February 2012 Archives

Davinder Jhamat on learning to compete in a global marketplace.

With BCSC having launched its first Executive Education Master Class on Investment Analysis and Performance this week, a few things spring to mind.

Firstly I am slightly (but pleasantly) surprised, given the austere times we are living in, as to how well this class and the overall Executive Education programme developed in partnership with a global education giant, Cass Business School, has been received.  

In spite of the desire of some organisations to keep their wallets and purses guarded, there is an awareness of a need to reskill and upskill the retail property sector, and to be prepared to take the industry forward as the economy recovers. 

Fear of a brain drain could also be a factor - as the industry observes colleagues relocating to opportunities outside the UK, are companies finding themselves with gaps in their operations, and so investing in employees to get clued up?  

A few weeks ago I read an Ernst & Young article which deliberated why manufacturing matters to an economy and why a lot of economies have fallen into the trap of outsourcing, leaving gaping holes in a country's knowledge base.  But could the retail sector ever fall victim to this type of scenario?  Can retailing and retail property truly ever be outsourced?  

Well, building contracts are put out to tender both locally and globally, and goods are manufactured from all corners of the world.  At the same time, and all too evidently, the scope of multichannel retailing is allowing for simplified cross-border transactions and consumption.  

However, there are limits. Whilst a global retailer embraces knowledge from whenever it can find it, this then needs to be applied to a local base. Expertise on the ground in any given location is fundamental to making sure that we deliver an experience customers want.

Our sector therefore needs to make sure it's at the top of its game, both in terms of international competition and delivering an experience that UK consumers want. In spite of the current economic conditions, we need to ensure that we're investing for the future, and ready to face an ever-evolving retail environment. 

Recent announcements concerning the success of retail's most luxurious brands, including PPR, owner of Gucci, Alexander McQueen and Stella McCartney, Burberry and Rolls Royce suggests the top end of the market continues to be extremely resilient despite the economic backdrop. But is there an even more interesting story to tell, and can we conclude from indicators such as this that the wealthy are getting wealthier whilst the rest of us seem to start counting down the day to the next pay day only a few days after the our bank accounts temporarily dip into the black? 

It's obviously not the most scientific approach to answering this question but the point really is that, despite recent figures indicating  that inflation has subsided slightly, mostly as a result of VAT not being included in the comparative figure, price inflation is still far outstripping wage inflation as household demand waivers due to uncertainly over employment and wage prospects. 

According to Simon Wells at HSBC household consumption in Q3 2011 was only 1% higher than the trough in mid 2009. This suppressed demand is probably not being felt by the mega rich, but those on the bottom rungs of the income ladder. Understandably this is being translated into a backlash against bankers bonuses, boardroom incest and Conservative Party policy on austerity. 

No doubt the Lib Dems will be lobbying pretty hard internally for some kind of positive intervention for the lowest earners in next month's Budget, but given the recent Moody statement on the prospects for Britain's credit rating this doesn't seem likely for now.   

Philippa Latimer, Public Affairs Manager at BCSC

This week the Prime Minister has been at the Northern Future Forum meeting with counterparts from the Nordic and Baltic countries to discuss "social challenges". 

Their term not mine. With the summit lasting only 48 hours, it was agreed that minds should be concentrated on just one key challenge:

• How do we get more women into top positions and women entrepreneurs?

Clearly, the PM has to grapple with this question in the context of the WHOLE economy: a big ask. We, however, must be asking ourselves similar questions in relation to our own sector.

How many women are currently sitting at the top of our leading companies? How many women are setting up businesses within our sector? Do we know the answer to either of these two questions? And, if we don't know, should we trying to find out?

At BCSC we have done an internal audit of our own membership. At the last count (2011), of BCSC's members only 23% were female. But anecdotally this is up from 10% ten years ago. At least we're heading in the right direction.

This still poses a number of questions for us. Are we representative of the industry as a whole, suggesting that retail property is a mainly male sector. Or, are there more women working in retail property, but for some reason they are choosing not to join BCSC? 

At present we don't know the answer to this. Until we do, it's going to be hard to chart a way forward.

We are keen to engage with this issue head on. For months we have talked about convening a summit of women in the sector to try and work out why it seems that our sex in under-represented in our board rooms and in our own membership. If you would like to be involved in this, please contact me direct on philippa.latimer@bcsc.org.uk . Let's get this show on the road.

Business rates mean nothing to most people, and most people are the voting public. And this is perhaps the reason why Government is so intransigent in its position on this year's business rate increase. Does the scale of the retail sector's business rates bill, around £6 billion / year, matter to enough people for Government to see any real value in acting in the interests of retailers and other occupiers of commercial property and intervene to reduce this tax?  

Ok, intransigent is perhaps unfair. At the same time as announcing that Secretary of State Pickles was going to apply the maximum increase in this year's business rate, at an inflation busting 5.6%, his Department announced a deferral scheme to ease the pain. Those of us that were involved in the previous Government's deferral scheme in 2009 (aren't politicians only supposed to steal the opposition's good ideas, rebrand them and call them their own!?) inserted our heads in our hands for once again our political masters had missed the point. Jerry Schurder of Gerald Eve didn't hold back when he claimed the original scheme had been 'a calamity from day one' and that 'I, like many businesses, have zero confidence that it will be managed any better next year (2012)'. 

The cost of business rates is a bottom line not a cash flow issue. We've already seen a number of retailers shut up shop this year as they haven't been able to balance the books due to high trading costs and low consumer demand. A large number of significant retail brands fight on but in a consolidated form. Who suffers? The high street and those communities that depend on it for jobs, the provision of services and for providing them with a positive attitude towards the environment in which they live, work and raise their families. 

This week's LDC data showed that vacancy is still up around the 14% mark, up from 5.5% in 2008, and the BRC sales monitor published on the same day, showing the second worst January on record, are further evidence of the uphill battle the sector faces in 2012. As Lord Wolfson of Next (not his Debrett's reference) put it recently it will once again be a case of trying to run up the down escalator. I've tried doing this, it's very very difficult. 

It is of course not just about retailers costs but investment in towns and cities. There is a general acceptance that many of the UK's urban areas are in desperate need of physical investment. Asking Mary Portas to produce a report on the high street was merely confirmation of this. High business rates constrain the ability of developers to deliver town centre regeneration schemes. As occupiers' business rates liability increases, profits and therefore potential rental values are eroded, affecting in turn the viability of much needed urban renewal. I've heard of numerous cases from investors, leasing agents and asset managers of places where rates are significantly higher than the rents achievable. This is clearly unsustainable from a property developer or investor perspective, especially given today's lending and investment climates.

So what to do? Bang fists? Well yes but we're also giving it one further push and have teamed up with ACS and a few other retail advocates to try and persuade Government to think again in advance of its Budget announcement on 21 March. We're briefing MPs and making a recommendation for an increase of no more than 2%, based on the Bank of England's target for CPI inflation, and the Daily Mail has, like others before, picked up the gauntlet and is charging towards the Treasury's door. The problem is those doors are pretty impenetrable, unless of course you are in possession of the keys to future electoral success. 

To illustrate this point, and prove this is more than simply moaning farmers, Government has stated that any increase in Council Tax above 3.5% is excessive and unreasonable and has subsequently instructed local councils that were they minded to increase CT by more than this they would have to get it sanctioned by the electorate through a referendum. One rule for councils and another for the Treasury... 

The main difference? We all know what Council Tax is and, if we do happen to forget, we're reminded every month.