of Retail Studies and Chair, Scotland’s Towns Partnership I was asked to speak on ‘Thinking the Unthinkable ……’.

Well, the day has come; on Wednesday (7th November) I will attempt to do justice to the topic.  The programme for the day can be found here and the slides that I hope to be able to use can be downloaded here, as is my customary practice.  But, rather than simply providing the slides on this blog, I thought that this time I would add a few words about the themes of my presentation.  These are reflections in many ways of some conversations over recent years and the mis-understandings I perceive.

What follows below is thus not a write-through of the presentation, but instead selected topics I intend to cover.

Boiling the Frog: the metaphor of boiling the frog (gradual changes kill you as you don’t notice them) seems rather apt for town centres/high streets.  We have spent the best part of 60+ years decentralising and destroying towns and we are now at the point where the cumulative effect can appear to be terminal.  Reversing this will not be an overnight operation.

The Wrong Question: if your question is about saving the high street, then you’re asking the wrong question.  High Streets are reflections of towns and it is towns that are in crisis, not just high street retail. We need to save our towns and the high streets will survive as a consequence.

A Retail Revolution: retailing is suffering across the country (in-town and out-of-town) as the over-expansion of the last 40 years collides with the technology and consumer changes.  Throw in biased and unfair cost structures and taxation regimes and we should not be surprised at where we are and what is happening.  This revolution has a long way to go, whatever sticking plasters are applied to high streets via however many budgets.

The Wrong Narrative: But not all places or retailers are dying.  Some are positively thriving as they adjust to the new realities.  Too often the media sing the siren song of death, but the reality is nowhere as negative.  Physical retail has its place for consumers and some physical retailers are doing well.  There are success stories and we need to shout about and learn from them.

Towns and Places Matter: Towns are a defining feature of Scotland and our communities.  We have to make them positive choices and embrace this adaptation and community, thinking beyond retail to living, working and playing in our towns and places.  Community focus, especially in smaller towns will be a vital emphasis.

‘Thinking the Unthinkable….’ has a number of possible connotations and implications.  It is unthinkable we have let things get to this position.  It is unthinkable our current tax approach dates in the main from the late 1500s.  Our nostalgia or inertia holds us back in many ways.  But what changes could we make that are currently unthinkable?  Some thoughts to frame a discussion:

  • Retailing is a consequence not a pre-requisite for a town – treat it as such
  • Products go to people not the other way round – what are the implications of this?
  • Environment in the broadest sense (including heritage) is fundamental to place identity
  • Rates need to be phased down and digital taxes phased up (and a balance of taxes is needed within and across retailing and between retailing and other sectors)
  • VAT needs reformation for town centres and redevelopments
  • Local independent businesses should get preferential treatment
  • Places have to build belonging and stories and become places of interaction first not transaction
  • Technology has to be embraced and not seen as the opposition.

It is not really that unthinkable; the unthinkable is that we would sit idly by and let our towns and communities suffer.

 

Posted in Architecture, BIDS, Buildings, Community, Community Development, Consumer Change, Consumer Lifestyle, Creative Places, Design, Development Trusts, Environmental Quality, Government, High Streets, Historic Shops, Internet shopping, Local Retailers, Online Retailing, Places, Public Realm, Rates, Retail Change, Scotland's Town and High Streets, Scotland's Towns Partnership, Small Towns, Social Inequality, Streets, Streetscapes, Tax, Town Centre Action Plan, Town Centre Living, Town Centre Review, Town Centres, Towns, Understanding Scottish Places, Urban | Tagged , , , , , , , , , , , , , , , | Leave a comment

Twin Towns

Twin Towns

To anyone with a Welsh background and an interest in films, Twin Town conjures up a film of 20+ years ago which was described as a Welsh Trainspotting, though less successful.  Lock up your sheep and pretty much anything else, was I think one strapline.

I am not sure why that came to mind, as an altogether more friendly and pleasant experience took place last week when Carnegie UK Trust hosted a celebrity event for the six towns involved in their Twin Towns UK project.  As a member of the Expert Reference Group (not the other ERG) I attended and learned first-hand what these towns had been up to.

The origins of the project are in the Flourishing Towns theme of Carnegie UK Trust.  The notion was that by “twinning” distinct but similar towns lessons could be learned and projects advanced in both places.  This was not traditional town twinning but rather a facilitated matching service leading to lasting benefit for places.

From an initial set of towns, three pairs made it through to Phase Two and these pairs reported their work at the event in North Shields.  It should be noted that this was a distinctive project from the outset in that no expectations or guidelines were set down, but rather the towns were encouraged to make what they wanted from the opportunity.

The outcome, as presented by the town pairs (Whitburn/Oswaldtwistle, Broughshane/Wooler and North Shields/Merthyr Tydfil) was fascinating and illuminating. I won’t go into details of what they did, but instead provide some overall themes.  Details of activities and reports will be available via Carnegie UK Trust in due course.

So what themes emerged?

  • All towns found it enormously beneficial to have to hold a ‘mirror’ up to themselves and to engage with critical friends. They ended up learning as much about their own town as they did about the pair.
  • The pairs (which were selected by the ERG) did find similarities and learnings that could be adapted for transfer. This has led in each case to enhanced confidence, capability and economic and social benefits.  These will continue.
  • The use of digital media to communicate and build communities was under-developed before the project, and has become a key feature of the current developments. It is perhaps a little puzzling why this need is a surprise to many places.
  • The need to tell a story and change the narrative were writ large across the places. There is much to build on, to be proud of in most towns, and once engaged, communities demonstrate this pride and ‘brand’.

More widely, the project lifted horizons and made people and groups take stock of their own and distinct place.  This proved highly influential in changing thinking.  The efforts of the people involved was great and their pride rightly shone through in what has been achieved to date.  These varied from the introduction of markets, the takeover of assets and their renewal, historical themed walks and trails, various clean up and improvement initiatives and some more energetic sporting initiatives. Small beginnings it may seem in some towns, but these are necessary steps.

There will now be a period of reflection as various reports will be finalised and published.  Keep an eye on the Carnegie Trust UK website and social media streams for updates and learnings, and especially the words and videos of the towns themselves.

 

Posted in Carnegie UK Trust, Collaboration, Community, Heritage, High Streets, History, Markets, Places, Regeneration, Small Towns, Town Centres, Towns, Uncategorized | Tagged , , , , , , , , , , , , , | Leave a comment

Business Rates vs Online Tax

The upcoming Budget has as normal seen a flurry of ‘advice’ for the UK Government’s Chancellor.  Much of this is special pleading, especially in the light of the so-called End of Austerity.  Within this though the issue of business rates has again come to the fore.

This time of year the September inflation rate (CPI) sets the rise in business rates for the next year.  The BRC has calculated that without amelioration this increase will cost retailers an additional £190m.  This comes at a time when retailers and business rates have been in the news, with considerable adverse opinion and their impact is blamed for the decline of the high street. Retailers account for almost 25% of the rates revenue – an unfair burden given the scale of the sector (One of many issues with rates)

One of the topics that has been pushed by some in the media and has been picked up by some leading retailers (most notably Tesco) has been the suggestion of a tax on online sales (an “Amazon” tax).  This seems to be gaining some traction (though is not without its critics) despite a lack of clarity over how in practice this would work.  We may get some indication in the Budget – or maybe not.

The criticisms have come in a variety of guises, and have been bundled by some as a Luddite reaction to change and retail disrupters.  They argue that success should not be penalised and that the issue is not rates or physical stores versus online stores but large multi-national corporations refusing to/avoiding paying their fair share of tax by manipulating their in-company transfers and sales.  Fix that they say and all is fine.

I don’t really buy that argument.  Yes, the tax avoidance should be tackled, but in addition to consideration of the changing sales mix and shift in retailing.

I am reminded of the work done (and we at Stirling did some of it) around the time of the deregulation of Sunday trading.  One of the absurdities of the situation was regulations being enforced based on the 1950s list of products enshrined in the legislation.  Products had changed since 1950 but the law had not.

The same seems to me to be happening now.  Consumer behaviour has changed and the taxation base has not kept up.  Out-of-town trading and operating has emerged and online retailing has mushroomed.  In a decentralised and now digital world we are persisting in a tax based on physical centralisation and analogue trading.  If we do not change track then the situation will continue to deteriorate in physical stores and high streets.

This does not mean that we should abandon all property taxation, but we need to reflect the new consumer behaviour and build a system that flexes with change.  This means some form of online tax probably related to the point of distribution and/or receipt and some form of property taxation (and one that probably better reflects distribution’s role in retail and other sectors).

We also have to consider more carefully what we value and tax accordingly.  Do we want vibrant town centres and a diversity of businesses and trade?  If so we need to adjust their costs base and taxation accordingly.  This does mean higher taxation than now on single use sites (see Barclay proposals in Scotland, though the SNP seems to be cooling on an out of town store increase) and amelioration for small independent traders (and this would be better if automatic).  It could mean changed VAT rates for towns (allowable post Brexit) and for re-development/re-use of historical and upper-storey buildings.

Business rates have had their day as the way in which to tax retailing and provide local authority revenue.  We must step in and change them, to reflect the modern retail and consumer sector, and rebalance the burden of taxation.

In short, the world has changed and taxation needs to catch up.

Posted in Barclay Review, BRC, Digital, Government, High Streets, Internet shopping, Large Store Levy, Local Retailers, Online Retailing, Rates, Retail Failure, Tax, Town Centres | Tagged , , , , , , , , , | Leave a comment