News that House of Fraser is trying to persuade landlords to reduce its rents in some stores and cut the size of its stores in some locations, comes as no surprise to the business rates team at Colliers International, the commercial real estate agency and consultancy.

According to John Webber, Head of Business Rates at Colliers, “Like many other retailers, House of Fraser is seeing the negative impact of the 2017 Rating Revaluation, which we believe has substantially added to its costs.”

Analysing House of Fraser’s 60 stores in England and Wales, Colliers found the retailer had a total rateable value of nearly £65 million in 2017 and that some stores had seen big rates rises. The H of F store in Westfield for example saw its rateable value increase from £910,000 to £2.37 million, a rise of 139.4% due to the Revaluation and in Oxford Street, the store saw a RV increase of over 57%, from £5.73 million to £9.01 million. The Milton Keynes store was not far behind with a RV increase of nearly 52% to £1.38 million.

In terms of actual rates paid this means that the Oxford Street Store alone is seeing a rates bill of £4.3 million in 2017/8 compared to £2.96 million 2016/7, a rise of nearly 46%. And this figure is on its way up further, given the Government’s 5 years transition scheme. By 2021/22 House of Fraser, Oxford Street will be paying rates of over £5 million a year. A massive bill for one store alone.

Other stores who will be paying over a £1 million a year in rates by 2021/22 include H of F Westfield (£1.34 million), Bristol (£1.02 million), Victoria (£1.01m) and Guildford (£1.00 million).  

“It’s no wonder House of Fraser had to shut some stores last year (Leicester, Aylesbury and Buckingham) and is trying to reduce its rent bills and even cut its store sizes in some areas, “says Webber. “As business rates are tied to rental values, it would be mad not to!”

Even those stores, in other parts of the country that should have seen a decrease in their rate bills following the Revaluation, are not helping the corporate rates burden much. The policy of phasing in reductions, whereby it takes five years of transition until businesses in England are allowed to pay their business rate bills at the new revalued levels, has meant that many retailers, such as House of Fraser are paying much more than expected.

Taking a particular store such as H of F Altrincham Cheshire, Webber points out that the rates bill of around £216,000 in 2016/2017 should have been reduced to around £103,000 following the revaluation, a decrease of around 52 %. But because of phasing, reductions have only been a small percentage this year and next.  Colliers has calculated the business therefore will overpay in excess of £450,000 in business rates on that store alone, than it should have done had the revaluation occurred in 2015 and any reduction in liability implemented immediately, as opposed to being phased.

House of Fraser is not alone in its business rates plight. Research from Colliers showed Debenhams, which has just issued a profits warning, is following a similar pattern. Debenham’s total Rateable Value is now nearly £150 million following the 2017 Revaluation.  Some stores also saw RV rises of over 50% or 100% (Westfield +133% and Oxford Street +57%) whereas those such as Newbury who should have seen a reduction of 20% are actually only seeing a tiny reduction in their rate bills - 1% in 2017/8 and -3% in 2018/9 due to downward phasing.

Webber added, “House of Fraser, Debenhams, Toys R Us, Laura Ashley, New Look - the list of retailers with uncomfortably high business rate bills is never ending. As such businesses struggle against the competition from the internet providers such as Amazon, who do not pay such rates on their stores and cope with uncertainty over Brexit, wavering consumer confidence and the rise in the NLW for staff, it is no wonder they are feeling vulnerable.”

“Retail pain has not stopped and is on the increase. The New Year will bring in further casualties until something is actively done to help the physical retailers. We could be seeing a significant change on the high street landscape if these great names falter. Marginally successful towns could go into terminal decline.”

“While Ministers fiddle with Brexit issues the high street continues to burn. The Government needs to show more support and really needs to do it now.”

Colliers is still campaigning for genuine business rates reform including the need to offer more funding to the Valuation Office Agency (VOA) so it can deal with the estimated 200,000 outstanding business rates appeals in the system.