High Business Rates Adding to Pressures on Costs at John Lewis Department Stores Says

Louise Daly, associate director of Colliers International in Scotland

AS DAME Shirley White prepares for her first day at John Lewis on Wednesday, there is no doubt the retailer is under some pressure.  Negative news emanating recently, including high profile departures from its senior management team and another big fall in profits – following a 2% decline in sales, illustrate how even blue-chip retailers are facing the heat in current market conditions.

Dame Sharon will definitely have to look more closely at costs.

And there is no doubt that current business rates regime is adding to the pressure, says John Webber, Head of Business Rates at Colliers International.

Analysing John Lewis stores in the UK, Colliers estimates that the department store business (not including Waitrose) faced a business rates bill of around £57.4 million in the current year – more than 30% higher than before the 2017 Revaluation, which took place in England. This is due to rise further to £59 million next year – a big bill for a department store chain of less than 50 shops.

John Lewis’ three Scottish stores, located in Aberdeen’s George Street, St James Centre, Edinburgh, and Buchanan Street, Glasgow, account for £2,675,150 in the current year, rising to £2,753,100 from April.

And some stores are facing enormous bills. John Lewis, Cavendish Square off Oxford Street, for example alone is facing a business rates bill of around £10.4 million this year. And Colliers has found that 21 other John Lewis department stores are paying rates bills of more than £1 million each in the 2019/20 tax year. These include Glasgow, Bristol, Reading, Cambridge, High Wycombe, Peterborough, Southampton, Blue Water, Nottingham, Manchester, Cheadle, Liverpool, Newcastle, Birmingham, Solihull, Leeds, Brent Cross, Kingston, Westfield, Milton Keynes and Cardiff. Such bills are due to rise further in 2020/2021 and are looking increasingly unsustainable in the current climate.

According to John Webber, “The increasing shift to on-line shopping, rising costs, including the rise in the minimum wage and dampened consumer confidence are all taking their toll on traditional department stores and John Lewis is no exception. We understand it is looking closely at its management layers, its annual bonuses, its Christmas advertising spend and its position with its various landlords.  With such a drop in sales, it is no wonder the company is needing to take defensive measures.”

“But,” as Webber continued “the business rates environment needs to be overcome also.”

“While John Lewis is currently negotiating with landlords over the rents and even the service charges that it pays, one area of costs – business rates – is set in stone – and there is no room for manoeuvre. And bills are likely to continue to rise over next year too.”

Business rates is devolved to Holyrood, with MSPs set to debate the final amendments to the Non-Domestic Rates (Scotland) Bill later today (Tuesday 4th). With the Bill set to be passed, the new legislation has already raised widespread concerns among Scotland’s business community.

Louise Daly, associate director of Colliers International in Scotland, said: “The proposed devolution of the Uniform Business Rate (UBR), the introduction of powers of the assessor to request information and the potential level of the penalties that could be implemented are all factors contributing to the ongoing uncertainty. Without a clear commitment from the Scottish Government to provide a fair and balanced system, we are likely to see further cases of corporate failure, where rates are at the heart of their demise.”

South of the border, the 2021 Revaluation is expected to offer some reprieve to retailers, as rate bills should reflect the reduction in retail rental levels, as seen at April 2019. But as Webber points out, this would only kick in if the Government allows values to move to their correct levels immediately and does not implement a period of transition, as it did so disastrously after the 2017 revaluation.

John Webber continued, “Like other retail operations, John Lewis is facing rising costs which it is attempting to keep under control in a difficult market. Business rates are playing their part in keeping such costs high.

“Sadly, given recent announcements designed to help smaller retailers no one in power seems to appreciate that it is the bigger retailers, the chains that are the big employers in the sector. Maintaining a punitive tax system against the bigger retail players whilst providing relief for the smaller retailers, does little to prevent store closures and job losses as we have seen elsewhere in the market.  When quality retailers like John Lewis start to feel the pinch, we know we are really in trouble.” 

In January the BRC (British Retail Consortium) reported 2019 to be the worst year on record” for the retail sector.

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