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UK retail sector squeezed by rising wages and rates

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Food retailers drove the decline in employment as the industry heads for what could be a “more profound” shake-out than it experienced after the global financial crisis.  


Andy jalil -


andyjalil@aol.com -


Under tough business conditions, retailers had to shed an estimated 84 thousand jobs in the last quarter of 2016. New figures from the British Retail Consortium (BRC) show the number of jobs in the sector fell three per cent year-on-year in the final three months of last year.


Food retailers drove the decline in employment as the industry heads for what could be a “more profound” shake-out than it experienced after the global financial crisis.


BRC Chief Executive Helen Dickenson said: “Against the backdrop of cost pressures, fierce competition between retailers, evolving customer needs, and the lightening expansion of digital technology, many retailers are likely to continue re-examining staffing levels to continue adapting.”


Analysts point towards an impending jump in business rates in April and the escalating national living wage as other factors putting the squeeze on retailers.


According to Richard Lim of Retail Economics consultancy the “lion’s share” of retailers’ cost inflation has come from increased labour costs, notably the national living wage. Operational costs for retailers, including labour costs, increased 4.9 per cent in the fourth quarter of 2016 as compared to the same quarter a year before.


Retailers are likely to cut back on hours, close stores and increase prices in a bid to offset the national living wage.


In April, the national living wage will increase again from £7.20 to £7.50 an hour, a rise of 4.2 per cent just as business rates rise and rising inflation is likely to bite.


‘‘Retail as a whole is not a minimum wage paying industry, but the issue here is that as the minimum wage increases, retailers will want to keep the differential with the lowest-paid workers and highest-paid ones. There is a ripple effect across the retail industry,” Lim said.


The hike comes at the same time as business rates increase for many retailers. The rates have been re-evaluated and will increase markedly for businesses in London and the south east from April. The sum effect will lead to a significant shake-out in the retail industry, according to independent retail analyst Richard Hyman.


He said: “This is the beginning of the impact of headwinds that will cause a significant shake-out — more significant and more profound than the shake-out after the financial crisis. That shake-out wasn’t much of a shake-out at all. Now, the market is over-supplied, there are too many players. There will be a reset between supply and demand.”


Adding to that was Rachel Lund, head of insight and analytics at the BRC. “The immediate thing retailers are trying to get their heads round is how this (business rates) re-evaluation is going to play out. It has put a spanner in the works, and some retailers have got considerable cost pressures from that.”


Not surprisingly, almost three quarters of international retailers are avoiding the UK when making plans to expand because of the burdensome and complex business rates system, figures have shown.


The survey by retail research firm Conlumino and commissioned by Trafford Centre owner Intu and the British Council of Shopping Centres, now known as Revo, reveals that international retailers are shunning the UK chiefly because of property tax.


About 130 international retailers were polled in July, after the EU referendum vote, about what they thought were the attractions and obstacles to investing and expanding in the UK. The survey revealed that retailers were less concerned about the implications of the Brexit vote and cited the UK’s strong labour laws, digital infrastructure and sophisticated market as attractive qualities.


However, the business rates system was rated the most unattractive factor when making decisions about investing in the UK with respondents saying that the fixed property tax prevented them from entering the country.


If all of the 130 retailers polled did choose the UK, they would generate more than 75,000 new jobs, an extra £11.9 billion in rent and contribute £6.7 billion a year in rates and income taxes, the research suggests.


The retail sector employs 2.9 million people in the UK and while the country’s corporation tax has been cut to make it more attractive, the business rates bill keeps rising.


“Companies have to pay this fixed cost before they bring in any sales, whereas corporation tax is only charged if a company turns a profit,” said David Fischel, Intu Chief Executive.


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