6. A plague of boils (as curated by HMRC)
This is the 21st century plague of over-taxation, which every economist knows tends to depress consumer demand. We all know that the government is a highly efficient money-burning machine, fuelled by you and me.
After raking in 20 per cent VAT (once eight per cent), 63 per cent income tax and NI, 19 per cent corporation tax and 58 per cent fuel duty, they still need to raise more by fining small business suffering cash-flow problems caused by late-paying customers.
Although business rates and council tax are spent locally, the overall breakdown between central and local funding leaves local government too poor to repair and clean the streets. Venturing out in Brent or Barnet is likely to break the suspension on your car, so it is much less risky to have Amazon delivery it, right?
Why do so many properties in the UK have their roofs ripped off? To legally avoid paying business rates by devaluing the property
These days, you also have to deal with the high street appearing to be an off-road driving course populated only by moped thieves operating with impunity because the local commissioner can't afford to employ enough visible policemen.
Although the much-hated business rate tax is based on supposed rental values, it doesn't reduce when real rents decrease, nor does it change if the property is unoccupied (for more than three months).
Why do so many properties in the UK have their roofs ripped off? To legally avoid paying business rates by devaluing the property. This is a clumsy and inept system that leads to many stores, warehouses and factories being put beyond use, making it much harder for a depressed region to regenerate enterprise and so recover its jobs and prosperity.
This is a stupid and unnecessary race to the bottom fuelled by outdated tax laws and greedy central government, who can't see beyond the end of the next budget deficit.
7. A plague of thunderstorms
Or, in this case, the British weather. Yes, we had a difficult winter and the summer has been hot. But this is a green and pleasant land where it drizzles from time to time and may even logjam our roads with 2mm of snow. Let's face it, it could be Moscow (where my Jeans once froze to my legs at -25oC), or Qatar during the next world cup (+50oC).
This leads to a retail storm: You discount everything, which improves cashflow, but allows your traditional customers to buy what they wanted at half-price. Then, you have to introduce permanent reductions, with John Lewis matching your prices, forcing discounts ever higher.
What is the answer? Plan better and smarter, invest in shorter supply lines (i.e. not the far east) and get over it.
There are a lot of things that cause stores to become unprofitable and close, but in nearly all cases there was an imaginative finance deal involved
8. A plague of locusts
Retailers now have to deal with a new 21st century plague - the credit insurers and invoice discounters.
Suppliers to retail have been on the receiving end of poor payment practices for decades and have been expected to finance a lot of retail stock, while waiting for the consumer to buy it. This pay-when-paid approach reduces the risk of retailers being stuck with unsold inventory, putting the cashflow burden on the supplier who typically makes far less margin then the retailer anyway.
In response, suppliers have turned to invoice discounting to improve their cash flow. Like it or not, this adds substantially to overheads and the consumer ends up paying the price because the retailer chose not to keep to terms. This kind of short-term thinking is typical in UK plc - not confined to retailers of course - but someone has to pay in the end.
If I know a customer is going to be a bad payer, I have to put up the price to cover the cost and inconvenience. If I have to discount the invoice, I have to put up the price to cover the discount. Do you see the common theme here? To protect themselves further, importers and manufacturers often insure their retail debt, but this is a fools' paradise. No insurer is going to take a serious risk of being stuck with a bad debt and they will often withdraw cover just when it is most needed.
The whole point of credit insurance is to enable a business to carry on selling to a retailer when the risk of non-payment increases, rather than withdrawing credit, which may save a write off but does nothing for turnover. This gets worse with full-recourse discounting, when the debt can often revert back to the vendor if it is unpaid long term. This will actually do more damage, because fees and interest have been paid for an illusory benefit. The best advice here? Don't do it.
9. The plague of darkness
There are a lot of things that cause stores to become unprofitable and close, but in nearly all cases there was an imaginative finance deal involved.
These leveraged buyouts are completely legal but are a very thinly disguised theft of assets from parties that have no real control over their own destiny.
Let's look at a worse-case scenario. I approach a well-known family shoe retailer that has been trading profitably for 40-odd years. It has acquired about 50 freeholds over the years and rents about 100 stores on the high street and in malls. It also has about 50 concession operations.
The EBITDA is around £25 million, so I offer £50 million to the family shareholders and eventually settle at about £60 million. I borrow £50 million from a friendly hedge-fund chum I know from school and add my £10 million stake money, both as high interest bonds.
The first thing I do is freeze recruitment and remove the most expensive layer of head-office staff. This makes it look as though I care about running the business efficiently.
Retail property owners are profit maximisers. They don't care about your brand, your staff, your customers or your future
I immediately move those retail assets into a separate cost centre and start charging internal rent against the store. This rent should be the equivalent of last year's gross profit (usually much more than a fair market rent), so profitability is neatly massaged into the new cost centre away from the retail unit.
I then build a new shell company in Luxembourg or Switzerland and raise a commercial mortgage on the freeholds, transferring them to the offshore vehicle. We now have about £100 million cash in the original company, but no profit.
I use the cash to pay off the bonds, so I have my £10 million stake money back and my chum is paid back and happy too.
I now slowly starve the company of cash, moving money offshore to cover the rent charged by the Luxembourg vehicle. I start to extend credit terms so that the original £25 million of creditors on my balance sheet grow to about £50 million, hoping that the credit insurers don't spot my gradually weakening balance sheet and withdraw cover.
There is a slight downturn in trade, making the business unprofitable because of the huge rent and debt burden. Credit insurers impose special terms or withdraw cover. I withdraw financial support causing short-term cash insolvency and, blaming the lack of support from credit insurers, call in my administrator.
The administrator sells me the business (with stock) for £2 plus their fees. The suppliers, HMRC and the pensioners take a bath. I have £100 million in Switzerland and a property portfolio worth the same again, but the stores are currently dark and awaiting new tenants. Charity stores move in, saving me the business rates until I find a commercial customer.
10. The plague of death of the firstborn
Retail property owners are profit maximisers. They don't care about your brand, your staff, your customers or your future. Armed with their upward only rent-reviews and medieval dilapidation clauses, they check your profit figures and raise rents by precisely that amount.
You have to ask whether your flagship Oxford Street store or Westfield unit is ever going to turn a profit. These usurious tactics may have worked in the golden years of poor credit regulation, mild inflation and high disposal income, but not today.
Afraid of losing even more market share to the four horseman of the retail apocalypse (Amazon, Ebay, Google and Philip Hammond), you ask the landlord to reduce the rent. They refuse to talk to you.
You know that you won't make the new rent bill, wages and VAT payment, so you have no option but to close the store when the old lease ends.
The landlord then wonders why they have a lot of empty properties. You have to close several of your original chain of stores - including your first one - and move out of town.
This has been fun, but what are the answers to all of this?
Multi-channel selling is not a threat to retail - it is retail
1) Be well capitalised
Cash is still king. The possibilities of raising start-up or continuation capital for retail operations is somewhere between zero and no-chance, so If you can't finance the venture from your own cash pot, then forget it.
The old British standby of raising capital against your home is long gone - if you mention that you are borrowing to fund a business, your application is automatically declined by risk-averse ‘underwriters'.
You could always lie and say that the money is for a new car or kitchen extension, but that would of course be fraudulent.
2) Drag yourself kicking and screaming into the 21st century
Multi-channel selling is not a threat to retail - it is retail. Unless you are one-man corner store, you must have a multi-channel offer. Despair not - this is not too difficult - if you choose your software wisely, you can handle product lifecycle management (PLM), stores, POS, web, mail order and finance in one system.
3) Sell what people want to buy
Please stop buying sizes that you are going to be stuck with and be forced to discount. Discounting is the root of all evil - you are competing with your own full-priced product and inviting your competition to race you to the bottom.
Take a leaf out of Argos's book - if you don't have the right size or colour in stock, get it delivered to the customer next morning
Pay attention to your own sales stats and modern demographics. Differentiating yourself from the lemming herd will pay you back every time.
4) Buy and replenish accurately
There are no excuses here. You must know what is selling and what is not in real time. If your ERP system doesn't integrate directly with your point-of-sale estate and website, you are Amazon's lawful prey. They already eat your lunch - don't let them swallow you up as well.
Also take a leaf out of Argos's book - if you don't have the right size or colour in stock, get it delivered to the customer next morning. If your supply chain and distribution channel are set up efficiently, keep one of every size and colour in stock at each store and replenish in real-time as sales are logged.
5) Making informed decisions - one version of the truth
Once again, being informed and up-to-date are critical. Your ERP system should also be your business intelligence system, because the inventory and sales figures fed into the accounting record are also your replenishment and stock-out data stream. You need all of this information in one system - not three or four or seven.
6) Call us
Finally, you could consider calling us. Uniconta for Retail cloud software does all this for between £16 and £32 per user per month and you can even try before you buy.
Russell Lawrence is CEO of Uniconta UK, the cloud software company started-up by Erik Damgaard, and a veteran of more than 200 ERP implementations
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