Entrepreneurs are risk takers by nature. Inherent in the DNA of everyone who has ever launched their own business is a healthy appetite for risk that is if anything skewed towards the over optimistic.
Entrepreneurs dream of success, of bringing new products and services to the market, of changing the status quo, of making a difference.
So entrepreneurs can be seen to share some traits with gamblers – the hard facts which tell us that 9 out of 10 new businesses will fail within the first year, is a sobering testament to this – yet Entrepreneurs differ from gamblers in that they are rarely foolish, most will have done a good deal of research, weighed up the pros and cons and crunched a lot of numbers before finally taking the plunge and bringing their idea to market.
But Entrepreneurs, like gamblers, have to feel they have a chance of winning, if not the jackpot then at least having the modicum of success that will allow them to keep their heads above water, pay the bills and have a little left over to not only pay themselves a reasonable salary but also to leave the business in a healthy state with a fair (let’s say 10%) level of profit. Profit, after all, is the real motivation for any Entrepreneur, the accumulation of profit in the medium to long term is the real goal, it’s that extra financial reward that an Entrepreneur strives for to help counterbalance the additional risk and stress that comes with owning and running one’s own business.
So, what happens when you look at the odds and feel that they are just too steeply stacked against you? In most cases an Entrepeneur will (in spite of their proclivity to risk) make the rational decision to step away. If the risk is just too much, when the chances of success are too slim, only the rarest of entrepreneur will still take the plunge. Clearly there are cases of Entrepreneurs that should have shied away but did not and have since gone on to create hugely successful businesses, but these are the exceptions.
So how does this meandering riff on entrepreneurialism relate to the topic of retail? Well, firstly we need to accept that the accelerating decline of the retail sector can be directly correlated to a variety of factors that have in less than 10 years changed the retail landscape; the sector’s rising costs, competition from online shopping, a shift away from consumerism towards sustainability, the boom in eating both out and in, the preference for experiences over hard goods.
Secondly, we need to be honest and say that there are many businesses which would have naturally fallen by the wayside irrespective of these shifts. Retail businesses fail…they always have, maybe because an offer that once was strong has now weakened, maybe because the offer was simply never good enough or maybe simply because tastes evolve, and consumers move on. Staying relevant has never been easy.
The real cause for concern however is that in the past where one retail business would wither only to be replaced by another, there are now no replacements. Empty stores remain empty, once thriving streets become progressively devoid of stores and the more they do so, the less appealing they become to the consumer.
So, we have to ask ourselves why the retail sector has become such an unappealing proposition to the entrepreneur? Of course, it is easy to say that the greater potential rewards on offer from growth sectors such as technology or sustainability make the retail sector less financially attractive. It is also possible to consider retail as a means of distribution ‘old school’ and past its sell by date.
But I think to settle for this misses the point, retail itself remains an attractive proposition to the consumer, human beings do still enjoy the physical experience of retail environments, the tactile interaction with products and above all the pleasure of human interaction with both other consumers as well as sales staff.
The challenge that faces the sector is to once again make it an attractive proposition to the Entrepreneur. To make this happen something fundamental has to happen – the numbers have to start to add up again.
Online shopping is part and parcel of life now, retail will never have the market share it once did, but even at 70% of what it once was (and we are still currently at around 85%) that is still significant. The competition for consumer expenditure from the rest of the lifestyle sector – food, travel, technology, health & wellbeing – is established too, consumers clearly have a lot of other ways to spend money so even rising disposable income will not flow directly into retailers pockets.
So, let’s accept that revenues will never be in real terms what they were in 2005. Let’s accept that 65-70% of that number is now a good result.
Let’s focus instead on what needs to change on the other side – the cost side. With revised revenue aspirations should we not be seeing a revised cost base as well that reflects this new reality?
The retail sector like others has had to bear the rising cost of employment, but in the UK there are two key fixed elements in the retail cost mix that impose themselves disproportionately onto retailers - Rent & Business Rates.
Both of these have risen inexorably in line with the unprecedented increase in property values across the UK over the last 25 years. Whilst the pre-crisis, pre-online, pre-Brexit, credit fueled music was still playing retail was able to keep up with this – but the music has now most definitely stopped and retail is left carrying a most undesirable, unsustainable, toxic package.
The majority of Landlords seem to be hanging on to the past in a trancelike state, imagining that the wave of demand will shortly return with premiums abounding and bidding wars a daily occurence. Rather sit with overpriced, empty stores than risk breaking their rental structure. The result – supply but no demand. Sorry to burst your bubble dear Landlords but until there is a closer relationship between retailers and landlords where both risk and reward are shared more fairly your shops will sit empty. It’s time to dispose of burdensome high rents and work on a more balanced rent/commission structure with more of a collaborative feel to it. Why not find ways to further encourage landlords to take more risk and encourage collaboration, perhaps as an idea providing them with some form of tax relief for renting to start-up businesses.
As for business rates these are a structured form of taxation stuck in a time warp so utterly disconnected from reality as to be absurd. A tax that always felt punitive and if anything, anti capitalistic has now been supercharged and imposed arbitrarily on a single industry sector that if anything needs resuscitation? A tax charged for existing rather than on success cannot be healthy. Business rates do not in any way reflect the realities of a changing world but instead hark back to a distant unrelated past. The annual rent for a 1500 sqm warehouse in Leicester is about the same as for a 45 sqm store in the West End, and the warehouse if anything pays lower business rates. Yet which of the two has greater revenue potential – a global online business operating out of said warehouse or the retail store limited by its floorspace? How many retail stores would be necessary to achieve the same revenue, with each of these stores having its share of Business Rates to pay? The burden of business rates needs to be abolished or at best reduced to something nominal. The government needs to look more broadly across the business sector to generate its revenues rather than targeting the easy, static retail sector that can simply bear no more. Let’s focus on letting businesses be profitable first – corporation tax is there to take its share of success.
It may seem that these changes are impossible, too dramatic or cannot happen fast enough. My sincerest feeling is that much like climate change if the protagonists in this saga keep denying the inevitable it will be too late. Now is the time to act, things are bad but not yet critical, we have a window to reverse the tide, but it is small.
All that potential retail entrepreneurs need is a feeling that they can make it, that they can run the numbers and think once again there is a chance (not a guarantee, but at least a good gamblers chance) of making a new retail business profitable. Time to roll the dice…