Shops ‘face perfect storm of rising costs and falling spending’


Shops in Britain face a perfect storm of rising costs and falling consumer spending in 2017, one of the world’s leading commercial property agents has warned, raising the possibility of more closures after the demise of BHS last year.

The Guardian reports that retailers will have to contend with rising inflation, labour costs and taxes at the same time as consumers tighten their belts, piling on the pressure for businesses that are already having to deal with the rise of online shopping, according to property agent JLL.

The warning of a “perfect storm” for retailers is similar to comments made by Dave Lewis, the chief executive of Tesco, in late 2015 that the industry faced a “potentially lethal cocktail”. Lewis warned that retailers faced £14bn of extra costs over the next five years due to an increase in business rates, the apprenticeship levy and the introduction of the “national living wage”.

The British Retail Consortium has warned that the strain on the sector and the structural changes taking place could lead to up to 900,000 jobs being lost and 74,000 shops being closed over the next decade. In total the industry in the UK employs about 3m people and has 270,000 shops.

In its annual predictions for the year ahead, JLL warned that retailers would be hurt by the weakness in sterling leading to an increase in the cost of importing goods. However, it said that any fall in consumer spending is unlikely to be uniform across the country, with major high streets and shopping centres demonstrating “resilience at the expense of less relevant centres that have been slow to respond to cyclical and structural change”.

Tim Vallance, head of UK retail and leisure at JLL, said: “In 2017, retailers will endure a ‘perfect storm’ of rising inflation, labour costs, import costs and in some cases business rates, ongoing ecommerce–led structural change, in addition to a potential reduction in consumer spend.

“In particular, rising import costs as a result of post-referendum currency fluctuations may have to be passed on to the consumer, or retailer margins will be cut. Larger retailers will be better positioned to bear the impact, offsetting it by currency hedging and economies of scale.”

Retailers will feel particularly squeezed from April, when the national living wage will increase from £7.20 to £7.50 and business rates will move in line with the latest revaluation of Britain’s property.

The revaluation of business rates is expected to result in a sharp increase in tax payments for shops in central London, supermarkets, and shopping centres. However, struggling town centres, especially in the north and west of the country, should enjoy a much-needed tax cut.