Friday, 4 January 2013

High street observation.



Raedwald has some good observations on the future of the high street.

But in Suffolk's little market towns over Christmas I saw signs that the High Street isn't dead, but in a process of change. The home-knitter who started buying wool in bulk and selling the surplus on eBay has now filled a shop-front with bright balls of wool and irresistible baby garments as a boost to her eBay shop; the ironmongers founded in 1823 that have gained new life by putting 6,000 of their 40,000 stock lines on the web, the farm-direct shop also with its own website, the shop window filled with old planes and woodworking tools from a collector and dealer who also operates on eBay, only opens the shop erratically but mans the computer in his workshop to the rear for about 16 hours a day. 

That's a good spot. The niche provider is a part of the future. The artful retailer, like the ironmonger in the piece above, will have an existing business that is currently successful, and will add an online presence. That business is adding brand new sales, at a minimal additional cost. And there is a move for craft type businesses to band together to share the space and the costs and staffing of their enterprises. 

But many, many more online sellers refuse to move onto the high street, even though they could quite easily sell products there. 

At present it costs £1000 Sq/foot to take a spot in Bluewater. Its £45 sq ft for the warehouses in Sheffield where some of the largest online fashion chains operate from.  Rates are pegged to rents, so the rates bill is less too. And retail rates are determined by a strange method whereby 'frontage'  and front of store, customer area , is rateable at a much higher than rear area storage space. And warehouses are all storage/office space.

Distribution and warehouse and headquarters staff operate from the warehouse facility too, as any high street multiple would. But the the high street business has to fund its HQ and warehouses from its shops. The online trader funds no shops.

A person selling on ebay can operate from their home. Then, as they grow, they move to either a bigger house, local business park or a high street. In the high street they must staff their shop. Someone must be there all the time. They need display equipment, signage, labeling, point of sale and tills and credit/debit facilities and banking issues that they don't really need with a paypal buyer.
They have to have business insurance and liability insurance. They 'should' have full health and safety in place. Trained first aider. The fire 'risk assessment' and so on. They have parking and delivery time, loading/unloading issues.  Alarm companies and security measures. Rubbish collections are less frequent. Theft is likely at some point. Cleaning
And they have to deal with people. Actual people. Something the online business never need worry about. 

Its expensive to be on the high street. Even with the small business rates relief, its expensive compared to a shed unit somewhere. 

I am aware of some quite well known ebay sites, that have sales feedback in the 100,000s that operated solely from their homes. One had planning for a triple garage and indoor swimming pool and extension approved. All that space went to stock. The swimming pool  had nothing but trainers in it until the house was sold a few years back. A husband and wife team. They didn't even need childcare. After school the kids were at home with the working parents. In their own house. Something that could not be done on the high street.

That's how some online ebayers manage to profit on just a 20% margin. Their costs are minimal. No rent. No rates. No bureaucracy. No extra insurance. Minimal extra utilities bills.
Its a risk. If the house burns down, or floods , no insurance company will pay up. But its cheap working from home. A high street business trying to survive on 20% margin is in trouble at the first downturn.

But even with all the disadvantages of the high street traders will still come. Some goods just sell better being seen. And eventually even the government and the local councils and the landlords will realise that unless they offer a reason for businesses to move into their retail premises by tax breaks, rent free periods, rate capping, funding, advertising, parking free services etc, they will have filled the barns of the countryside with small businesses, whilst leaving themselves with long stretches of tarmac with very large, empty windowed, unusable premises on them.



31 comments:

Cotswolds BB said...

Very interesting article. Online vendors are slightly parasitical on the retailers, which undoubtedly sounded the death knell for Comet among others. Purchasers at the moment are in the happy situation of being able to peruse goods on the high street, then buy at a discount online. Only bespoke artisan shops will be able to survive in their present form IMHO. Town centres will necessarily contract and become focused on food and drink, and entertainment.

Raedwald said...

Bill - tx for the link; I should have mentioned that Partridges apart, not one of those mentioned was a 'lock up' - they were all lived-in by the traders. Typical market town High Street 16th - 19th C. 2 storey + attics, with the 'front room', the one behind and the cellar (if they have one) being the commercial part. I have no idea how this works rate-wise but such premises are normally bought on residential mortgages but with established A1 consent for the shop bit

Bill Quango MP said...

Raeders: Good point. And adds greatly to the attractiveness of the business prospect. The trader can offset the interest on a loan against tax. if they take out a loan, instead of a mortgage,to buy or lease the property, the interest is tax deductible. So they are effectively having their mortgage interest counted as a tax break which makes a £20k earnings suddenly worth £40k with the tax advantages.

And expenses on the whole, light, heat, car use, can be partially offset as a business expense.

It could be well worth having a small business in your front room, as it were, just for the business tax advantages. Even if the business barely makes any money on its own.And even allowing for all the extra costs of business rates/insurances, maintenance etc.

Anonymous said...

"That's how some online ebayers manage to profit on just a 20% margin. Their costs are minimal. No rent. No rates. No bureaucracy. No extra insurance. Minimal extra utilities bills."

What's the situation with running a business from home? Should you pay business rates? I use a home office (IT contractor) and claim business expenses for heating/lighting/internet, but should I be paying business rates? And would that change if I started ebaying ?

Anonymous said...

Working from home, selling via Ebay and Amazon Marketplace is getting more demanding.

Buyers expect service levels to be equivalent to Amazon's, postage costs are rocketing and are tricky to pass on and savvy shoppers are going direct to China via Taobao Marketplace agents.

Bill Quango MP said...

Anon: Usual caveats first..we are not tax accountants here..all comment is for information and not advice..seek your own independent professional assistance..etc.

GENERALLY speaking only, just working from home on a computer attracts no business rates. It should attract business rates if there is stock involved, moving in and out.

The sheds in the garden full of stock, and used as home offices should be classed as business rateable.

However, as these homes are already paying council tax , I'm not aware that councils are very fussed unless someone has complained. Its usually a planning issue that comes up with a neighbour. Domestic use vs business use.

And there's your mortgage too, which often excludes business use. As does home insurance.

Ebay sales, as a business selling new goods, are taxable capital gains. How many people actually do declare tax on them, I don't know.

AND..there is something that I can't quite recall, where you are liable for capital gains tax on the part of your home that you use as a business when you sell it.

Seek prof help anon..its a minefield of minor grey legislation.

dearieme said...

Doesn't claiming business expenses for a home office expose you to Capital Gains Tax on a fraction of the profit you make (if any) on selling the house? Does HMRC ever pursue such tax?

Sackerson said...

Yes, I think we should stop screwing high street shop traders with rent and rates, it's already done for so many of them. How about a flat-rate turnover tax to be applied to all retail outlets including the drive-to stores?

Bill Quango MP said...

Sackers: It has been done before. In the great out of town mall building boom of the 90s those retail parks in unpromising locations adopted a turnover rent/rates model. This really did work and attracted stores onto the site who may not have gone had there been a 5 year, upwards only lease deal.

All financial data had to be given to the landlord, so turnover could be assessed. It was sweet deal for the retailer.

But it didn't work that well. Main reason was, I believe, that the location was faulty to start with. I remember one site in West Calder in Scotland that was in the middle of nowhere on the main road from nowhere to nowhere else.

Build it and they will come has been proven not to be the case.

Turnover tax is a poor model for the landlord who wants guaranteed income, not the vagaries of the market. They can be stuck with a client not making much money, in a desirable unit that a better client could use.
This could be sorted by specific terms of lease though.

But for councils collecting rents/rates its an excellent model. They take a tax from what is there, not what they vaguely presume is the right amount.

I've seen a unit recently where the rates bill was £62,000. for a 'c' category town offering a 'd' location. No wonder 25% of the shops were empty units.

Sackerson said...

No wonder goods are so expensive. Can this model work much longer?

Budgie said...

Sackerson said: "Yes, I think we should stop screwing high street shop traders with rent and rates ...".

I think that is the point. It is not that online is so good, it is that the high street has been seen as a cash cow by local councils and bled white for decades.

The remedy is obvious: councils should not be so rapacious (inc with planning which drives up the costs of building). It won't happen of course.

asquith said...

I go to Leek, in Staffordshire, because it has proper retailers I can interact with personally and isn't anything like home. I went so far as to sign a petition against a new Sainsbury's opening there, which amongst other things would have shitted the road system up.

You can say it isn't my business what happens in their town but I go and spend money there precisely because it isn't like Stoke, which is filled with the usual cloned retailers while the council ignores all the buildings that would be lovingly maintained anywhere else.

It really hasn't dawned on our council that the reason the city is so unlovely is down to their rates and other anti-business policies. They have also neglected five of the six towns which make up the city and have a "plan" to make it even worse.

And you can't blame people shying away from particular, individual businesses such as HMV, with which I've become far more acquainted than I wanted to be after someone had the ill-conceived idea of giving me their vouchers as presents.That's what they've got to think about.

James Higham said...

But even with all the disadvantages of the high street traders will still come. Some goods just sell better being seen.

They do indeed - clothing for example.

asquith said...

This might be me beinng a tit, but I like placing online orders and geting the shite delivered. It's like, if not a constant Christmas exactly, at least being part of a religion that regularly has enjoyable minor festivals. I got one of them ergonomic chairs, and as far as I'm aware the retailer has no bricks-and-mortar stores at all.

What about this Harris and Hoole saga then?

Bill Quango MP said...

Budgie: you are right. Its a major source of council revenue. Without it, who will pay for all those pensions? Rates linked to rents. As landlords forced up rents, so rates rose. Was any of that rates money reinvested in to the high streets? Only in the wisest councils.

Asquith: You are like us all. we want to do our leisure shopping in quirky, quaint, unusual or megatastic enourmous centers. Its a day out. Visiting the local ordinary high street with its £ shops/charity shops/betting shops/Primark/Smiths/Robert Dyas is more of a chore. It isn't much fun.

That stuff, and the hard to find, or just thought of stuff, or presents for someone items can come online.

I still like going to Bath. Great city. great mix of shopping. Terrible traffic.

JH: Happy New year to you! Women love online shopping. I was in the camp that said women will not buy clothes online. They have to touch and fiddle about and try it with this sweater or those boots ,look in different lights and so on.

I was wrong and clothing is one of the major online sales. Still mainly women's fashion. Because women have always been quite happy to buy something and take it back later. I never considered free returns viable as some 20% of stock is returned. But even paying free returns is a heck of a lot cheaper than having a shop.

Asquith. They are calling it Tescobucks already. We have been headed for the US Wallmart style shopping experience for quite a while.

Blue Eyes said...

Tescobucks... brilliant!

It seems to me that councils *can* design a pleasant "in town" shopping experience. As BQ says, Bath is fantastic for shops, all the places you might want right near each other. Places like Oxford where they have forced all the shops to blend in rather than stand out.

But doesn't this all require really draconian planning? It kind of goes against the free market mindset. It would be a bit like the council acting as landlord of a shopping centre.

Also, aren't rates set by central government? How can councils have any say over these?

rwendland said...

BE: Interesting that in Bath the council owns 65% of the retail outlets, and makes a tidy sum leasing it all out. Maybe councils can organise some things well?

andrew said...

Re Bath:
I think you may be reversing cause and effect.
There has been a lot of money in bath for a long time (from being a regency watering hole to Beckford to having the Admiralty to a lot of Tourists and students) and this has allowed the nice shops to survive/prosper.

I am told Weston Super-Mare used to be (before I was born) a similarly nice place and some of the old regency houses show this may have been so. You cannot compare it to bath now.

Having said that I decided not to move to bath in the late 90s as it seemed to be an unfortunate mix of poundland and smug people with big houses & residents parking - and a relatively small 'middle class'

The shops look interesting, but are oriented to visitors.
You cannot get a nice pair of shoes there - but you can in Bristol/Cardiff.

Anonymous said...

Amazon Marketplace is terrible, both as a buyer and a seller. I was about to pull the plug on it until I realised it had crept up to 20% of my sales. Instead I jacked up the prices on it by 20% which doesn't seem to have actually slowed down sales on Amazon.

As a buyer: way too many counterfeit products or "close enough" products (i.e. you order a Bluetooth dongle with specific specs and receive a random Chinese dongle).

As a seller: you don't have control over your listings. Unlike eBay every seller shares the same product pages but it's pretty random whose product details are displayed. You end up with lots of "not as described" disputes based on descriptions written by another seller.

As a seller I feel like Amazon's A-Z guarantee is as exploitable as PayPal's and I wouldn't want to sell anything too expensive on there. A-Z disputes also tend to get resolved at 5am by an Indian guy who hasn't read either side of the case, so I really don't think Amazon takes them seriously. Meanwhile, as a buyer, Amazon proper rather aggressively chases you up about returns and can double charge you etc.

On a techie side, the Marketplace API (MWS) is hilariously bad. It 500s at least once a day and isn't atomic. Backwards incompatible changes are rolled out without notice. Submitted data also takes up to an hour to process which makes keeping stock in sync rather difficult without knocking a little bit off your seller rating. MWS is definitely not maintained or developed by the same guys who do the excellent AWS services.

I have my suspicions that Amazon proper is actually running on an archaic backend that is struggling and not on some fancypants EC2 cluster like we might expect.

Blue Eyes said...

That's really interesting about Amazon Marketplace. I had assumed that it was win-win for both sides because sellers got the huge hit-rate from being on the Amazon site and consumers got the protection from a brand that wants to protect its brand.

The only time I had a problem with a product bought through Amazon Marketplace (a faulty SD card) I emailed the seller and was sent a replacement stat.

Anonymous said...

Well as a buyer it's not too bad but why bother with the risk? Just go to other sellers and select Amazon if they're there and you know there won't be a problem. Plus I have Prime.

I can't quite figure it out, but I think if more than one person is selling the same item on the marketplace then it defaults to the earliest product details. Amazon has a process to update mistakes but it requires filling out spreadsheets and submitting them and frankly it's too much work for 15k products. Not to mention that your changes are often reverted a week later.

Now Amazon are also calling us once a month hassling us to get listed on the French, German, Spanish, etc sites. Of course the products have to be localised but 10-20% are already listed and localised on each site but why should I bother with even more inaccuracies I can't even read? Amazon don't even seem to care that we won't be able to offer support in languages other than English.

So I'd say the marketplace is good if you have a small enough number of products that you can manage them yourself, or you're big enough to employ people merely to manage your listings on Amazon in addition to your other outlets.

My most recent A-Z fiasco was that another seller had put a product in a custom made bundle with extra batteries but listed it under the main product's GTIN. We pulled an order from the API, matched up the GTIN and sent the customer the correct product. The customer opened an A-Z case saying "product not received" (i.e. the extra batteries) and Amazon refunded them the entire order (not even only the £2 the batteries would have been worth). We disputed it and Amazon agreed with us but said the customer had opened the wrong type of case and would need to open a new type of case ("not as described"?) so that Amazon can charge their card again to give us some of the money back. Are they serious?

It's never a lot of money to us but I wouldn't want to be selling much stuff worth £100+ or electronics or anything fraud prone like that.

Bill Quango MP said...

Amazon accounts for a tiny fraction of our product range as we can't seem to get the price low enough to be competitive. Amazon charges the customer £4 odd for postage as a default. As many of our products are 60-70p postage we charge 1p for product but still have a minimum price of £4 for a £2 item.

And we had loads of Amazon orders at Xmas for items we'd put on last Xmas, but were still on , even though that stock has long gone. With ebay you pay for each for item listed, so more aware of whats on there.

DJK said...

Very interesting comments about Amazon marketplace. The Amazon search engine is pants, with identical items listed several times under slightly different descriptions (I'm usually looking for 35mm camera film). This is compounded by the endless pages of unrelated goods triggered by a keyword buried deep down in the descriptions. That said, Amazon service (to consumers) is still outstanding.

Ryan said...

Council rates on business premises typically add 45% to the annual cost - and for what? Does the business need schools? Does the tenant care if the owners warehouse burns down? Are the police on constant patrol outside to protect the valuable contents? Is it really cheaper for a business with its own lorries for it to employ the council to deal with its waste? No. The business is simply being strong-armed into paying the council's bills without getting a vote. It is quite outrageous and in the days of the internet cannot stand much longer.

Rent costs for highstreet premises are astronomically high, and set on the basis of not "what its worth" but "how much can I squeeze you for, given that I have a monopoly on the available retail space that is free at the mo?". The only businesses that can make a buck out of the highstreet are selling clothes in high volume - which is why almost every other shop is a women's clothes retailer. The other shops you see will try and make a go of it but most will simply fail and be replaced by someone else making the same mistakes. I saw a family trying to make a go of selling suitcases in a high street shop in my own town: £20,000 per year rent on a tiny premises and add another £10,000 on top of that for rates - you need to sell a hell of a lot of suitcases to finance that before you can feed yourselves. No wonder Jessops went tits up. You would need to sell a lot of cameras to fund those shops and the staff and just having the buying advice on hand doesn't mean the buyer doesn't take it and buy from Amazon.

Forget Bath. It's a major tourist center. It's shops make money by taking cash off passing tourist trade, so even little artisan shops can survive because they get more visitors than Bath itself can provide. There is a shop in the Cotswolds that sells Christmas decorations in the peak of the Summer to passing tourists - but it's hardly a model for the retail industry that will work in Luton for instance.

I think retailers haven't fully grasped the netal. They should perhaps move towards setting up edge-of-town warehouses that are really no more than "museums of shopping" where you can take a look at the items you might want to buy and then hopefully the retailer will get your business when you eventually go on line. The other possibility is that retailers go "exclusive" and refuse to sell any product that is not exclusive to their store.

Bill Quango MP said...

thanks Ryan. A long comment but full of worthy points.

I think the future model is enternmoshop. A mix of food cinema shops, cafes, parks,sport, play areas, movies theater, entertainment video games or whatever, housing and transport hub.

A bit like an O2 in every town.

Well..that's my idea anyway.

asquith said...

Fascinating to see the slaggers-off of Amazon marketplace. Where do you consider better for CDs and DVDs? (I have Spotify but I'm just about old enough to use the physical products most of th time, and I buy books principally in my local bookshop, which is one of the few good points of Stoke city centre).

I appreciate the prices and don't care that it's slow because I'm never really in a rush. But I'll listen to anyone who suggests an alternative.

Never sold anything myself, I've used Trade-In a handful of times but the prices they "offered" were too low to carry on, and besides which I keep nearly all of what I get, except for unwanted gifts that I'm too embarassed to get receipts for.

Anonymous said...

@asquith Nothing wrong with DVDs and CDs from the marketplace. Amazon sells them too so sets the descriptions and there's not really a lot that could go wrong. The shipping costs for books, films, and music are also subsidised by Amazon so I doubt you could find them cheaper elsewhere.

It's when you get into more specialist items that the problem occurs because then competing sellers are all fighting over the same product page and Amazon offers no quality control. Often products are incorrectly copied from the US site by a US wholesaler, or other sellers simply don't understand how barcodes are meant to work.

As another said there's also lots of duplicates on the marketplace and I get an email almost every day about 5-10 products being merged. There is no QC on the merging procedure and often a crappy listing can overwrite your own.

The solution should be for highly trusted sellers with high quality product info to have editorial control of their product pages and bypass the archaic spreadsheet procedure. It'd improve the quality of the Amazon site overall.

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