Autumn Budget – any end to retail “austerity”?
A review of high street-specific measures announced in the Chancellor’s Autumn Budget, disappointing Q3 figures from Next and strong FY results from Seasalt and IKEA.
4 minutes to read
- Typical over-reaction to Next’s trading update. The business posted a 2% increase in full price sales for the third quarter, which covered the unseasonably warm period to 27 Oct. Inevitably, this marked a slowdown on the 4.5% rise in full-price sales seen in the first half. Spurious comparisons were also made between the performance of Next Directory (+12.7%) and Next Retail (-8%). More importantly, full-year guidance remains unchanged with annual sales growth forecasted at 3% and an increase of 0.1% in group pre-tax profit to £727m.
- Stronger figures from one of the breed of smaller lifestyle fashion retailers. Cornwall-based Seasalt has reported a 23% increase in sales to £51m for the year to 27 Jan, marking the ninth consecutive year of year-on-year sales growth. Underlying operating profit rose 66% and EBITDA increased from 7% of sales to 8.7%. Online sales grew 33%, accounting for 40% of overall sales. The business aims to nearly double its store numbers from 55 to 95 over the next five years.
- IKEA UK has reported a 5.9% increase in sales to £1.965 billion for the year to 31 Aug, bolstered by the opening of two new big box stores in Exeter and Sheffield. Other contributing factors included investment in its digital proposition and improvements in its product range. Its share of the UK home furnishings market now stands at 8.4%, up from 8% the previous year. Online sales grew 14.4% in the same period and now account for 15.5% of IKEA’s UK sales.
Stephen Springham, Head of Retail Research:
The fact that, thus far, I have been struggling to offer up any thoughts on the potential impact of this week’s Budget on the retail sector speaks volumes. Although it was mildly positive to see the high street on the agenda at least, the proposed measures were generally under-whelming.
Three measures were of direct relevance to the retail sector – a Future High Street Fund, business rate cuts and a Digital Service Tax. But what wasn’t proposed has dominated most of the retail-related conversations I have since had, namely an Online Tax (or ‘Amazon Tax’ in popular parlance).
Despite Philip Hammond’s own recent utterances and a strong, well-articulated lobby from a number of industry bodies including REVO, the Chancellor stopped short of introducing a full-blown Online Tax. Instead, a Digital Service Tax will be introduced in April 2020, affecting online giants with global revenues of more than £500m.
Obviously, this will extend beyond online retailers to encompass a whole host of tech operators. So it is effectively looking to address wider tax-avoidance, rather than inequities in online and physical retailing.
As I’ve written before, my support for an ‘Amazon Tax’ is only qualified if it is a mechanism to level the retail playing field, rather than a punitive cash-raising measure. The opportunity has been lost, for now at least. And the cynic in me thinks the 2020 start date will give the tech giants plenty of time to find potential loopholes.
Business rates – the other hot topic in retail – was addressed in the Budget, albeit rather weakly. Business rates will be cut by a third for two years on shops/pubs/F&B outlets, but only with a rateable value of £51,000 or under. The obvious beneficiary of this will be small operators / independents in secondary towns and pitches.
Clearly, it is good to see small traders supported to some degree, but my criticism is that it in no way addresses where the most pain is being felt. The real pinchpoint is much higher up the value spectrum, in primary centres particularly in London and the South East.
The argument that this is the preserve of the large multiples and they are big and ugly enough to look after themselves surely carries no weight in the current retail environment. Help the ‘little guys’ by all means, but if the end game is supposedly to ‘save the high street’, much wider business rate reform is needed.
The most interesting, if least detailed, Budget measure was the pledge to create a £675m Future High Street Fund co-financed by the government to help councils improve high streets. The key question here will be how this capital will be deployed and how power will be devolved – will guidelines be drawn up by Central Government or will this fall to local councils?
There is no ‘one size fits all’ solution to the huge challenges faced by the high street, so generic guidelines will only serve a certain purpose. Councils should, in theory, be far better placed to implement strategies and measures appropriate for high streets within their areas of jurisdiction.
The issue is that some councils are far more progressive and understanding of retail dynamics than others. But watch this space.
Underwhelming maybe, but at least retail is on the government agenda. And the only thing worse than being talked about is not being talked about.