Tesco boss blames business rates for retail woes

June 9, 2018, 3:50 pm
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Source: BBC News

The boss of Britain’s biggest supermarket has blamed the collapse of some retailers partly on the expense of business rates.

Dave Lewis, Tesco chief executive, said the charges that firms must pay on their buildings played a “large part” in sending some retailers to the wall.

Last year a revamp of business rates saw some bills rise, while others fell.

He questioned whether raising business rates was resulting in an “uneven playing field” for some firms.

Retail is the UK’s biggest private-sector employer, Mr Lewis told the BBC.

“Are we allowing it to stay competitive, or are we by stealth lowering corporation tax and increasing business rates to a place which is creating an uneven playing field and forcing people to think about how it is they avoid that cost and find other routes to the market?” he asked.

The Tesco boss said business rates was the biggest tax his company paid, adding up to more than £700m a year.

“You need a level playing field … between an online digital world and a traditional retail store base model like the one we have,” Mr Lewis said.

Mr Lewis also took ministers to task for ignoring retail – as well as the food industry – in the government’s industrial strategy.

His plea for action on business rates echoes comments made last year by Mike Coupe, chief executive of rival supermarket Sainsbury’s.

He called for “fundamental reforms” to the “archaic” business rates system, which ignored the rise of online retailers based in out-of-town warehouses.

Sainsbury’s recently announced plans to merge with Asda in a deal that would create the UK’s biggest supermarket operator, eclipsing Tesco.

Despite the hefty charges faced by retailers with large numbers of physical stores, Mr Lewis says shops are “definitely here to stay”.

He conceded that Tesco has more retail space than it needs, prompting it to try ideas like bringing in other brands such as Holland and Barratt to offer customers something different.

Too much space is just one problem supermarkets are grappling with: they are also threatened by online retailers such as Amazon.

It now owns the upmarket US grocery chain Whole Foods and earlier this year opened a supermarket with no checkouts in Seattle as a testbed.

Doug Gurr, Amazon’s UK boss, said most retailers now have a mix of online and physical store sales.

“There’s huge value in walking in and touching and feeling products … but at the same time there’s a huge convenience in being able to order products on my phone, on my tablet, to be able to order 24 hours a day,” he said.

Retailers that want to give customers what they want will have a “blend of the two”, he added.

Mr Gurr highlights an Amazon seller who has run a record store in Stirling for more than 25 years. Now more than three-quarters of his sales are online to customers around the world.

“It’s going so well he’s actually been able to open two more physical shops in Edinburgh and Aberdeen, so that for me is really where we’re going,” he said. “I think you’ll see a much more hybrid model.”

Meanwhile, Marks & Spencer chairman Archie Norman has summed up the challenges to retail in the company’s annual report published on Thursday, saying the “tide is running more strongly against us now than at any previous time”.

M&S plans to close 100 UK stores by 2022 in a move it says is vital for the retailer’s future.

He added: “There is no doubt in my mind that we face formidable headwinds and transformational changes are needed.

“The continued migration of clothing and home online, the further development of global competition, the growth of home delivery in food and the march of the discounters all amount to threats that are eroding our business and market position.

“These, together with a challenging UK consumer market, mean that we have a burning platform. Accelerated change is the only option.”

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