The Silent Killer of the UK High Street
Hint: it’s not online shopping
Hint: it’s not online shopping
There’s a silent killer on the loose, a hidden expense that raises sporadically that you have no control over. That expense doesn’t care about your other start-up or costs, it preys on the profitable.
I will tell you what it is, but first I want to know if you have ever wanted to own a quaint little shop in your local area? Selling what you’re passionate about to make a living. It would be fun, right?
It’s not as easy or as safe as it seems. You have to consider the high cost of entry.
You’ll have to pay:
Staffing (PAYE, NI, Pension contributions etc)
Stock/Cost of goods
Import duty and/or delivery costs
Signage for your shopfront
Insurance (public liability and against your assets)
Taxes (personal, corporation tax and other)
I’m sure there are many more costs to consider. It’s becoming more expensive to run a physical business by the day.
In 2017 The Guardian reported that “fashion retailers, shoe shops, travel agents and estate agents have been driven out (of the high street) by the rise of internet shopping.”
Since then, it’s only got worse.
People like to blame online shopping for the closing of UK stores, but it’s a correlation, not causation.
If Capitalism is a failure, then what is the Alternative? | Data Driven Investor
In the current political sphere along its rhetorical voyage, we all can meet face to face with buzzwords such as…www.datadriveninvestor.com
However, with almost 6,000 stores closing across the UK that year (2017), not one media outlet has found the real killer to brick & mortar businesses — that is, Business rates.
Who do they apply to?
According to the official UK GOV website, business rates are charged on most non-domestic properties, like:
guest houses and holiday rental homes
If you use a building or part of a building for non-domestic purposes, you’ll probably have to pay business rates.
The better the building and its location, the more you’re likely to pay.
How much are they?
Business rates fluctuate depending on your area and the properties ‘rateable value’. Each rate is decided by your local authority and put against a multiplier that changes every year.
I took a random store from my city’s high street and used the gov.uk website to find it’s rateable value.
To find the payable Business rates do this:
£64,000 (rateable value) x £0.504 (multiplier) = £32,256 per annum in Business rates.
When you hear that 6,000 UK stores have closed in 2017, you have to start looking for causes. Could an additional £32,000 put pressure on a business? That cost is on top of all their other expenses.
Also, the multiplier increases every year. The difference between 2017 to 2019 is 5.2%. As costs rise, taxes rise, the minimum wage rises (staffing), business rates rising by 5% could be the difference between profitability or not.
According to the UK gov website, “the most recent revaluation to Business rates came into effect in England and Wales on 1 April 2017, based on rateable values from 1 April 2015.”
2015 was the lowest level of UK store closures aka the highest valuation. When the Business rates increased in 2017, it saw the highest level of store closures since 2013.
Those closures continue to roll in, thick and fast.
City AM, London’s most-read financial and business newspaper reported that “In total, 16,073 shops have shut down in 2019 — around 61 each working day — with the rate of store closures forecast to rise next year.”
These were pre-COVID closures, in a bustling economy. Coincidence? I think not.
Death and taxes
“In this world nothing can be said to be certain, except death and taxes” — Benjamin Franklin
Unfortunately, the UK High Street is choosing death. Death of its stores, footfall and overall aesthetic.
It’s a self-perpetuating cycle.
You open a store on a quiet high street.
Your footfall increases. Business is good.
Other good businesses follow suit. Customers are happy.
The area is thriving. Property values go up, so Business rates increase.
You close your store because you can’t afford rising costs.
Other good businesses follow suit. Customers are unhappy.
Footfall decreases. Business is bad for everyone.
The high street becomes quiet again.
Through some kind of local incentive, government-backed business loan or reduction in business rates, the cycle begins again at 1.
If you still aren’t convinced that Business rates are to blame, then drive past a quiet high-street in any UK town or city. What do you see? Charity shops?
When all there seems to be are countless charity shops, you’ll think “well they can’t have a huge turnover, so maybe the other shops aren’t profitable or well run.”
Until you learn this…
The last ones standing are the only ones not subject to Business rates.
In the business-detective (uh)… Business, we call that a slam-dunk. Case closed.
Gain Access to Expert View — Subscribe to DDI Intel