Business Rates Continue to Add to Debenhams' Distress as Retailer Announces Closure of Up to 50 Stores
Stores Suffering from Downward Transitional Phasing following 2017 Revaluation Look Most Vulnerable Says Colliers
News that Debenhams plans to axe up to 50 under-performing stores in a bid to turn around its ailing fortunes, has not surprised on lookers. The retailer had already announced it had called in KPMG restructuring specialists to help negotiate reduced rents for its sites and close unprofitable shop.
The company has just announced a £491.5m statutory pre-tax loss for the year to Sept 1st 2018 -down from a £59m profit the previous year and underlying profit before tax more than halved, dropping 65.1% to £33.2m.
Business rates were not the only factor in Debenham’s difficulties- the store has cited it took a hit because of a £12.3 m investment in the Debenhams Redesigned strategy and £512.4 m of exceptional write-downs relating to “impairment of historic goodwill relating to the private equity transaction in 2003, store impairment and IT systems.
However, according to John Webber, Head of Business Rates at Colliers International, business rates will certainly play a part in deciding which stores Debenhams will consider closing. Research carried out by Colliers into which stores they believe will be facing the axe, shows that most of these are paying considerably more in business rates than they should be because of the onerous effects of downward phasing of their rates bills, following the 2017 Rating Revaluation.
Colliers cites two stores as examples. In Stockport, the Debenhams store saw a 33% reduction in its rateable value following the Revaluation. But its rates bill only decreased 3% in the first year paying £330,000 instead of the £219,000 it should have been paying- an overpayment of 51%. Colliers calculates that this will continue over the next four years of the rating list with Debenhams Stockport paying £359,000 in rates bills more than it should be.
Or take Debenhams Oldham which saw a 21% decrease in its rateable value, but in its first year paid a rates bill of £277,600 instead of the £196,400 it would have paid without downward transitional phasing. This means over the next four years it will be paying £250,000 more in business rates than it should be.
In a period of declining sales and competition from internet retailers, these sorts of sums mean it is just not a fair playing field for such stores.
“And these are only two examples.” continues Webber, “When you add up the bills across the country you can see what a massive impact downward phasing has and will have -and the impact on thousands of jobs too.”
Colliers analysed the rates bills of 46 of the hardest hit stores and found that over the next three years they will be paying £6.4 million in business rates than they should have been, had their rates bills been allowed to reach their true level immediately. “ On our rough calculation, that translates to around 1.28 million extra mascaras to sell ” says Webber.
He continued “It is no wonder Debenhams is looking at shutting up to 50 stores and is trying to reduce its rent bills or cut its store sizes in some areas. As business rates are tied to rental values, it would be mad not to.”
This is why Colliers, in its Business Rates Manifesto, is calling for the immediate removal of downward phasing enabling rate payers to pay their true rates liabilities now and not wait four years to do so. Although the Chancellor has alluded to looking at this issue in the Budget next Monday, Webber is cynical about how what he will actually do in practice.
“It will be a bit like shutting the stable door after the horse has bolted. Retailers and other businesses have been announcing closures of stores and redundancies since the beginning of the year and even before and many plans are now underway. Sadly, this is mostly likely to impact on the most economically vulnerable areas of the UK which just can’t afford to be paying artificially high rates bills. What we need is a radical overhaul of the whole business rates regime, but I’m afraid that may just well be put in the “Too difficult” box, given the current preoccupation with Brexit. “