The admission this week by Marks & Spencer’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.
According to our figures, M&S has a business rates bill of around £295m a year for its stores in England and Wales, a figure set to rise in the 2019-20 list, and chief executive 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.
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.
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 (2016/17) to £102,000 (2017/18) 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 (2018/19). If you span this out over the five years of phasing, this store alone would have been paying thousands of pounds in rates than it should have been.
You can’t blame the M&S management for taking action. The 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, they have been knocked for six with the delayed implementation of expected business rates and management has had to make some very tough decisions.
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, the uncertainty of Brexit, rises in the National Living Wage, the 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 uniform business rate. M&S is not alone in its plight. Every day we read of some retailer or restaurant chain closing outlets. The question isn’t whether there will be any more, but which will be next to make a dire announcement.