Posted on Wednesday 14 March 2012 by Ulster Business

Carnage on the high street

The retail sector is going through unprecedented times with weekly if not daily news commentary about how difficult things are.

Ever-increasing vacancies (Northern Ireland is officially the worst-affected UK region), retailers entering administration (La Senza, Barratts, Bon Marché and Peacocks within the last two months) or footfall figures falling significantly make it impossible not to feel battered and bruised if you are currently involved in retail. Not to mention Mary Portas or Justin King and their seemingly endless prophesies of doom and gloom regarding our town centres!

The undeniable truth is that the retail market is going through a dramatic and prolonged process of correction with a raft of factors conspiring against the industry. These include severely damaged consumer confidence due to the fragile nature of the economy along with significantly increased costs of living. The market is also bedevilled by an inflexible property market and taxation structure that burdens retailers with historic costs, which reflect neither current trading performance nor the continued growth of internet sales across most sectors.

The overall result is a retail sector fighting against the odds, cutting prices in order to remain competitive and, in many cases, profit margins that effectively leave retailers unable to meet their financial obligations. Ultimately, the only option for these retailers is to pursue some form of financial restructuring through either administration or CVA.

The harsh reality is that there are no quick fixes for this problem and the forthcoming years are clearly going to be a hard-fought battlefield of survival.

However, an opportunity exists to try to mitigate some of the issues facing the retail sector and prepare the ground for a recovery. In particular, this will require a strategic approach by our politicians in grasping these issues without further delay. Key action points include the following:

Direct Government Assistance For The Retail Sector

To date the creation of new retail jobs has not been considered key in terms of growing the economy within Northern Ireland. Invest NI will normally only support companies involved in some form of manufacturing process, which also includes call centres, back office and administrative processes. In general, the retail sector has been excluded from this form of government support and this imbalance needs to be readdressed urgently. Invest NI could be granted a wider brief, and in the current climate all jobs should be considered on equal merit with support provided to create new opportunities as well as bolster existing businesses.

Rates

Current valuations utilised by the Rates Office to calculate rates liability on commercial occupiers are based on historic rental values and are not reflective of the prevailing economic situation. We have now reached the ridiculous position where, in some retail locations, rates payable by the occupier are equal to the rent payable. It is no surprise, therefore, that the subject of commercial rates is now being cited by many occupiers as one of the most significant financial burdens that they are trying to manage. The recent "Tesco Tax" announced by the Finance Minister, and endorsed by Stormont, will not create any significant benefits and has the potential to limit further investment from some of the major players in the sector. Even if the Minister were to announce a revaluation, which has been deferred in previous years, it will take at least two years to effect by which time a large swathe of retailers will have gone out of business and massive job losses may ensue.

Planning

Recently we have seen positive statements from the Minister regarding pending planning decisions for major developments, many of which will be within the retail sector. This is extremely welcome and it would appear that decisions should now become more forthcoming. The reality is that a planning decision does not necessarily deliver development as some of these applications have been originally submitted in prior market conditions and may no longer be viable, or due to the current banking crisis, finance may not be deliverable.

Corporation Tax

Although a reduction in corporation tax would not have a direct impact on retail businesses, there is no doubt that if this can create more inward investment and jobs, it will have a direct impact on consumer sentiment and therefore the level of spend available to the retail sector within the province.

All in all not a particularly rosy picture and clearly there is no quick fix to correct the complex issues at play. Our politicians need to understand that the retail industry is vitally important to the future of Northern Ireland and that further investment and job creation is vital. Politicians need to stand shoulder to shoulder with the retail sector and find ways to support it otherwise some of our town centres and public realm may never fully recover from this current perfect storm.

Colin Mathewson can be contacted on 028 9027 0003 or at colin.mathewson@osborneking.com

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