How business rates impact upon high street performance – the evidence

There is an ongoing talk about the re-evaluation of business rates, and several high profile reports (e.g. the Grimsey Review 2013) call for drastic measures in the business rates system before it is ‘too late’ for the high street.

The University of Liverpool and Local Data Company are investigating factors that affect business rates (occupation, vacancy rates and rents ) and their preliminary analysis highlighted the disproportions in rents, vacancy rates and business rates – meaning some high streets are suffering more than others.

A CLG (2011) report presented a government plan that allows local authorities to retain a part of the income generated by business rates to reinvest in their own economic development priorities .

However, De Magalhaes’s (2012) highlights the problem with redistribution of business rates to local authorities, which still does not guarantee money will be spent in-line with a particular place’s priorities.

This is in contrast to the surtax generated by Business Improvement Districts, which is always re-invested locally, according to priorities set by the BIDs’ members.

Secondary shopping areas seem to suffer the most from the business rates system, and this was recognised in a scoping paper by Tym et al. (2000) who called for business rates revisions in these areas.

Also, Findlay & Sparks (2009) raised their concerns about business rates and argued whether they are well matched with the buying power of users and types of retailer present in a location.

In our research, business rates came out the 32nd strongest influence on high street performance, out of 200 factors, on a equal pegging with rents.

We will be presenting the order of influence of all 200 factors we investigated at the free High Street 2020 conference in Manchester on 10th July 2014.

Please click here to register.

References:

CLG. (2011). Local Government Resource Review: Proposals for Business Rates Retention – Consultation, (July).

De Magalhaes, C., & De Magalhães, C. (2012). Business Improvement Districts and the recession: Implications for public realm governance and management in England. Progress in Planning, 77(4), 143–177. Retrieved from http://www.sciencedirect.com/science/article/pii/S0305900612000372

Findlay, A., & Sparks, L. (2009). Literature Review: Policies Adopted to Support A Healthy Retail Sector and Retail Led Regeneration and the Impact of Retail on the Regeneration of Town Centres and Local High Streets. Scottish Government. Retrieved April 29, 2014, from http://www.scotland.gov.uk/Resource/Doc/256980/0076301.pdf

Grimsey, B, 2013, The Grimsey Review.

Tym, R. (2000). Secondary Shopping: Retail Capacity and Need —A Scoping Paper. National Retail Planning Forum, (June 9).

Christmas Shopping Explained

Manchester saw record numbers in the city centre last weekend; visiting the Christmas markets, enjoying a mulled wine or a gingerbread latte and, of course, going shopping. A boost in retail sales was predicted by, amongst others, Deloitte who projected an increase in sales of 3.5% to £40 billion, this year.

Predicting a year on year increase at Christmas is a very safe bet. We always spend more than last year at Christmas. Even if we say we are not going to. Last year, according to a YouGov surveyconsumers in the lower socio economic grouping of C2DE said the would spend significantly less in 2012 than 2011….but their actual spend was higher.

Consumers’ intentions are not a very good predictor of their behaviour. Asked way before Christmas, when stories about redundancy and recession are rife, it is not surprising they prefer to project an image of caution. But in the lead up to Christmas, the retail sector works very hard to encourage people to part with their money, tempting us with seasonal product ranges and festive merchandising – in the four days before Christmas alone Verdict estimate over £12 billion will be spent this year.

Given the ever increasing commercialisation of Christmas it is not surprising we are getting better at being consumers. Last year Internet users started to search for the word ‘sales’ online around about 14 December. Economically savvy consumers have already pulled forward the January Sales to Boxing Day and now they expect heavy discounts before Christmas.

Last week, PricewaterhouseCoopers said that 72% of the high street already had a sale – with the average discount being 46%. Just because items are cheaper doesn’t mean that we spend less. Most Christmas shoppers have a predetermined idea of how much they will spend per person on their list. So, we get more gifts for our money, the retailers move more stock but profit margins are reduced.

The squeeze on profit margins may be felt even more strongly this year as more people shop on the Internet relying on ‘click and collect’ services. Whilst this is convenient to the customer it can be expensive for the retailer, especially the cost of dealing with returns. For example, John Lewis ‘click and collect’ customers have 5 different ways to return unwanted goods. So much more complexity for the retailer to manage than the old ‘returns’ counter – where the customer also met the transport costs incurred in bringing the item back.

With 1 in 5 gifts being bought on-line does this mean further bad news for the high street? According to Experian, there were 113 million visits to retail websites last Boxing Day. However, footfall data shows the same number of people still went to visit the shops on Boxing Day. For many people, including the half a million people that visited Manchester at the weekend, going to the shops is synonymous with Christmas. I predict I will still be saying that for many years yet.

The Teenage Market

Brothers Tom and Joe Barrett created the Teenage Market in Stockport to give entrepreneurs and performers a chance to share their products and skills with consumers. In their first market 70 young people ‘produced’ the teenage market along with 100’s of mainly young consumers.

44% of the young traders had never visited the market before but 53% are now considering it as a career option.

One trader, local artist Lucy Shaw, is funding her advanced studies through her business.

The Teenage Market is being offered, through licence, as a real world counterbalance to the growth of the digital marketplace.

Their on-line portal, driven by WordPress (another Stockport business), allows traders and performers to link and collaborate but always results in a physical teenage market event. It also allows market managers to ‘manage’ the mix of the event – in terms of the type of retail and performance.

Additionally the licence offers full marketing, promotion and other support.

The licence is £700 per year or £1000 for two years

A fantastic innovation. You can find out more at www.theteenagemarket.com

Finally, I was delighted to hear that Tom is a graduate of Manchester Metropolitan University. Tom and Joe told their story to conference delegates at the National Association of British Market Authorities Annual Conference today in Torquay.

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Portas Pilots – One Year On

There’s been a lot in the news this week about the Portas Pilots – so here is a round up and my view on some of the key issues that have been discussed.

Why have the Portas towns got high retail vacancy rates?

There are some forces of change that work on a national or even international level, affecting all town centres, such as the recession – people have less money to spend and e-commerce – more of people’s spend takes place on-line.

Then there are factors that impact on individual town centres, such as the size of the catchment – whether more or less people are living in the area, how many people work in the town centre, the retail and service offer, for example comparison or non-food retailing has suffered the most in the recession, food and service business have done better.

Other factors include its location (northern towns have higher vacancy rates than those in the south), size (small centres are more resilient than large) and their accessibility or the ease with which people can travel to other competing centres.

In the case of the Portas towns, what is more important is the long term vacancy rate. For example, pre-recession Stockport’s vacancy rate was 12.7% compared to a national average of 10.3% A long-term vacancy rate higher than the national average indicates a long-term problem, and in most cases, an over supply of retail floorspace.

Whilst the Town Teams can get behind the existing retail, this is difficult if it is spread all over town. A strategic approach to concentrating retail into the right-sized centre is also necessary.

Have the Portas Pilots got high churn rates?

In a word – no. You could not pick out a Portas Pilot accurately on the basis of the number of shops opening and closing in its centre. Croydon has the highest churn rate – but then it probably had the highest concentration of multiple retailers, and due to the amount that closed last year (HMV, Comet, Clinton Cards, JJB Sports, Blockbuster, and Thomas Cook etc.) it’s not surprising they have more of their share of 4,000 empty shops to fill.

As Croydon is in the more affluent south, then retailers are likely to be more attracted to relocate there, rather than Nelson in the poorer North.

Churn rates are higher everywhere.
There has been a dramatic fall in the length of leases on commercial properties over the past five years. Before the recession, the average length of a high street lease was 10 years. There’s no doubt the economic climate has meant property owners have had to offer more flexible lease arrangements –a third of high street leases are now less than 5 years.

So, retailers can relocate to more profitable locations – areas with higher footfall – or larger, more efficient retail space, more easily. In other words they are not so ‘trapped’ in locations, which previously kept the churn rate down.

Also, with shorter term and pop-up leases, rent and rate relief, more independent retailers are being attracted into premises that would not have been feasible for them before. However, like other small business, their failure rate is high. A small shop has about a 40% chance of being in business 5 years after opening.

In a survey we did of 600 small retailers in the UK less than a quarter had a business plan, many of them had no previous retail experience and did not invest in training. We found a significant relationship with having a business plan the number of years the shop was in business and turnover.

Without a business plan and some grounding in retaiing, new entrants may be making the wrong location decisions – based upon supply side factor considerations like the price of the unit, rather than whether there is real market demand for their offer and whether the shop is in a location that attracts enough footfall.

How can the Town Teams increase footfall?

In the short term – by making the most of the space and the assets they have. Markets, vintage fairs, festivals, promoting existing retailers through guides, websites etc. Free or cheap parking on its own will not encourage people to the centre if what they want isn’t there, if there is nothing to attract them, if they can’t find it – or the town is dirty or feels unsafe.

But longer term, towns need to have an offer that meets the needs of their users. Retail and consumer data should be used to undertake an analysis of the retail area and work out what is missing and what sort of businesses would do well. Small in-town or edge-of-town supermarkets are associated with lower vacancy rates. Towns should actively encourage certain types of retailer – by going to other locations and seeing what is missing and who they could attract. If a town doesn’t want a supermarket then it should consider options like a local food market.

Towns will need to accept that retail floorspace has to shrink by between 20-40% and should help surviving retail outlets concentrate in the same part of town. This is the strategic stuff that needs some vision and leadership. Towns should be thinking about what the other space can be used for, in terms of uses that will bring more people into the town centre; offices, education, sheltered housing… in the next 10 years over 12.4 million people will be over 64 so more people will need live near to locally accessibly shops and services as they may not be mobile enough to travel to shop or visit their GP.

How can the towns improve their image?

There’s been a lot of investment by towns and cities into rebranding. But behind every good brand you have to have a good product, so there’s no shortcut to the investment and effort needed in terms of getting the place product right.

However, place perceptions can offer lag behind reality – and if a town has a poor image it can take a long time to change that. Place ‘ambassadors’ should be engaged; these could be the local press or key stakeholders like local retailers, for example. Basically, people that can and are willing to ‘talk-up’ the town.

A rebranding exercise can be useful, if it is thought of as the ‘organising principle’ for integrating measures (e.g. events, media relations, residents’ participation). But it needs to capture the place’s distinctiveness and shouldn’t just be a trite slogan – like “open for business”. What town wouldn’t be open for business?

What’s all this about the night-time economy?

Reports by the Local Government Association show that the public and council offers are concerned about the proliferation of sex shops, betting shops and food take away outlets. But if a property is empty landlords will want to fill it. The problem is the landlord is very unlikely to live in the town that seemingly becomes plagued with late-night bars and take-aways etc.

Councils can stop operators by using licensing restrictions, but they may well be challenged – and this is expensive at a time when they have no cash. Splitting the economy into day and night isn’t very helpful. The economy should be seen as a whole – if a late-night takeaway causes a litter problem that puts people off using the town in the day then the net effect on the economy may be negative.

What sort of retailers are doing well?

Well it is not all doom and gloom on the high street. Primark has seen its sales shoot up 24% in the last 6 months (to March 2013). Unlike other retailers, it is not going on-line as it is concentrating on growth in its existing market and profitability from improving retail operational efficiency. So, for example, it is expanding the sales floor area in shops so it can sell even more.

Even though there is a decline in comparison retail (electricals, toys etc.) Argos has seen its sales grow by 3% because of its successful click and collect service. Whilst consumers like the convenience of shopping on-line, the delivery aspect can be very inconvenient – so the ability to order something and know you can pick it up is very compelling. Likewise, John Lewis and Waitrose have seen big growth in click and collect sales.

And lastly, footfall in towns that participated in last years ‘Love your Local Market’ increased by 4% (against a backdrop of 6% decline). There is a growth of the Totally Locally movement, and after the horsemeat and other scandals, more people want to know where their food comes from, and smaller food retail businesses can offer this more personal connection with the supply chain and this reassurance.

So, one year on – the same questions are being asked and answered – this is worrying as we need to move on to real action if we want to support our towns and high streets to change so they have a sustainable role in the future.

Too many betting shops?

Saturday saw a small group of people protest against the proposed opening of Manchester’s 26th betting shop in the city centre.

I was asked to comment this morning for BBC Radio Manchester on whether betting shops are a good or bad thing for the high street.

On the positive side a new betting shop, like the one proposed, in a prime retail area is likely to employ between 4 and 5 people. It will pay around £40,000 per year in business rates. It will also contribute about £100,000 in tax to central government. Finally, according to a report by Ladbrokes, 80% of their shops open in vacant premises. So the argument is that it’s better a retail unit is occupied and paying business rates and tax than just left empty.

The recent growth of retail betting shops on high-streets demonstrates that they are successful in attracting people in to spend their money. £200 million in Manchester alone according to city centre councillor, Kevin Peel.

The problem is money spent in a betting shop does not circulate very well. Compared to something like a restaurant which is much more labour-intensive, only a small amount of the turnover goes into paying staff.

Also the UK betting shop market is dominated by 4 national players who have 82% of all shops. So profit goes back to head offices that are not based in Manchester.

So the argument is money spent in betting shops cannot then be spent elsewhere in businesses that are more beneficial for the local economy.

But is 26 betting shops in the city centre too many? Some smaller towns like Rochdale have an even higher concentration of shops in relation to their population. On the other hand the UK currently has about 7000 betting shops less now compared to the 16,000 it had in the 1970s.

So the problem may not be how many we have, but where they’re located. The betting industry strongly refutes the accusation that shops are proliferating in areas of economic and social deprivation. But the on line mapping serviceprovided Geofutures certainly shows how clustered betting shops are around poorer areas.

Again, the industry argues that because they need to locate in areas of high football these are obviously going to be in town centres and high-streets. But their argument is not particularly convincing. Even their own research suggests that it is poorer people that gamble. They find a relationship between participation in gaming activities and household income only between households that earn under £36,000 a year.

Historically, activities that are not perceived as being particularly good for us are heavily regulated.

Before 2007 betting shops were not allowed to open next to each other. The reason we are seeing so many new betting shops in areas is partly the relaxation of this control but it is also a direct consequence of legislation that limits the amount of fixed odds betting terminals (FOBTs) to 4 in each outlet.

It’s these high-stake, roulette and casino machines that make up most of the shop’s turnover and also account for 50% of their profits.

A regular better i.e. someone that visits a betting shop at least once a month spends over £1200 per annum on FOBTs compared to £427 on over-the-counter bets.

A report by the Local Government Association indicated that half the public in their sample were concerned about betting shops. In particular, the ease at which empty retail outlets can be taken over by this type of operator.

Mary Portas singled out betting shops as being bad for the high street, but the concentration of any one type of business in a small area is usually bad, unless a location is looking to specialise, for example a street of fashion or second-hand book stores.

Many empty units like banks and building societies will not require any change of use to be granted before they can be turned into betting shops, therefore no planning permission is needed.

But all betting shops have to be licensed. Only one council so far, Newham, has turned down a license application for a betting shop. This is on the grounds that the shop’s primary activity will be gaming on machines rather than traditional over the counter betting.

This decision is being appealed against by Paddy Power and is up for review by local magistrates in June. I expect the licence will be granted as the operator is not proposing to do anything illegal.

Barking and Dagenham Council have launched a more strategic approach to their management of retail units. They have published supplementary planning guidance to give businesses 12 months notice of their intention to regulate the number of betting shops locally.

If gambling is the problem that Saturday’s protesters claim it is, then it won’t be long before national government will have to act. Perhaps that’s why the betting shop operators are so keen to get in quick, take over empty retail units quickly and make as much money as possible from the gaming machines whilst they can.

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High street decline – what does the management and marketing literature suggest?

Whilst the drivers of change affecting high streets are complex and cross discipline boundaries, the management and marketing literature may offer some solutions. To simplify the literature, we have reviewed potential high street interventions under the broad categories of ‘repositioning’, ‘reinventing’, ‘rebranding’ and ‘restructuring’.

Repositioning is a strategy that can be used to counteract decline (Smith, 2004). Rapid economic, political, and social changes, are most likely to lead places to repositioning strategies that will allow them to identify potential competitive advantages (Kavaratzis and Ashworth, 2008). The focus of any interventions here should be on understanding the forces of change and the value of unique responses that reposition individual high streets, through building on distinct capabilities (such as local identity, Edensor, 1998) but are accommodative of future trends (such as an ageing population or the growth of m-commerce) and are therefore more resilient (Wrigley, and Dolega, 2011).

Reinventing should focus on elements of the place product within a framework of place marketing which suggests that any new developments should be guided by the marketing principle of meeting the needs/wants of identified target audiences (Ashworth and Voogd, 1990). The “reinventing” process of urban places can be built on activities that aim to revitalise a place’s identity and image; identity and image can be seen as both static (for communicative purposes in a fixed time) and dynamic, which recognises the uniqueness of each place and the difference in each stakeholder’s view about a place (Kalandides, 2011; Warnaby, 2011; Kavaratzis and Hatch, 2013). It is the latter view that can be used as a driver for reinventing places such as high streets and city centres; a framework built on these premises can unarguably assist the development of rejuvenated, competitive retailing spaces, which will merge innovation and local place identity, and will be meaningful for all stakeholders (Coca-Stefaniak, Parker, Quin, Rinaldi and Byrom, 2009). Retailing is an important element of the urban place product, and “reinventing” this sector along with improvements on complimentary elements of place can contribute to a better understanding of the formation of the “holistic” place product (Warnaby, Bennison and Davies, 2005).

Rebranding should focus on the communication of image and identity as previous studies demonstrate that place consumers may find that the place experience meets or exceeds expectations whilst the image of the place is ‘problematic’ (Selby, 2004). Rebranding a place is mainly concerned with the application of branding, marketing communications, and public relations techniques in order to deliver a consistent place identity, which can form a sum of beliefs, ideas, and impressions in the minds of potential consumers of a place (Kotler & Gertner, 2002). It can be thought of as the ‘organising principle’ for integrating measures (e.g. events, media relations, residents’ participation). Place branding can evoke favourable place images that transfer emotional and self-expression values, as well as utilitarian attributes to individuals (Caldwell & Freire, 2004). These images are part of a place’s secondary communication efforts (Kavaratzis, 2004), which consists of various slogans, advertisements, and PR campaigns which aim to assist a place’s actions towards development. Successful place brand management can lead to positive word-of-mouth, and also assist in the transformation of negative images (Hanna & Rowley, 2011; Skinner, 2011). The need to identify how potential stakeholders can co-create the place brand is the focus of recent developments in place branding (Warnaby, 2009; Hatch and Schultz, 2010). High streets, and particularly the retail sector, with the multitude of stakeholders involved in it (users, brokers, fixers) (Pal and Sanders, 1997), can highlight the desires, needs, and views of those stakeholders, which can lead to a better understanding of how place brands are created and evolve (Kavaratzis, 2009; Hanna & Rowley, 2011; Kavaratzis & Hatch, 2013).

Finally, restructuring, should focus on forms of management and governance, including formal and informal (Coca-Stefaniak et al, 2009; Peel, 2003); regulatory, functional, and contractual (Lloyd and Peel, 2008; Peel et al, 2009) and modes of communication / knowledge exchange (Peel and Lloyd, 2008a, b). Consequently, the major point of interest is how high streets can be restructured in order to facilitate all the changes mentioned above. Place management and retail management are recognised as interdependent areas, and practices that entail both commercial and locational benefits is the best way forward (Bennison, Warnaby and Pal, 2010). Restructuring and cooperation of all place stakeholders and creation of strategic networks and transparent public-private relationships can nurture conditions for the sustainable development of a place (van den Berg and Braun, 1999; Rainisto, 2003). Physical restructuring is also another area which is encapsulated in place management and place marketing strategies; the proper use of current infrastructure (temporal) and the development of new retail spaces are major antecedents of place attractiveness and place development (Pike, 2010; Teller and Elms, 2010). In the case of retailing, the best spaces created from restructuring can enliven the high street and also shape a better image for the place which can enhance retail operations (Pal and Byrom, 2003).

This review has been written by Cathy Parker, Nikolaos-Foivos Ntounis and Mihalis Kavartzis for an Economic and Social Research Council Knowledge Exchnage Project : High Street UK 2020. The full list of references is available upon request. Please contact c.parker@mmu.ac.uk

UK Retail Markets 2012

I am back at the National Association of British Market Authorities’ Annual Conference. I am listening to Krys Zasanda present the heading figures about the state of the sector.

279 markets contributed to the annual figures. 75 indoor and 204 outdoor. The survey was a traffic light system, asking Market Managers whether things had remained stable, increased or decreased with regards to stalls let, traders standing, market days, footfall, income, staff, bottom line and investment.

So, aggregating all the measures in 2012 74% of all markets replied stable or increasing 16% in decline. This was an improvement in last year.

In other news, like 2011, outdoor markets are doing better than indoor. Similarly Farmers’ Markets are doing better than traditional markets again this year.

Regionally the performance by region shows markets in The Midlands fare the worst with London ones doing the best (no surprise there).

The overall improvement could well be due to the Love Your Local Market and National Market Day initiatives, as well as the work Mary Portas did to raise awareness of markets. The Love Your Local Market national website got 14,000,000 hits!

So a bit of good news in what has been doom and gloom in terms of many retail statistics and news from The High Street.

21st Century High Streets

The IPM has heralded this report in our latest Bulletin which went out this week.  The majority of our Bulletins deal with keystone reports like this, but I’m amazed at the activity on our LinkedIn group, where this topic has been raised some time ago.

The report looks at what makes visiting a high street a great experience, irrespective of whether it carries local shops or flagship stores. It  has to be commended for their dissection of the issues high-streets face, even using characterisations and a bit of personalisation.

Place, Realm, Planning, Accessibility, Safety & Regulation and the main characters, although I’m tempted to add Sleepy to make it 7 dwarves who patrol our high-streets!

They also flag up the difference between the traditional high street I grew up in and the ones that meander their way through our cities today. I don’t usually ascribe to cheesy nostalgia but after seeing this advertising legend and its recent progeny, I did recall the necessity of a group of recognisable businesses in one place. Aside from serving the public with their wares, they facilitated conversation and interaction between mothers, butchers and the like.

If the towns we grew up in had no communal area for civic interaction, who is not to say that mistrust and suspicion would run rife between the chattering masses. This lack of cohesion could lead to negative effects in a community which could cost local authorities millions every year. As we set out in our charter, one of the primary goals of place management is to create an area for this engagement, but we often overlook these micro-effects.

A recent article by one of our fellows, Gurjit Singh, put our work into perspective on a Mega-macro-level by analysing the recent UAE developments into the Arabian Sea, and this guy manages an island in Singapore!

Closer to home, we can hail the case studies brought up but the BRC report in particular Belfast. The recent influx of money by the Department for Social Development will, I hope, shrug off years of negative perception and emerge with a Belfast that is rapidly becoming a cohesive and modern city, desirable to live in by all.

Although the crystal ball tactics of predicting how this dreaded r-word will fare in the upcoming months are not my forte. (One thing I have noticed in recent times is that the more we talk about the r-word, the more it is perpetuated, so I shall refrain from referring directly to it!) The one thing I can assure you of is that the IPM will be working hard to ensure high streets will be fully supported by advice and encouragement through their Place Managers.

Obviously, this report is a small part in a larger debate and if you would like to throw your two cents in, you can get in touch with the BRC directly here. Or you could follow some of our lively discussion boards on LinkedIn either.

See you next week