Government delay in business rate revaluation together with the slowness in reducing liabilities has helped drive retailers to admit even more closures are on the cards
The admission this week by M& S bosses that there will be further store closures, on top of the 100 M&S stores already planned to face the axe by 2022, comes as no surprise to business rates experts at Colliers International, the commercial real estate agency and consultancy.
According to Colliers, M&S has business rates bill of around £295 million a year for its stores in England and Wales, a figure about to rise further in the 2019/20 list and CEO Steve Rowe has openly blamed the firm's massive business rates bill for heaping further pressure on the firm, forcing it to close swathes of stores. M&S has confirmed that it aims to move more sales on-line and the chain has already shut the first 30 stores as part of its closing policy, announcing a further 17 locations yesterday.
Colliers also believes that the business rate bills of individual stores in M&S’s portfolio has also influenced which stores it plans to close first.
Looking at the latest announcement of closures Colliers has analysed the business rates liabilities of these stores and nearly all of them saw a reduction in their rateable value following the 2017 Rating Revaluation, indicating they were in locations where rents were falling and market conditions difficult.
However, the decision to delay the 2015 revaluation to 2017 has meant that most of these stores had a two-year delay in receiving the reduction in their business rates bills, impacting on their bottom line. And on top of that, the policy of phasing in rating reductions whereby it takes four years of "transition" until businesses in England are allowed to pay their business rate bills at the new revalued levels has meant these stores would not have been able to benefit from their new lower rateable values for several years.
According to John Webber, Head of Business Rates at Colliers International, “Take the M &S Barrow store as an example, which was on the latest closure list. Barrow M &S had a rateable value of £211,000 in 2010 and due to rental levels falling was revalued at an RV of £158,000 in 2017, a decrease of over 25%. However, because of downward phasing its rates bill only fell 3% from £105,000 (2016/7) to £102,000 (2017/8) meaning it would have been paying over £20,000 more than it should have been that year alone. And the bill reduction was only another 2% last year to £100,000 (2018/9). If you span this out over the 5 years of phasing, this store alone would have been paying thousands of pounds in rates than it should have been.”
Webber continued, By delaying the Revaluation by two years and introducing phasing, the Government has not allowed businesses rates to reach their true levels and so the stores in some parts of the country have been forced to pay much more than many could afford. This is what has been killing the high street in many of our regional towns and even more worrying, putting thousands of workers out of jobs. "
Webber continued, “You can’t blame the M&S management in taking action. These stores on the closure list were already struggling with higher staff costs and lower footfall and sales. But business rates have not helped. Thinking they might be getting some slack and redress with the new Revaluation, the delayed implementation has knocked them for six and made management make some very tough decisions. "
Marks & Spencer is not the only retailer struggling with its high business rates burden. Both Debenhams (rates bill £76 m a year) and and House of Fraser (rates bill £40 m a year) have publically decried the high bills they are facing on their physical properties and both have announced store closures, particularly in parts of the country where stores have also been impacted by the downward phasing and are thus committed to be paying high bills than they should be.
Webber concluded, "The current business rates regime has done nothing to stimulate healthy retailers and only seems to be adding to the problem. Given the rise of internet providers, uncertainty of Brexit, along with rises in the NLW, apprenticeship levy and the fall in sterling, many retail businesses are feeling increasingly vulnerable and just can’t take the lack of support for their most vulnerable stores. The Government needs to be more supportive of retail and properly reform the system now, providing either rate holidays or a reduced UBR. M& S is not alone in its plight. Every day we read of some retailer or restaurant chain closing outlets.”
“The question isn’t will there be any more, but who will be next to make a dire announcement. “
Colliers is still campaigning for genuine business rates reform including the need to offer more funding to the Valuation Office Agency (VOA) so it can deal with the estimated 200,000 outstanding business rates appeals in the system.