August 2018 Key Indicator: is consumer spending undergoing a massive change?

consumer spending - a devastated landscape?The UK economy is generally described as a consumer economy.  This means that its health is significantly dependent on and measured by how households spend or save their income.

The effects of changes in consumer spending behaviour can be dramatic for businesses as my July 2018 Key Indicator on the retail sector demonstrated.

But consumer spending behaviour is not simply directed by a change in habits and tastes.  In this month’s Key Indicator, I look at those factors that affect how much disposable income is available and how this influences spending decisions.

The majority of consumer income is earned as salary or wages from employment.

This may be topped up by benefits, such as the tax credit system for households with children, where family income is low. This was restricted to being payable for the first two children only, following various adjustments to state benefit rules since the 2008 financial crash and the introduction by the Government of various “austerity” measures as part of efforts towards economic recovery.

For the retired, household income generally comes primarily from state and occupational pensions.

Household income may also be topped up by interest and dividends from any savings but recently these have been low, none the least due to the unprecedented low levels of interest rates.

The factors that affect disposable income and therefore consumer spending

There have been several worrying indicators that consumer spending has been sluggish throughout 2018, and this has a significant impact on the health of an economy like the UK’s.

The most recent figures published by the Office for National Statistics (ONS) on household consumption are for the first quarter of the year, from January to March. Although there is always a time lag in publication they are indicative of a longer-term trend.

Consumption remained subdued at 0.2% in Quarter 1 2018 according to the ONS and in 2017 annual growth in household consumption remained at its weakest since 2012. The ONS reports that this is “consistent with the slowdown in output for consumer-focused services industries, which has been on a declining trend since late 2016.”

The factors that are likely to have affected this are the weak growth in real wages, with household incomes squeezed by rising import prices following the past depreciation of £Sterling following the 2016 Referendum vote to leave the EU.

According to the ICAEW (Institute of Chartered Accountants in England and Wales) sluggish wage growth at on average 2% in the face of a near- 3% inflation rate is also a major factor in the squeeze on household incomes.  This is despite unemployment being at its lowest level since the early 1970s and therefore the existence of a skills shortage in some sectors. But it is outweighed by the existence of such things as tax and benefit reforms, the growth of the “gig economy” and zero hours contracts that have changed the employment landscape for both businesses and employees and in turn reduced the reported level of unemployment statistics.

Kamal Ahmed, the BBC’s economics editor says he looks at two statistics when examining people’s finances.  These are firstly whether they are net borrowers or net lenders, and secondly at their savings ratio.

Net borrowers are either borrowing, or spending their savings, to make ends meet.  Net lenders are those “lending” money to the economy in the form of pension contributions, savings and investments”.

The savings ratio is the proportion of people’s disposable income that they save. Here again there are worrying signs in the most recent ONS data. The savings ratio is currently at 4.1%, the third lowest since records began in 1963.

As I reported in my blog on Tuesday (July 31) the most recent statistics from the Insolvency Service, on the second quarter of the year, April to June 2018, also revealed a worrying indicator on individual and household finances. This was that numbers of individual insolvencies had reached their highest level since the first quarter of 2012 and had increased by 4.4% compared with January to March 2018. Again, this has been an upward trend for several months.

According to the ONS British Households spent on average £900 per year more than they received in income in 2017 and there are signs that people are increasing their borrowing. There are three main sources for personal lending which are all growing: credit cards, finance for capital items like cars, and payday loans. Most of this debt is not to buy luxuries but simply to make ends meet since so many people live paycheck to paycheck.

The implications for SMEs of a potential change in consumer spending habits

Clearly the retail sector is the first to feel the effects of changes in consumer spending and arguably the shift to online purchases has not only been because of the convenience but also because buying goods online can often be less expensive.

Equally the rise of the budget food stores, such as Aldi and Lidl, suggest a shift in food shopping habits to make household incomes stretch further.

There may also be signs of a shift in the travel and tourism sector based on fewer people taking holidays abroad and instead having “staycation”. This is something I shall be exploring in a focus on the sector later this month although there may be other factors at play here as well.

Clearly, though, the pressures outlined in this blog on household incomes would suggest that unless things change to improve our national economic prospects there may be a longer-term shift in consumer spending habits.

Those businesses that rely on consumption should not assume this is a temporary blip.

Given the changing circumstances it will be essential for those of you in this sector to review and adjust your business models, your marketing plans and your products and services in order to safeguard your business for the future.

Stop press: it remains to be seen what effect today’s Bank of England Interest rate increase, from 0.5% to 0.75%, will have on consumer spending but it is likely to affect all those with variable or tracker rate mortgages making disposable household income even tighter.

Insolvencies: business failures slowing but individual insolvencies climbing

individual insolvencies rise signalling storm clouds overheadI generally concentrate on the quarterly insolvency statistics for businesses since my blogs are designed to help SMEs.

However, there has been a worrying trend in the numbers of individual insolvencies and in the latest quarter’s figures, from April to June 2018, released by the Insolvency Service they had reached their highest level since the first quarter of 2012.

This could have implications for businesses, especially those that depend heavily on consumer spending.

Company insolvencies for Q2 2018

While company insolvencies are still higher than they were in the same quarter in 2017 decreases in compulsory liquidations, administrations and underlying creditors’ voluntary liquidations meant that the underlying numbers of insolvencies had decreased.

Total company insolvencies for April to June decreased by 12.4% compared to the first quarter of 2018 while the underlying number of insolvencies decreased by 2.0%. However, insolvencies were still 12% higher than for the same quarter in 2017.

The construction industry and the wholesale and retail trades still top the list of failing companies as has been the trend for some months.

During the first half of 2018 there were 196 CVAs which is hardly any increase on the 171 CVAs in the same period of 2017. I suspect a large proportion of these were accounted for by retail businesses looking to reduce their rent as evidenced by the high-profile examples we have been reading about in the press.

Individual insolvencies for Q2 2018

The numbers for individuals getting into financial difficulties are noteworthy, because they have been steadily increasing since 2015 and sooner or later are likely to impact on SMEs as mentioned above.

IVAs (Individual Voluntary Arrangements) reached a record high between April and June and individual insolvencies increased by 4.4% in this quarter when compared with January to March 2018.

It may be that a combination of factors is at play here, in that prices have been rising since the EU referendum vote as the value of £Sterling against other currencies has plummeted, making imports more expensive, while wage growth has been slow and the proliferation of low-skill, low-wage employment or uncertain zero-hours contracts has put pressure on individual finances. Also access to credit is becoming more difficult as regulation has begun to restrict loans to those who cannot prove their ability to repay debt.

This month’s key Indicator will explore all this in more detail when the focus will be consumer spending and potential changes in spending and saving habits.

I hope it will provide useful insights for you as SMEs.


Leaders: Can you imagine turning off your phone when on holiday?

enjoy this tropical sunset more by turning off your phoneIt is well-known that a third of SME business owners take fewer than 10 days off per year and on average work at least 50-plus hours per week compared with the average of 37 hours for employees.

Even those who do manage to take a holiday often keep in touch with their offices and would not dream of turning off the phone.

This is hardly likely to please your family or whomever you are holidaying with, but have you thought about the damage it may be doing to you and your business?


Why you should consider turning off your phone on holiday

The most obvious reason is that you need time to relax and recharge your mental batteries. You are hardly likely to be able to do this if you are constantly attuned to the possibility that you need to be available to answer questions by phone or email.

Many business owners also suffer from a need to be constantly in control of every aspect of their operation and find it hard to delegate to others in their organisation. This means that too many are working in their business rather than on it and may be missing out on opportunities and ideas for growing and developing the business.

This focus on maintenance instead of strategy can lead to stagnation instead of growth.

This relates to the main reason why you should consider turning off your phone. You can relax properly. An uncluttered brain thinks subconsciously and can bring a perspective to problems. It affords you the time to reflect and through the process of reflecting on past successes and failures you come up with new ideas for the future.

You really ought to have the systems in place and sufficient back up to allow yourself to switch your phone off without anxiety. You should be able to reassure yourself that the business will continue without you, albeit only for a few weeks.

If however it really is impossible to be completely cut off from your business while on holiday, there are several things you can do to better manage that contact and carve out time to relax, refresh and reflect.

You can engage a call handling service that you can brief properly so that they can handle your calls in a way that only critical ones are passed on. Another option is for you to receive a daily report with details of anything that needs your urgent attention. You might schedule a daily 15-30 minute time slot to deal with anything that emerges knowing you can switch you phone off outside here calls.

If using a virtual assistant/ call handling service is not right for your circumstances you can identify someone to whom you can delegate to operate a similar system.  It may be that this will also help to identify areas that can be perfectly well handled by another member of your team in the longer term and free you from the need to control everything as well as from the fear of letting go of at least some control.

If you are planning a holiday and are willing to risk turning off your phone for most of the time it is wise to make some simple preparations such as informing all clients that you will be away and giving them the name of a person to contact with anything urgent in your absence. You will also need to explain to that person what they need to know about any current issues clients are facing.

Consider such preparations as business continuity planning just in case you need to take time off. What happens if you are ill?

If you really want to, you can resolve to take your break and relax reassured that it will be in the best interests of your business to do so.

Apply the insights from business anthropology to your company

business anthropology and the evolution of human behaviourHaving introduced business anthropology in a blog last month, now is a good time to start applying what you have learned.

To remind you, business anthropology looks at the relationships and interactions between people working with each other. It looks at the relationships and motivations of individuals and teams and how you might ‘press the right buttons’ to improve productivity.

Great insights cam be gained by observing people and how they behave with others. This can be difficult for leaders as it involves watching and listening objectively and not interfering while carrying out their research. It raises their level of awareness.

It can also be used to look at clients and consumers whether looking at their interactions with your products and staff, or at your staff and how they deal with customers, rather like a secret shopper.

Essentially business anthropology insights can be used to make improvements to your business.

There are three areas where you might consider applying such insights. These are in changing the corporate culture, refining relationships with customers and clients, and in developing new or improving existing products/services.

Business anthropology and corporate culture

In a situation where the age profile of the workforce may be changing as new, younger employees join your business and have to learn to interact with older employees it may be that you should pay some attention to understanding the differences in approach and work style of the two groups and introducing ways of encouraging greater integration.

There will be many more areas to look at but the approach begins with awareness of a need to change and is implemented through engagement with those affected.

Business anthropology and customers

This is about listening for unmet needs, pain points and challenges.  It is also about how your employees interact with customers.

It can be helpful to go through the process of buying and using a product yourself and this can often feed in to developing a new product or service.

An illustration of this is from 1999 when Procter & Gamble, suppliers of cleaning products, engaged anthropologists who watched people cleaning their floors. They noticed that the process also involved a significant amount of time spent cleaning the mop itself.  The result was the development of the Swiffer, floor cleaning equipment that came with a handle/applicator and a collection of disposable pads to attach and use for wet or dry cleaning.  This remains one of the company’s most popular products.

It worked because the observation of the process identified a “pain point” and provided an adaptable solution that cut down on the amount of time needed to clean a floor.

Please let me know if you have applied business anthropology methods to your business and what insights you gleaned from your observations.

Why whistleblowers can be a force for good in your business

not whistleblowersMany people are afraid to speak out when they discover wrongdoing or questionable behaviour in their workplaces for fear of the damage they may do to their careers and employment prospects since all too often they are often regarded as outcasts.

The recent high-profile revelations by whistleblowers in the Cambridge Analytica and Brexit campaign organisations have shown that, in these days of ubiquitous social media, those who were brave enough to speak out became the target of some high-profile abuse and attacks, some of them personal.

But if your business is one where a culture of speaking out is either frowned on or not encouraged it may well be missing out on information that could help it to improve not only its operations but also its values and reputation.

Make your business safe for whistleblowers

Employees are often in a better position to see when something is going wrong than its board members are.

So how can you ensure that you are alerted to behaviour or practices that could damage your business?

You need to make it clear that revelations of malpractice or ineptitude are welcomed and that your business culture is transparent and open to people being able to voice concerns in a responsible and effective manner.

Malpractice can cover a wide range of situations from bullying, theft, bribery, fraud and corruption to endangering people’s health and safety to misuse of company property as well as any attempts to conceal such misdeeds.

Ineptitude becomes a whistleblowing matter if it has an adverse impact on people and the business or if it relates to breaches of company policies.

It is therefore good practice to have a clearly-defined whistleblowing policy and to let everyone know it is safe to raise any concerns they might have and that allegations will be treated as having been made in good faith.

The policy should clearly state the procedures that should be followed when anyone identifies something that they feel ought to be reported. It should also set out the procedures for managers to deal with the matter and cover confidentiality and protection for everyone involved.

Confidentiality is an issue that is also covered by privacy law. Those making allegations should be encouraged to put their name on record although disclosure needs to be managed carefully. You should also identify an investigating director within your business with whom concerns can safely be raised.

If the whistleblower feels that they need it, it should be made clear that your business is happy for them to be accompanied by a trades union or other representative at all meetings and hearings.

The investigating director should be required to fully investigate the allegations and prepare a written report of the allegations, their findings and their recommendations, preferably with the involvement of your HR department.

The whistleblower must be kept informed of progress as should the person about whom allegations are made, especially if they are an employee.

If necessary, it may be appropriate to involve relevant outside authorities, such as the HSE or the company’s auditors and if necessary the police.

While the company culture should be one of trust such that employees who report a matter as a whistleblower should be believed, you should also be aware of their agenda. The investigation may reveal that the whistleblower is in fact the problem which is one reason why the investigations should be discreet and the confidentiality of all parties preserved. If a whistleblower does turn out to be the problem or they are using the procedure to pursue their own agenda then they should be dealt with under the company’s disciplinary procedure.

Whistleblowing is, however, essential when some people are wilfully blind to behaviour that ought to be addressed. An open and constructive approach to confronting and dealing with such behaviours is essential to a company’s values, culture and reputation.

A properly constructed whistleblower policy can encourage people to act in the best interests of your company and ultimately ensure your business reputation is not compromised.

How do you resolve a boardroom conflict?

boardroom conflict like two rhinos going head to headIt is not unusual when I am called in to advise a SME in distress on restructuring its business that I find that there is a conflict among directors.

Perhaps it is no surprise that in today’s trading environment there should be disagreements at board level about how to proceed, particularly during financial difficulties when people are under stress.

However, a successful turnaround plan depends not only on my thorough investigation of the state of a business, in terms of the numbers and the business model, it also needs the support of the board, suppliers as creditors and other stakeholders, not least the employees.

While a conflict among directors has the potential to undermine, damage and disrupt a business at any time, this is more so in a tight corner when leadership and a united team is needed to execute a turnaround plan.

Tools that can help to resolve a boardroom conflict

While every business, and every conflict, is likely to be unique there are some tools that can help when seeking an acceptable resolution.

Does your company have a shareholders’ agreement or articles of association that lay out an orderly board process when dealing with disputes? Does it have a staff handbook that deals with behaviours that can get in the way of conflict resolution such as bullying and abuse? Are you familiar with board governance and protocols for dealing with issues and majority decisions?

A suitably drafted shareholders’ agreement can be particularly useful to set out those decisions that can be taken by directors and those that require shareholder consent. They can also be used to set out circumstances that require directors to refer matters to shareholders such as when directors disagree.

Does the business have a chairperson who is familiar with governance and their duties as well as knowing and understanding the characters of those involved in the conflict? They need a level of self-awareness in addition to people and communication skills and ought to remain neutral when meetings become heated.

Has the dispute been subjected to a Root Cause Analysis (RCA) to identify where and how the dispute has arisen?  The origins of a dispute in a RCA can be classified as coming from a physical cause, such as a machinery breakdown; human causes, such as personality clashes, not everyone pulling their weight or perhaps making mistakes; organisational causes, such as hidden flaws in a system or process that are likely to lead to misunderstandings; or financial and strategic disagreements such as over investments or the direction of the business.

Whatever the root causes, their appearance may well need engagement by shareholders or even secured lenders concerned about how the company is being managed. It can be important to distinguish between frustration and under-performance or whether there is a fundamental disagreement since the process and outcomes will be very different.

Conflicts of interest among directors are also an issue and should be transparent since directors often have several roles with different stakes in the outcome, whether as employees, minority shareholders, majority shareholders, creditors, guarantors, opportunist, or they are passionate about the business at a level that can make them blind to reality. Whatever their other roles, as directors they have a primary duty to the company including its shareholders and employees when the business is solvent, and to its creditors when it is insolvent including when there is the slightest prospect of creditors not being paid.

Most conflicts can be resolved through listening, understanding, empathising, negotiating and compromise to reach a consensus, and this is where external advisers such as a restructuring adviser can help.

Deadlock situations such as between two directors who each own 50% of the shares tend to be the most difficult to resolve. This is where trusted parties such as friends representing each director can be useful to help the disputing parties distinguish between emotion and practicalities. Some form of mediation or dispute resolution process is also often necessary to manage the process as well as find a resolution.

The courts also offer a useful backstop although it will be necessary to show that alternative dispute resolution options have been explored before seeking judgement.

As an aside, deadlock situations can be avoided by having a simple agreement at the beginning of the relationship. One I introduced years ago as a 50/50 shareholder setting up a business was with a co-director where at the time we both attended the same church. We agreed with the vicar that if ever we had a dispute we would seek and be bound by his adjudication. The vicar understandably didn’t want to take sides but agreed for his part to appoint an appropriate expert who would pursue a process and if necessary recommend a resolution. We agreed that this would be binding on us since we both trusted the vicar and his desire to ensure a fair outcome in the event of a dispute. Fortunately, we never had to call on his wisdom to rule ‘the Judgement of Solomon’.

Zero hours contracts and self-employed workers revisited

self-employed workers: fruit pickersBusinesses have been quick to recognise the benefits of using zero hours and self-employed workers as a means of reducing their overheads.

The costliest item for most SMEs is their payroll and for many the legal obligation of paying the national living wage is seen as a significant burden, hence the popularity of the zero-hours and self-employed models.

According to the latest ONS (Office for National Statistics) figures the number of zero-hours contracts in use across the UK rose by about 100,000 in 2017 to 1.8 million.  That is still below the peak of 2.1 million in May 2015.

Nevertheless, these contracts are clearly still popular with some sections of the work force, particularly students, women and part time workers, as well as SMEs, for their flexibility.

However, in the last six months several court rulings have arguably eroded the benefits to business of using self-employed workers.

The most recent was a Supreme Court rejection of an appeal by Pimlico Plumbers in June 2018, against the decision of an employment tribunal ruling of unfair dismissal. The case involved a self-employed plumbing and heating engineer, Gary Smith, whom Pimlico had dismissed when he tried to reduce his working hours following a heart attack.

As a result of other court cases both DPD and Uber have had to change their employment models to provide worker benefits such as holiday pay, the minimum wage and pension contributions.

What next for businesses using self-employed workers?

Businesses understandably will want to retain the maximum flexibility to be able to adjust worker availability to reflect seasonal peaks and troughs and to keep a tight control over their overheads.

While it is likely that there will always be some workers who will value that flexibility to be able to fit working hours around other responsibilities, such as family or educational commitments, the UK economy is currently in a situation of full employment which makes it harder to both find and retain suitable employees.

Despite the current uncertainties resulting from the UK’s decision to leave the EU, a looming global trade war and an increasing number of workers affected by the many retail store closures that have been a feature of the last few years, there is likely to continue to be a shortage of relatively low-skilled workers due to the reduction in numbers of EU migrant labourers since the 2016 vote to leave the EU.

This is of particular concern to the agricultural sector that needs seasonal workers to pick and pack fresh produce.

Not all of this can be addressed by increased automation, which in itself has significant cash implications at a time when businesses are holding back on investment while there is uncertainty over their prospects for future trading.

If, as looks likely from the court cases, the mood among workers is shifting against being used as disposable labour, businesses will also have to assess the damage to their reputations from sticking to the zero-hours and self-employed models.

Is it time for SMEs to reassess their employment practices and as a consequence their business models?

Brexit uncertainty has gone on too long for UK SMEs

brexit uncertainty and migrating businesses

Will Brexit uncertainty turn businesses into migrating birds?

In the days running up to last Friday’s cabinet meeting at Chequers many of the UK’s largest businesses were warning that complete lack of agreement or clarity on the details of the Brexit negotiating position meant that time was fast running out for them to plan their future operations.

Businesses, both large and small, were clearly also less than impressed by the Government’s lack of attention to and understanding of their need for clarity so they can make practical plans.

So, while I have avoided commentary on the tedious, ongoing Brexit saga as far as possible, for once I am focusing on it, not least because of the events of the last few days.

After the Chequers meeting, it seemed that at last there was a “third way” proposal over which there was cabinet unity.  The details are expected to be published later this week.

But it seemed that at last business concerns and the future of the economy were finally front and centre in the proposals and this was tentatively welcomed by businesses.

By Monday, however, all was up in the air again as the UK’s main negotiator, David Davis resigned, along with another leading negotiator Steve Baker, and the chorus of disagreement from the usual Brexiteer suspects in Parliament was growing louder. And then Boris!

As an aside I can’t help thinking about petulant children who don’t get their way and the lack of leadership by those seeking to distance themselves from an outcome that was always going to be based on compromise.

Why businesses, particularly SMEs, urgently need an end to Brexit uncertainty

The key issues for SMEs, many of which are involved in pan-European supply chains, are clearly what the eventual outcome will do to costs and access to various components or raw materials not to mention access to skilled labour and markets for our goods and services.

It is not only the large supermarkets that operate a “just in time” model for supplies, so do many manufacturers. The model helps to reduce overheads and the costs and cash tied up when holding a large amount of reserve stocks, not to mention the warehousing needed.  However, it also relies heavily on reliable, prompt and efficient delivery.

If the eventual agreement on import, export and customs arrangements cannot guarantee the same level of efficiency it is likely that businesses may have to move to Europe if they want to survive.  Many are already considering doing this.

What the UK Brexit negotiators do not seem to have taken on board is the time most businesses will need to set up and carry out such a relocation, plus the effect it might have on job availability in the UK and on the UK economy.

Sourcing skilled workers in some key sectors has for a long time been a problem in the UK and the gap had been filled by workers coming into the UK, particularly in the construction, fabrication, engineering and IT sectors. Here too, uncertainty has taken its toll.

However, by the end of last week it seemed that these concerns were reflected in the new proposals and at last the concerns of eventual customs arrangements had been addressed along with the possibility of “special” arrangements to allow EU workers to be able to work in the UK post Brexit under similar arrangements as previously.

Of course, thanks to yesterday’s developments the fog of Brexit uncertainty could descend yet again and then there are the “unknown unknowns” of a looming US president-inspired global trade war, admittedly nothing to do with Brexit but far from helpful.

It would be no surprise if SMEs and larger businesses alike decided enough was enough and started the process of moving elsewhere. Are you likely to be one of them?

Are SMEs really unaware of asset finance or are they simply not borrowing?

asset finance predators?

Predators hunting prey

Last year the website, published research findings that seemed to indicate that many SMEs were unaware of the benefits of asset financing.

Its report, citing research by Close Brothers, said that “almost three-quarters (72 per cent) of SMEs in the survey did not know it was possible to secure finance against their turnover” (by which we assume they mean cash flow funding which in practise means book debt), rather than their credit rating.

It also reported that while 44% of SME respondents would consider using asset finance they were not acting on this.

It suggested that many SMEs were sticking with “inflexible and often unobtainable forms of credit” because they weren’t aware of the potential advantages of alternative funding options.

The inference, in other words, was that SMEs were continuing to approach the mainstream banks, despite the widespread perception that the banks were inflexible and unwilling to lend to them.

But how true is this?

Over the 18 months or so since there have been more pronouncements from asset finance providers.

In January this year CityAM quoted the MD of a business finance group, Peter Alderson, who said: “more are exploring financial options outside of traditional bank offerings that can support the level of business development needed to compete in new tech and online spaces.”

In the same month reported on a survey of brokers operating in the asset finance carried out by United Trust Bank and revealing that 39% of them expected demand for asset finance would grow throughout 2018, identifying the most likely sectors for growth as Construction, Transport, Waste Management and Manufacturing.

Martin Nixon, head of asset finance at United Trust Bank, commented: “There’s no doubt that awareness of asset finance is growing amongst UK SMEs. Lenders, brokers and industry bodies, such as the FLA and the NACFB are working hard to spread the word about the versatility and flexibility of asset finance and how quickly and easily transactions can be completed.”

This may be true, but according to the British Chambers of Commerce (BCC) borrowing among SMEs appears to have stalled.

The BCC yesterday released the results of a study it carried out with the specialist finance provider Wesleyan Bank which found that 56% of British companies did not attempt to apply for finance in the past year. Almost two thirds (63%) of them were small firms.

The study found that those that did seek finance showed a clear preference for the “conventional” which it identified as overdrafts (18%), business loans (16%) and asset finance (9%) and that half of these reported that they did so because of weak cash flow.

The BCC’s head of economics, Suren Thiru suggested that the results revealed a move from the “credit crunch to credit apathy where a lack of demand, rather than supply of finance is now the overriding issue”.

He called for the Government to do more to kick start business investment and to relieve the burden of business costs.

But is it any wonder that two years of uncertainty and opacity about the Government’s proposals for Brexit has led to the perception among businesses that the Government neither understands or takes heed of their concerns and that SMEs are holding back on growth and investment plans?

I would argue that it is not ignorance of asset finance but cost and a fear of a loss of control of assets.

The recent memories of lenders and their insolvency practitioner advisers seizing assets as an early response to default is too recent for business owners to believe that behaviour has changed and that it won’t happen again.

We advise most of our clients to consider building their balance sheet based on slower growth rather than rapid growth based on asset-based finance. It takes one slip for the advisers and lenders with penal default clauses to see profit from misery.

July Key Indicator: this month we investigate the future of Retail

the future of retail on the High StreetFew people can be unaware that the future of retail on the High Street has been in peril for some time.

There has been a seemingly endless litany of “big name” closures or attempts to restructure, from BHS and Toys R Us to Carpetright, M & S and House of Fraser to Maplin and most recently Poundworld.

But the retail sector encompasses not only physical stores on the High Street and on edge of centre retail parks, it also includes online-only operations, such as Amazon, eBay and Etsy and those retailers that have both online and physical shops like John Lewis and Lewins the Shirtmakers.

Nor should the small, independent niche shops be forgotten in considering the future of retail.

Clearly the preferences and behaviour of consumers is a key factor, but it is not the whole story, as I shall outline in this analysis.

The pressures impacting on the future of retail

Most of the difficulties facing the physical retail sector are well rehearsed.

They include escalating labour costs including wages, staff administration and compliance and the Apprenticeship Levy imposed on larger businesses since last year. These, along with the 2017 business rate revaluation that came into force in April and ever-escalating rents have had a significant impact on overheads for High Street stores, whether they are large chains or small independent SMEs.

Indeed, it has been argued that the rate increases have weighed disproportionately on the smaller retailers and, as I reported in a blog in May, the FSB has argued that the Government’s new online appeals system seems to have been designed to be hostile to business, bureaucratic and beset by glitches, while offering no in-person support, no phoneline or live chat options and involving a time consuming and opaque process for uploading supporting material when making an appeal.

Then, there are the landlords, although in fairness this term should also cover the many institutional investors representing such organisations as pension funds, which, arguably, need to maximise their revenues to protect the people they represent.

An equally well-rehearsed explanation of the difficulties has been the competition from online retailers, who do not face the overheads that come with a physical store and can therefore offer substantial discounts to shoppers.

This brings us to another key factor that affects the future of retail – and that is consumer preferences and behaviour.

Here, the convenience of online shopping at any time of the day or night as well as price competitiveness has been identified as the key factor in the so-called “death of the High Street”. But there is more to it than that.

As the TUC General Secretary Frances O’Grady, said: “Retail depends on customers having money in their pockets. One reason why some shops are struggling is because wage growth has been very weak.”

Not only this but, as was reported yesterday, an estimated 50,000 retail staff have been made redundant or seen their role put under threat since the start of this year. It should be remembered that these people are also consumers who are now likely to have less money to spend. In this context the recent collapse of Poundworld could be seen as a worrying development.

Not much discussed, but also worth considering is the strategy of local authorities and the planning process in town centres over the last 20 or more years. While cash-strapped councils understandably wish to maximise their revenue from business rates and are therefore likely to have been attracted by flagship “name” stores to anchor their High Streets, the results arguably have been an unappealing sameness to town centres such that it is difficult to know whether you are in Sunderland, Colchester or any other town you care to name. Another bugbear for shoppers is the cost of parking, also a revenue stream for local authorities where the cost is discouraging shoppers who instead go to out of town retail parks.

Can the future of retail in the High Street be revitalised?

Let’s look at consumer behaviour first. Shopping has always been to some extent a social activity and there are already signs that those authorities that have paid some attention to the appearance and appeal of their town centres may be reaping the benefits as markets, small, specialist independents and pop-up shops, together with more places to eat, have a coffee and socialise, appear. Municipal flower beds and baskets even, make shoppers feel welcome.

Equally, many shoppers will say that while they appreciate the convenience and cost saving of online shopping, there is no substitute for being able to examine and try on purchases.  This is where some innovative retailers, such as Next, have provided opportunities with click and collect options that allow customers to try on orders and if not happy, the shop will organise the return of goods for them. It also means that the shop can operate from a smaller space to cut its overheads.

Another change in behaviour among shoppers is to buying fresh produce locally and doing bulk shopping online or by car at large out of town stores. This is helping promote specialist and artisan shops that are close to where people live or work. The large stores have also latched on to this by introducing local concessions into their stores.

Many of the larger retailers that have found themselves in difficulties have also offered online and click and collect services.  However, there has also been an increase in the numbers that have tried to restructure, using the option of a CVA (Company Voluntary Arrangement) to renegotiate deals with landlords and thereby reduce overheads. While there are signs of some landlords opposing the use of CVAs, or imposing strict conditions, if agreed they do at least guarantee some continued revenue, albeit reduced, rather than landlords being left with empty property on their books.

A number of developments that may also help the future of retail

Recently, a think tank, The Centre for Cities, has argued that city centres should be diversified to include more offices and housing arguing that they are currently too reliant on retail, but also that if retail is to survive it needs customers to sell to, such as those working and living nearby.

The UK Treasury is also working on a fairer tax system to help High Street retailers, based on scrapping business rates and replacing them with a “turnover” tax.

In the US, a Supreme Court ruling has allowed states to collect sales taxes from retailers that aren’t physically based in the state, meaning customers will likely have to start adding taxes to their online shopping bills, while on June 19 in Belgium the European Commission held a conference to examine the future of retail and what can be done to help with the current challenges.

It is too soon to say what impact any of these developments will have on physical and online retail but equally, it is too soon to write the obituary for physical retail.