Headline Of The Week

From The Metro:
Angry man permanently banned from every Sainsbury’s threatens to never shop at Sainsbury’s again

Not the worst idea ever.

This idea was mooted by the Labour opposition two years ago:

Councils should be given the power to take over the management of empty shops as part of a plan to revive ailing high streets, Labour will say.

Local authorities should be given the power to repurpose commercial properties that have been vacant for at least 12 months to bring them back into use, shadow chancellor Anneliese Dodds will say. She will also use a speech on Thursday to call for the reversal of rules that could allow shops to be sold off for conversion to housing without planning permission.

Now merrily adopted by the Tory government:

Landlords in England could be forced to let empty shops in a bid to rejuvenate high streets, under government plans.

Under the move, set to be unveiled in Tuesday's Queen's Speech, buildings left vacant for a year would have to be entered into a "rental auction". The British Retail Consortium (BRC) has calculated that one in seven shopfronts across Britain is empty. Boris Johnson said boarded-up premises were a "blight" on towns and cities and damaged local economies.

There follows the usual bleating:

BPF chief executive Melanie Leech said: "We fully support government's ambitions to revitalise town centres but political gimmicks such as compulsory rent auctions are not the solution. No property owner wants their premises to be empty. In our experience, property owners are willing to do zero-rent deals to avoid boarded-up shopfronts. But the burden of business rates and other occupational costs mean it is still unviable for many small and independent businesses to trade from town-centre premises."

Yeah, whatever. And disappoingly:

Labour accused ministers of creating "slogans and strategies, with few ideas" for effecting change across the UK.

The devil is always in the detail, but if done properly, this could actually help a lot. It can hardly make things worse. The main point is that a landlord who only owns one or two shops in an area often acts in a way that is detrimental to the whole, so it's a vicious cycle. You have unrealistic rent demands and would rather leave your premises vacant; this depresses the value of neighbouring premises, meaning they are more likely to fall vacant etc.

If one party has control of every building on a high street, be that a large landlord, the local council or 'the community', that party has every interest in agglomeration benefits. It's worth renting out marginal premises at a 'loss' if this enhances the value of neighbouring and more central sites etc. Or offering premises rent free to 'anchor' tenants like Marks and Spencer or Tesco to attract complementary businesses (the 'remora', as DBC Reed called it) to the area.

I suppose the alternative is to transfer every building on a high street into one corporate entity, giving each landowner the appropriate percentage ownership of the entity (so there is no change in economic ownership), and the entity appoints a proper managing agent who gets paid a commission on total rents collected. That way pretty much everybody wins.

Hey, shopkeepers...

... I hope you realise that if you try and sell stuff with a 500% profit margin or stop stocking it altogether, people will just bulk buy online? I'm all in favour of supporting my local businesses, but this goes both ways.

Yeah! Go retailers!

From The Guardian:

Landsec, the property group behind the Trinity Leeds shopping centre and Bluewater in Kent, said struggling retailers paid less than a third of the rent due last month.

Retailers paid only £9m of the £31m rent due on stores on 24 June, which equates to 29% of the total. This time last year its retail tenants paid 92% of the bill.

I'm sure that the £9 million they actually received is enough to cover their actual running costs (repairs, maintenance, security etc), so what's the problem? The land and buildings will still be there, unlike tenant businesses who won't be if landlords hound them for every last penny.

When life is funnier than satire

From The Daily Mash:

ANYONE who does not live in a detached house will be barred from shopping in Waitrose during the coronavirus crisis.

As the pandemic continues to disrupt shopping, the supermarket has introduced restrictions to ensure only ‘their kind of people’ stockpile its overpriced items.

Not true. My wife had to queue this morning just like everybody else.

From a Waitrose & John Lewis email yesterday:

We’re also suspending services that involve close contact between customers and Partners. This includes our cafes, A Place To Eat and others that require skin contact, such as beauty counter treatments and bra-fitting. Nespresso and Kuoni will be closing their outlets too as a temporary measure.

Truly the end of the world as we know it.

That's the spirit! (fixing the High Street)

Emailed in by Lola from Ipswich Star:

The Edinburgh Woollen Mill, in Buttermarket, Ipswich, looks set to be the latest national brand exiting the town.

Large signs have appeared in the store's windows which state: "This store is closing down - all stock must go". owever, the store's message is somewhat contradicted by a much smaller sign underneath which reads: "Subject to landlord negotiation". This is a tactic The Edinburgh Woollen Mill has employed before and used at dozens of stores across the country.

Earlier this year similar signs appeared in the windows of Peacocks fashion store, in Carr Street. But despite having the signs up for most of the year the store, which is owned by The Edinburgh Woollen Mill, still seems to be going strong.

It appears the signs are introduced as a result of annual negotiations of new leases in a bid to strike a better rent deal with landlords.

Retailers are gradually cottoning on to this tactic, in the medium term, it will work, hopefully.

LVT (as opposed to Business Rates) would give landlords the required kick up the arse and accelerate the process. LVT on any high street would be based on average rents being actually paid by normal tenant businesses. For charity shops (which are arbitraging the 80% Business Rates reduction for charities) and vacant premises, each landlord would be asked how much rent they are holding out for (assuming the premises were rented to a normal business) and would pay LVT based on that amount. If they pitch too high, they will be overpaying LVT; if they lowball, then the council can ensure that the premises are actually rented out for that amount and a local business gets its foot in the door.

The theoretical optimum rent (and hence optimum LVT receipts) on any high street is the highest figure that landlords can demand before shops start falling vacant, which leads to a downward spiral. In the real world, the optimum is "a bit less than that".

LVT will encourage landlords to find that optimum:
- LVT will tend to push rents down a bit. A rational landlord is indifferent between a) charging £40/sq ft rent and paying £30/sq ft LVT and b) charging £35/sq t rent and paying £25/sq ft LVT, either way, the landlord nets £10/sq ft.
- LVT will also push rents up a bit. If all other landlords are charging £35/sq ft, fixing the LVT on all shops at £25/sq ft, clearly a minority of landlords will go for £36 or £37, while still only paying the £25 LVT and thus netting £11 or £12.

But so what? If rents fall below that theoretical optimum, at least there will be shops and jobs in the area; the council's loss is local business' gain, and not local landlords' gain.

Presumably, there are some High Streets where the maximum rent that can be demanded is less than it costs to maintain the buildings, these areas are beyond the margin and are very difficult to revive. Reducing other taxes (in particular VAT) would revive at least some of them, which is all part of the plan (LVT could largely replace VAT).

The funny things that Home-Owner-Ists say...

From The Daily Mail:

Helen Dickinson, chief executive of the British Retail Consortium, said: 'We welcome the continued commitment to a fundamental review of the business rates system and would like to see this formalised in the upcoming Budget.

'It would do far more to help relieve struggling high streets and safeguard jobs and communities than short-term discounts which will only impact some businesses but not all.

'The retail rates discount is just another sticking plaster that ducks the real crisis facing high streets especially in vulnerable areas of England already suffering from years of economic decline and falling rents.

Retailers aren't suffering from falling rents; their landlords are.

Yay! Go John Lewis!

From the BBC:

John Lewis is seeking discounts from its landlords to cut costs, in a highly unusual move that highlights the huge pressures on retailers.

The BBC has learned that the retail giant has been telling landlords in some locations that it will withhold 20% of this quarter's service charge. These are the fees retailers pay on top of rent for services such as heating and security. John Lewis said the charges had become too high and urged landlords to help...

Debenhams has managed to slash its rent bill with reductions of up to 50% after securing a restructuring deal with its creditors. Struggling retailers have been turning to these so-called company voluntary arrangements as a way to cut costs. House of Fraser was bought out of administration by Mike Ashley's Sports Direct and many of these stores are currently paying little if any rent.

John Lewis are just nibbling at the edges here, the service charge is only a fraction of the rent, and they are only withholding a fraction of the service charge, but it's a start, and hopefully every other tenant will follow suit. And once landlords have reduced their rent expectations, there'll be fewer vacant shops.
--------------------------------
I tweeted this article, some drone from Conservative head office promptly started wailing on about pension funds etc. They are very efficient, it must be said.

Oh the irony...

Emailed in by Lola, a video on how Amazon is buying up vacant shopping centres, the ones that went out of business partly because of online shopping ( or 'glorified mail order' as I call it, to put it in context), and using them as warehouses/distribution centres, and presumably collection centres for people in a hurry.
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Also emailed in by Lola, from The Telegraph:

The perilous state of Sir Philip Green’s retail empire has been laid bare in a 312-page tome sent to landlords as the former “king of the high street” pleads with them to help save Arcadia from going bust.

The document reveals that Arcadia’s earnings have crashed from £215m to just £30m in the last five years – a fraction of the £100m of extra costs, including pension contributions and debt interest, it is on the hook for...

Landlords' response: “We are not minded to support Philip Green ­because he took a perfectly good business and extracted money rather than investing.”

Pots, kettles.
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From the BBC, this morning:

Meanwhile another leadership hopeful, Home Secretary Sajid Javid, has vowed to recruit 20,000 new police officers.

Writing in the Sun, Mr Javid says: "More police on the beat means less crime on our streets. Not exactly rocket science is it?"

BBC Reality Check says, under the Conservative and coalition governments, the number of police offices has fallen by somewhere between 19,000 and 22,000.

I'm not sure why the BBC even bothered to link to the source of the figures for the reduction, this is more or less common knowledge.

City AM lets another one slip into its pages...

From City AM Debate:

Is the Tesco boss right to call for slashed business rates and an online tax to save the high street?

Robert Palmer, executive director of Tax Justice UK, says YES [actually he says 'no', but hey]

Since it’s likely that an online sales tax would be passed onto shoppers, what we really need is a proper shake-up of how we tax multinationals to make them pay their fair share, including by making it much harder to stash corporate profits offshore.

Business rates are also a mess. Because the current system is based on rental values, if a landlord improves a property, the value goes up and so does the tax.

The government should replace the current system with a tax based on the underlying value of the land the property sits on.

Sam Dumitriu, research director at The Entrepreneurs Network, says NO:

Online sellers shouldn’t be punished for responding to changing consumer demand by offering goods at a lower price in a more convenient manner. E-commerce platforms such as Amazon have lowered barriers to entry and enabled small and micro-businesses to cater to every obscure taste out there.

Worst of all, the reforms will do little to help struggling bricks and mortar retailers.

The evidence suggests that commercial landlords respond to cuts [in Business Rates] by raising rents, leaving shopkeepers no better off. The only retailers that will benefit are those which own large property portfolios like, er, Tesco.

Death of the High Street

Working on a daughter's mountain bike over last weekend. It was daughter A's bike that she had given to daughter B. Needed general clean and oil and the brakes did not work. Worn out brake blocks. Diagnosed at about 16.00 hrs.

To get into the local town to buy new ones and get home, round trip time probably 45 minutes minimum, and it was Sunday so limited choice of shops and the proper bike shop was over the other side of town, maybe an hour plus of driving.

Onto the web. Searched bike brake blocks. Did a bit of reading buyer comments. Ordered a set of new ones (from Amazon as it happens - Amazon fulfilled but sold by a specialist bike part retailer). Delivery said to be next day.

Went off and got on with other things like cutting grass.

Checked emails at about 17.00 - parts had been dispatched.

Next day - parts arrived at about lunch time. And fitted by 14.00.

Why on earth would I want to struggle through traffic and waste about an hour of my life driving to buy them myself from the High Street?

And it must be more 'green' to have them delivered like this as the van had lots of deliveries to make, rather than me making one run.

The High Street is doomed. Or maybe High Street landlords are doomed?

"Can Northampton's 'dying' High Street be saved?"

Finally, a measured article on the topic from the BBC, mentioning all the actual reasons why some High Streets are 'dying'.

The number of boarded up shop fronts in towns the length and breadth of England is symbolic of the country's growing High Street crisis. 

Perhaps nowhere quite encapsulates this as much as Northampton, which in the past five years has lost three major department stores with the future of a fourth uncertain.

Marks and Spencer, like many others, was lured away to the £140m Rushden Lakes retail park, which opened 15 miles east of Northampton in 2017...

Now, the future of the nearby Debenhams branch is uncertain. It has agreed a £200m refinancing lifeline with lenders but said it would continue with plans to cut the number of its stores...

In January 2008 the internet accounted for 5p in every £1 of retail sales. By August 2018, it was 18p in every pound...

Northampton is not only competing with online retailers and Rushden Lakes, but larger towns nearby with a greater selection of shops. Milton Keynes, for example, is a 15-minute train journey away and has a Marks and Spencer, House of Fraser and a John Lewis...

"Big towns and cities can attract the crowds and be a destination for a day out, while smaller centres [offer] convenience," says Kardi Somerfield, senior marketing lecturer at the University of Northampton. "So mid-range towns are particularly and disproportionately affected by store closures..."

Perhaps the answer lies in St Giles Street, which runs adjacent to Abington Street. It features a range of small, independent businesses from barbers to restaurants and - despite a handful of empty units - feels altogether more prosperous.

Lisa Witham, 29, runs the Dreams Coffee Lounge with her sister, Nina Neophitou, 25. She says the key to the street's success is simple. "There's a lot of lovely independent shops all offering different experiences for customers, rather than the generic High Street shops. The experience for the customer is important. Offer something a bit different that online and out-of-town retailers can't."

"There needs to be more support from the council and landlords, making sure we get the right businesses in," says Lisa. "There needs to be variety with the retail, with leisure options such as bowling or maybe an arcade. We have students nearby but they need an incentive to come into town. But the more empty units there are, the more difficult it is to attract new businesses. It's easy to get into a downward spiral."

The icing on the cake is that they don't try and blame it on Business Rates!

Trolley conundrum

Nobody move or everybody starves to death!

From the BBC:

A no-deal Brexit threatens the UK's food security and will lead to higher prices and empty shelves, retailers are preparing to warn MPs...

If the UK were to revert to WTO rules, the retailers warn that would "greatly increase import costs that would in turn put upward pressure on food prices"...

The letter spells out the UK's food relationship with Europe, with nearly one third of the food in the UK coming from the EU.

*sigh*

I can't track down the actual wording of the letter, which was no doubt a bit more nuanced than the BBC claim.

1. At worst, one-third of shelves will be empty. let's not forget that Norway and Switzerland seem to manage somehow, it can't be insurmountable.

2. What retailers should have said (and quite possibly, did say) is "Dear Government, for the time being, whatever happens with Brexit, can you please exempt food imports from any sort of quotas and duties and ensure that Customs wave through anything that was clearly grown in an EU Member State?".

This in turn boils down to "Dear Government, please make sure that nothing changes post-Brexit".

"Do nothing" should always be first on the list of options to be considered, and in the circumstances, would clearly be the best for all concerned.

Reader's Letter Of The Day

From The Metro:

Government has its limits...

So Gordon in Sunderland blames the government for the decline of the high street (MetroTalk, Thu) rather than the fact that the digital age has made it cheaper and easier to purchase items online from the comfort of your own home*.

Does he also blame the government for the year-on-year drop in television viewing figures too? I suppose it should be down to the government to get the public to sit and watch television** rather than streaming services for a designated portion of each day so as to compete with the likes of Netflix?

James, Essex

* The figures are quite staggering. According to the ONS, about one-fifth of UK retail spending is online.

** This is not as far fetched as he thinks. From Variety.com: Quotas obligating Netflix, Amazon and other streaming services operating in the European Union to dedicate at least 30% of their on-demand catalogs to local content are set to become enshrined in law soon. That 'protects' domestic film makers rather than TV stations as such, who have their own minimum domestic content quotas in many countries. Unsurprisingly, France has the highest quota in Europe (minimum 60%).

"Trust me, we’ve been thinking about market power and competition all wrong"

... says Ryan Bourne in City AM.

Well, no we haven't, but he makes a good point about one specific topic - that there is a difference between national and local market power/concentration:

Back in the 1950s, many UK villages and towns were served by a single grocer, butcher, and baker. These independent local stores would, in effect, be local monopolies, but had tiny share of the market for the whole country.

Today, major supermarket chains have gone from strength to strength, exploiting economies of scale and creating cost-effective distribution systems. Tesco, Sainsbury’s and others serve hundreds and thousands of locations, while engaging in cut-throat competition with each other.

As a result, at a national level the supermarket industry looks highly concentrated. The biggest four firms had 72.3 per cent of the market in 2016. But at a local level, many areas have seen huge increases in competition. They are now served by at least two supermarkets, as well as other stores, instead of the local monopolies of the past.

Or to put it another way, let's assume each town/area is served by two of the big supermarket chains. They are in competition and the consumer benefits. If the government were to force the big supermarket chains to close half their outlets, this would clearly reduce their national market share, but their remaining outlets would face less competition in all the towns/areas which are now only served by one large supermarket, and the consumer loses out.

Mike Ashley - 1: Landlords - 0

From the BBC:

House of Fraser's flagship Oxford Street store will now stay open after the chain's new owner agreed revised terms with its landlord. The store had been due to close under a restructuring plan that House of Fraser announced in June...

The store was one of the 31 earmarked for closure under the CVA restructuring deal that was first struck before Mr Ashley stepped in with his £90m rescue bid...

Property giant CBRE, which is advising Sports Direct, said negotiations over the Oxford Street outlet had been conducted at "great speed.. This deal only happened because all parties realised it was better to keep the store open and fully operational. It was a real case of landlord and tenant genuinely working together and at great speed. Everyone was sensible about the terms of the transaction."

It's about making a credible threat. The landlords blinked first. Well done, Mr Ashley.

Ruth Davidson: Maths Genius

H/t Lola, from The Herald:

Business leaders have warned the tax burden on high street shops is disproportionately high. Ms Davidson said: “The retail sector currently makes up 5 per cent of the UK economy but pays 25% of all business rates, over £7 billion per year.”

That's about as helpful as saying "The haulage industry pays 90% of all diesel fuel duty" or "Smokers pay 100% of all tobacco duty". Business Rates is a tax on valuable locations, and retail premises are usually in the most valuable locations (town centres). It's as broad as long, if there were no Business Rates, rents and purchase prices would be correspondingly higher.

Having flunked the logic bit, she's wrong on the facts as well. From the House of Commons retail briefing paper:

In 2017, consumers in the UK spent around £406 billion in retail purchases [about 20% of GDP]. In 2017, the retail sector as a whole contributed £194 billion to UK economic output (11% of the total), measured by Gross Value Added or GVA3; this was an increase from £190 billion in 2016.

In 2016, the sector employed 4.9 million people (20.5% of the UK total), and contained 374,000 businesses (15.5% of the UK total).

We can argue whether the retail sector is 11% or 20% of the UK economy or anything in between, but either way it's more than 5%. I could have guessed that without looking it up.

Please note: £7 billion Business Rates divided by £406 billion sales = 1.7p for each £1 of sales on average or about one-tenth as much as the VAT thereon.

"Waistcoat sales up as Gareth Southgate sets trend at World Cup"

From The Guardian:

For years, football fans have been able to emulate the look of their idols with replica shirts, but this World Cup something different is happening: supporters are rushing to buy replicas of Gareth Southgate’s England waistcoat.

Marks & Spencer, which has been the official suit supplier to the England team since 2007, said demand for waistcoats has risen 35% thanks to what they say is “the Gareth Southgate effect”.

Ho hum.

1. That's a fairly meaningless statistic, have sales gone up from 100 a year to 135, or from 1 million to 1.35 million?

2. Will people actually wear them, or was it just impulse purchases?

3. Will people stop wearing them if England crash out before the final?

Glorious bit of landlord squealing

From the BBC, a few highlights:

Six thousand jobs are at risk in a drastic attempt to save [House of Fraser] from collapse. If the rescue plan fails, administration is likely. But High Street landlords are furious about the way they're being treated. They are the creditors who have to shoulder the burden of financial losses.

Many properties are owned by institutional investors who rely on store leases to provide a steady income stream for pension funds and insurers. Take the House of Fraser store in Milton Keynes. It's part of a shopping centre co-owned by Hermes Investment Management. Its rent generates long-term funding for two big pension schemes.

"Landlords are in an invidious position. We enter into these long-term contracts in good faith, with pensioners' income and security often at stake," says Chris Taylor, head of private markets at Hermes Investment Management.

House of Fraser is using what's called a company voluntary arrangement (CVA), a form of insolvency proceedings, to overhaul its business...

The plan requires approval from 75% of its unsecured creditors. All creditors get a vote, but the value of the vote depends on how much they are owed.

Under insolvency rules, landlords' claims are already heavily discounted because of how accountants judge their losses. The issue for landlords is that their "say" or voting rights in the CVA process is discounted by a further 75%, which they believe is grossly unfair.

The BBC understands that even if most landlords vote against the plan, they won't have enough clout to win the day.

"With landlords' voting power reduced by 75% of the value of their claims, the dice are clearly loaded against them in the CVA process," says Mark Fry, from the restructuring firm Begbies Traynor... "Even if the majority of landlords were to vote against the CVA, that would not be enough to stop it being approved in its current form, leaving landlords taking all the pain of the CVA process whilst House of Fraser's shareholder takes out £70m."

I'd never heard of that reduced-votes-for-landlords rule, but it sounds eminently sensible to me.