Hopes and fears
Written by David Adams
With the general election done and dusted, David Adams asks: what advice from the world of retail and retail technology should politicians take as they seek to understand the issues that confront the wider economy?
The uncertainty and confusion are over and we have a new government. True, trouble almost certainly lies ahead for the coalition, perhaps particularly over economic matters, but at the time of writing all seemed to be progressing just about as smoothly as could be hoped. The question for the retail sector, one of the great turbines driving the UK economy, is how government policy will affect its own journey out of recession. Retail Systems asked some industry experts what they expected the government to do, what they feared it might do - and what it ought to do.
First of all, the government must not underestimate the importance of the retail sector, warns Sarah Kellett, retail industry consultant at Fujitsu Services. “Something like one in eight of the nation’s households include someone employed in retail, so anything that damages retail will have a major effect on households,” she points out.
Furthermore, says Huw Thomas, managing director at Paul Mason Consulting (PMC), while tackling the budget deficit is important, it’s just as important to shepherd consumers and businesses safely through dangerous times. “We need everybody to have enough confidence to continue to make investments,” he says. “Without that, everything will dry up.”
It’s not just businesses that need to be able to keep spending money, notes Cyrus Gilbert-Rolfe, head of retail, EMEA at EMC Consulting. “I’m not an economist but I don’t think Britain needs a Greece level of austerity measures. I hope the government are careful not to scare people and stop them shopping.”
One major concern that will be shared by retailers and their customers alike is the fear of an increased tax burden. PMC’s Thomas is concerned about a rise in Capital Gains Tax. “Will that hinder a desire to invest, whether it’s a consumer, individual or business; if the extra taxes you pay on a deal mean it’s not doable?” he asks.
“I’d like to see them put out more incentives to get people to invest, to promote private enterprise, to make it worth peoples’ while to do more to bring down unemployment. They’ve got to do something with the banks to make more capital available for everybody.”
The all but certain increase in VAT is a concern for the sector. The concerns are two-fold: over its extent (all suggest a rise to 20 per cent looks inevitable) and also over the possibility that at some stage, under some sort of rationalisation of the current, admittedly confusing VAT rules, the tax may be levied on more products - possibly even on food.
John Bovill, group IT director at Aurora Fashions, believes the sector will ultimately cope with the implementation of a VAT rise, but hopes that retailers will not end up having to bear the brunt of public anger at rising prices. “The government must make it clear that it’s their decision,” he says.
A VAT rise will create operational challenges for retailers and their IT systems.
“There will be a cost of change in this and the retailer will have to take the cost of change,” says Bovill. “Again, as with chip and PIN, PCI - the retailer always takes the cost - and it’s not small.”
EMC Consulting’s Gilbert-Rolfe also urges the government to think carefully about exactly when it introduces any VAT changes: “Be sensitive about when you do it: don’t do it on 20 December or 1 January.”
The other issue that probably unites the sector is approval of the postponement of any rise in National Insurance, even if there will still be a rise of some kind at some point. “That’s great news,” says Will Jones, IT director at e-tailer, The Book Depository. “Growing out of the recession is the best way, encouraging businesses like our’s which are very fast growing. Anything that doesn’t stifle that is good.”
Fujitsu’s Kellett agrees. “I think the really critical issue for everything is maintenance of employment,” she says. “When people are employed the government get income tax, National Insurance payments and people have more money to spend on the products that attract VAT.”
That being the case she suspects that in this economic climate the needs of business in general will override any drive to extend or increase maternity or paternity leave or pay: “I think (that) will be curtailed and that will be down to pressure from business. Employment laws need to be appropriate and outcome-based.”
PMC’s Thomas argues that continued investment in apprenticeship schemes would also help retailers and the economy in general. “If (government) could incentivise retailers to be able to do something around training funding, you drive down the unemployment figures and you get skills that hopefully retailers and young people themselves benefit from,” he says.
Aurora Fashions’ Bovill believes if the government’s fundamental aim is to encourage retailers to invest in jobs, suppliers, stores and infrastructure, it must avoid squeezing money out of the sector through over-regulation. “It’s important to have regulation to protect the public good, but again, retailers tend to end up being liable for the costs,” he says. “The government have got to encourage business to do business.”
One area where government intervention could yield positive results is through initiatives aimed at reducing the environmental impact of the business. Thomas would like to see changes in rules on packaging materials. “That would need a bit of a cultural change globally, but it would also mean you could lower costs.”
Another area where government intervention may be welcome is transport and logistics. “The new drive has to be all around how we get products to market in the most environmentally friendly way and how to deal with reverse logistics,” says Tony Bryant, business development manager at K3 Retail Business Solutions. He suggests that suppliers that deliver products to more than one retailer in a town centre regularly should come under pressure to make fewer journeys, serving more than one client each time.
Collaborative supply and logistics schemes, some involving major retailers sharing delivery vehicles, have been suggested more than once in the past, but have failed to get off the ground for various reasons, sometimes as superficial as arguments over the branding on vehicles. But Bryant believes this is an idea whose time may have come.
“More of those opportunities are appearing, because many retailers have now screwed down their supply chains and looked at efficiencies,” he says. “It’s now about sharing those best practices. I think that will start to happen in the next couple of years.”
EMC Consulting’s Gilbert-Rolfe says that the sheer number of delivery vans making repeated journeys across the country to customers’ homes is unsustainable, noting that industry experts are considering how local, shared distribution hubs could be shared by retailers, just like the ideas mooted in the late 1990s as retailers started to build delivery infrastructures to serve online customers
Another question for the government to consider is how to support regeneration of the nation’s High Streets, battered by the rise of shopping centres in and out of town, by online retailing and by economic instability in general. Fujitsu’s Kellett would like to see more support for newer businesses trying to move into empty shops. “Any assistance that can be given around giving people help towards starting up business in empty stores will help,” she says.
But there should be more support for established retailers too: “There’s always lots of talk around supporting manufacturing and I understand that, but it’s always astonishing to me when you see things like Woolworths biting the dust and how many people did they employ? A hundred thousand or so? And did they get any help?”
In the end, it all comes back to the economy and that one fundamental task where success or failure on the part of the coalition could have such profound implications for all of us: to find the right balance between the economic measures necessary to reduce the deficit and to maintain economic confidence among consumers, retailers and other businesses.
“It’s going to be a tightrope walk,” says PMC’s Thomas. “They’ve got to keep the coalition together, they’ve got to reduce the deficit, got to get the economy back on track. Irrespective of your political views, we have to get behind them. That means all of us and it means the press and the media not doing what they’ve been doing for the last two years and talking down the economy. Everybody needs them to make it happen. Otherwise we’re all screwed.”