Business Irish

Wednesday 19 December 2018

Richard Curran: Main Street must embrace shopping revolution

Tax call: Billionaire retailer Mike Ashley blames ‘the web boys’ for hollowing out Britain’s High Streets. Photo: PA
Tax call: Billionaire retailer Mike Ashley blames ‘the web boys’ for hollowing out Britain’s High Streets. Photo: PA
Richard Curran

Richard Curran

Christmas shopping is in full swing. In Ireland we are expected to indulge in the biggest shopping spree since the Celtic Tiger years. The cash splurge will be made by people in Ireland, but how much of their shopping will actually occur here?

Online shopping is growing and so it is taking a bigger slice of a growing Christmas cake.

It is difficult to say how much of these online purchases will be made through Irish companies and to what extent the Irish economy benefits from that.

Nevertheless, people who are this week thinking about their Christmas shopping are weighing up whether to click or to drive. (Public transport options outside Dublin are so limited I won't even factor them in). There are obvious short-term benefits for consumers from simply clicking and waiting for their goods to arrive.

In the longer term though, it is contributing to a raft of wider issues from the end of Main Street shops and hollowed out rural towns, to packaging waste and economic outflows to international companies.

The question of what to do about it is a lot more complicated.

Take Mike Ashley, the British billionaire retailer who controls sports clothing retailer Sports Direct. He gave evidence this week to a British parliamentary committee on housing, communities and local government. He said that MPs need to impose a 20pc tax on online sales in order to save bricks and mortar stores.

He said that British High Streets are already dead because of the impact of online and added it was pointless discussing what High Streets might look like in 2030, since the sector was already in crisis.

Mr Ashley's "solution" sounds pretty radical and, under closer scrutiny, is also somewhat self-serving. He has been investing in bricks and mortar businesses like Debenhams and took a multimillion-pound write down on his investment there, which may be colouring his view.

He has also acquired House of Fraser and is expected to close some of its 59 stores. By saying that High Streets are dead he is having a go at landlords who he says are charging "pre-historic rents that are no longer correct", so he would like to see landlords cut his rents.

Sports Direct accounts for last year show that revenues grew by £110m to £3.35bn. His store wages bill fell by 2pc but his premises costs rose by 2pc.

He also wants the state to give him a dig out, in so far as he wants to see local councils offer five-year holidays on business rates in return for retailers matching that pound for pound with investment in stores. He blames what he calls the "web boys" for hollowing out Britain's High Streets. And he suggested the 20pc online tax should apply to companies who sell more than 20pc of their overall revenues online. It wasn't clear exactly how his business would fare in this plan.

He says he has a £400m online sale business which would be 12pc of global group turnover last year or just under 20pc of his UK turnover. There is another aspect to the Sports Direct founder's suggestion. To what extent has the development of out-of-town retail parks, where you will often find a Sports Direct store, contributed to hollowing out traditional Main Streets in towns?

The points that Mr Ashley raises are nevertheless important. Where will bricks-and-mortar shops be in 10 or 20 years from now? Undoubtedly, things will keep changing but in what direction?

The Society of Chartered Surveys Ireland produced a very detailed and insightful report recently on the challenges facing rural towns around the country. It was packed full of analysis and solid suggestions on how rural towns can be developed into the future. Much of the publicity around the report centred on the lack of broadband, which is a valid point, but it also referred to the impact of online shopping and out-of-town retails parks.

It said that Ireland possesses one of the largest proportion of consumers who purchase online via 'cross-border' websites.

"Trends indicate that online shopping will continue to grow and while Ireland has a lower prevalence than the UK and other developed nations, it is expected that it will follow the same path," said the society.

For example, it found that 43pc of retail space in retail parks is based in Dublin, Limerick, Cork and Galway. That mean 57pc of retail park space is outside of our four main cities. These parks tend to attract larger international brands, which can have a bigger impact on smaller Irish retailers in rural towns.

Local authorities were caught in a tough situation in the past. Deny planning to these out-of-town parks with big brands that customers want and people may shop elsewhere. Let them in, and you hollow out the centre of the town.

The other great problem for the Main Streets of Ireland, isn't so much empty shop fronts, as empty houses. A great many small towns have a high percentage of homes on the main street, in which many of the younger generation simply do not want to live.

Give them a one-off house in the country or a three-bed semi outside the town - just far enough to drive to town. Once they are in the car, they may just as easily shop in a bigger town half an hour away. Once the older generation dies off, and these Main Street houses become empty in greater numbers, it is much more difficult to get people back into them.

So should we all despair about online shopping and tax it out of existence as Mr Ashley would like? This is not a solution. Online shopping is attractive to consumers as well as the multitude of new businesses that emanate from it.

As the former head of Waitrose pointed out about Mr Ashley's suggestion, "it just puts legacy players with underinvested internet offerings at an advantage".

Surely the future can hold bricks and mortar, as well as online?

The challenge is for Irish businesses and business groups in local towns to pull together and do two things - get a slice of the online action and enhance the shopping experience for those who come to town or live in their town. There are examples, even in the Chartered Surveyors study of towns which have succeeded, such as Westport and Clonakilty.

The other big factor is community buy-in. The reality of modern rural living is that the car is king. Many people, despite great rural Irish traditions of farm work or stacking turf in all weather, don't want to walk anywhere.

They don't even want to walk half the length of a car park, instead jostling for limited spaces as close to the doors of retail outlets as possible. They will happily drive for miles to a town further away to avail of greater consumer choice and better parking.

The battle for the future of online is a global fight.

In the US over 9,000 retail chain stores closed last year. It exceeded combined US store closures from 2003 to 2006. That pattern is continuing this year with the collapse of companies behind household names like Toys R Us and Sears and even Walmart shutting dozens of its club stores.

However, some in the industry say the 2018 US closures are not as troubling because they were planned last year and represent the enactment of pre-agreed strategies. They say the US 'retail apocalypse' is exaggerated.

In the UK, there has been high street carnage with 14 shops a day closing. However, there are new stores opening all the time - just not at the same rate.

In a booming Irish economy, there may be a tendency towards complacency. According to the IE Domain Registry, as few as three in 10 small and medium businesses are able to take sales orders online.

Trying to hold back change won't work. It would result in an inward-looking Trumpesque 'Ireland first' approach. Online is a threat for some and an opportunity for others. Retailers have to try and work out which it is for them.

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