No Christmas Miracle For the Ailing British Retailers

It's a Sunday afternoon exactly one month before Christmas. Some of the newly put festive lights on the Ilford high street are already starting to falter. Even though the sun is out and the present-shopping period has officially begun, there is hardly a shopper in sight. All one can see walking down the street are the store owners and a few teenagers outside a McDonald's.

Right next door to the fast food eatery is 'Furniture Fleet'. Paul Turnbull, its proprietor, sits comfortably in his warmly lit furniture store. He has not had many shoppers today. Pouring a cup of tea Mr Turnbull says, "it usually gets better around five [PM], but if not, it's just more warm tea and biscuits."

Mr Turnbull's empty furniture store is symptomatic of a bigger problem faced by the British retail sector. Over 16,000 retail stores in the UK had to put down their shutters permanently in 2019, according to data collected by the Norwich based Centre of Retail Research (CRR). The same report estimates over 130,000 retail sector jobs lost so far this year.

The bulk of store closures and job losses has been due to many popular retailers going out of business and filing for administration. These include household names with hundreds of retail outlets and thousands of employees like Mothercare, Regis Supercuts and Forever 21. Although filing for administration doesn't mean that they have completely shut operations, their management has been given to insolvency practitioners. As the main aim of these administrators is to save the company from bankruptcy, they choose to close loss-making stores which makes much of the staff redundant.

An "Unfair Advantage" to Online Retailers

Although most store owners on the Ilford high street have managed to hold on to their businesses, they seem visibly worried for the future. Ahmed Ali, a store owner selling mobile accessories next to Mr Turnbull's store blames online retailers for the dipping sales in recent years. According to him, "customers now play shopping games on their iPads."

Tom Holder from the British Retailers' Consortium (BRC) adds other reasons for the falling sales of physical retailers. According to him, "the consumer demand is fairly low while the costs, especially the taxes are sky-high." However, the head of communications at UK's largest retail association adds, "the fact that online sales are not taxed as much has taken a sizeable chunk of sales from the traditional retailers."

The extent of the increase in online retail is reflected in the Office of National Statistics' 2019 report which suggests that one in every five purchases in the UK is now made online.

Owner of a decade old shop, Mr Turnbull has witnessed this change. Referring to Hardy Amies, a luxury clothing brand which had to shut its store in London this year, Mr Turnbull says, "it is hard selling things in brick and mortar units in an age where the Queen's own dressmakers can't survive."

Rising Online Sales as a Percentage of All Retail Sales. 

Data: ONS 2019

According to Mr Holder, policy making is to be blamed for the "unfair advantage" given to the online retailers. According to him the retailers have to pay "94% of all the business rates while accounting for only 80% of the sales." The business rates are taxes the retailers have to pay on the valuation of their physical stores. In 2018, this accounted for almost half of all the taxes large retailers with outlets had to pay, according to the BRC data.

The taxation is also seen as a big problem by the director of the Centre for Retail Research Professor Joshua Bamfield who suggests, "if the taxes remain at this level, the high streets outside city centers of London and other major cities will become deserts."

Blaming a lack of political attention to the ailing sector, Prof Bamfield adds, "the government does not care much. The retailers are bleeding and I don't know why they are not being heard."

Retail Sector Remains Politically Ignored

The British retail sector contributes about 15% in taxes to the national economy and employs one in every twenty people in the UK according to the government data. Yet the policy making on the sector has not been a hot political topic.

According to the data collected by CRR, over 13,000 property tax paying stores have closed since 2008 leaving over 2 million without jobs.

Prof Bamfield says that the government has not felt the pressure of the job losses

because the unemployment rate in the UK has largely remained low. This, he argues might be because "many of the retail workers just go on to work in warehouses of the e-commerce giants."

There is also an absence of data on how much the British economy has lost in taxes due to store closures. Prof Bamfield who intends to conduct this study estimates the amount to be in "hundreds of billions."

Retail Policies: a Hit and a Miss?

Although there hasn't been a significant structural change, the government has heard some of the demands of the brick and mortar retailers. Still to be passed by the parliament, a new 2 percent digital services tax on e-commerce retailers will be introduced in 2020. This has been seen as a welcome change by many, including Prof Bamfield.

The government has also exempted many small stores from paying any business rates, while incorporating better inflation-proof mechanism for valuating taxes paid by big retail chains.

However, the small tweaks to the taxes are not enough for many in the industry including the British Retail Consortium. The group consisting of 70% of all big retailers in the UK has lobbied against the current business rates and want a new taxation system altogether.

According to BRC spokesperson Mr Holder, "instead of the current system, we want an industry wide turnover tax of 1.5%." This would effectively mean that the online retailers would pay as many taxes as the other retailers do.

However, the policy change may not be on the cards for the next few years. According to Prof Bamfield, "none of the parties in the upcoming election have promised big tax reforms for the sector."

Back in Ilford, furniture store owner Paul Turnbull is visibly annoyed by this political snub. He says, "As more tax paying retail stores like mine close in the next few years, I don't know how they [politicians] will fund the promised hand-outs worth trillions."