Budget aftermath: will 2017 become a perfect retail storm?

purse decorated with UK flagThe growth of online retail and the rise of the “budget” food stores, like Aldi and Lidl, have been pressures on both large retail chains and smaller independent retailers for some years now.

But, clearly, a series of announcements from the larger chains in the first quarter of 2017 suggests that the pressure has turned up a notch or two.

This week, Budgens stores announced the closure of 34 branches with the loss of 800-plus jobs and, earlier in March, Sainsbury announced a restructure of staff jobs and hours, with the potential loss of 400 jobs.

In February, a shake-up in home estimation and fittings services as well as restaurant food preparation announced at John Lewis could lead to 400-plus redundancies with another 386 staff being re-deployed elsewhere. Waitrose also announced six store closures with 700 jobs at risk.

In January, it was Tesco that opened the New Year large retailer shake-ups with changes to its logistics and 1,000 redundancies.

So what are the additional pressures facing retail in general?

The British Retail Consortium has just published new figures showing a slowdown of 0.2% in sales, between December 2016 and February 2017, particularly in non-food sectors.

This should be set in the context of rising inflation as imports of food and raw materials become costlier due to the fall in the value of £Sterling after the EU Referendum. These are beginning to feed through into prices.

Consumer confidence is also reportedly lower and there is some speculation that many people purchased “big ticket” items such as white goods and cars in 2016 to keep ahead of anticipated price rises.

It may also be that the larger retailers with a massive acreage of physical buildings are also restructuring to take account of likely hefty increases in their business rate liabilities following the rate revaluation that comes into force this April.

What of the smaller retailers?

It has always been more difficult for the smaller independent retailers to compete on price so inflation may hit them hard.

Some will have benefited from exemption to paying business rates due to the rise in the level to £15,000 before payment kicks in and from revaluations reducing their rates, as has happened for some of the luckier ones.

Others, however, will have to find considerably more money to pay their rates before they even begin to make a profit.

There was some relief in yesterday’s budget, after intensive lobbying from various business organisations on the new business rates, in the form of £300m to local councils to use for a discretionary hardship fund for small businesses worst affected by the revaluation and a pledge that any business losing existing relief will not pay more than £50 a month.

But it is questionable how much difference this will make given the additional costs facing small retailers employing staff, who will in April face increases to the minimum/living wage, with the additional obligations of pension auto-enrolment.

With e-commerce operations paying considerably less in tax it looks like the inexorable march towards online retail operations and away from small independents on the High Street could continue.

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