South: Rate rises are main reason for Debenhams woes, says Colliers
11 September 2018
Share
News that Debenhams has called in KPMG restructuring specialists to consider a CVA and to help negotiate reduced rents for its sites and close unprofitable shops has not been totally unexpected. The company has put out its third profit warning this year, its share price has plummeted and in April it reported an 85% drop in pre-tax profits.
Debenhams, like other major retail chains in the high street, is operating in one of the most challenging parts of retail as consumers increasingly shop online and spend more money on holidays and experiences. It has been squeezed by increased wages, rents, utility bills and business rates.
According to John Webber, head of business rates at Colliers: “Like many other retailers, Debenhams is seeing the negative impact of the 2017 Rating Revaluation, which we believe has substantially added to its costs.”
Analysing Debenham’s 178 stores in the UK, Colliers estimates the retailer has a total rateable value of around £150 million, which equates to an annual rates bill of over £76m for 2018/19.
Some stores saw big rises in Rateable Value of over 50% or even 100% (Westfield +133% and Oxford Street +57%) following the Revaluation in 2017 and these rises are still filtering through, with inflation on top. The store in Westfield for example was paying a rates bill of £651,000 before the Revaluation. This year the figure is now an eye watering £1.3m (2018/19). In Oxford Street, the Debenhams store paid a rates bill of £3.4m before the Revaluation. It is paying £5.36m this year and the bill will rise to £5.87m by 2020/21. These rises are largely unsustainable in the current market.
Added to this, those stores, in other parts of the country that should have seen a decrease in their rate bills following the Revaluation, are not helping much because of the policy of downward transition, which still has four years to run. This means such stores are paying much more on their rate bills than they should be. In Cumbria, the Debenhams store saw a 37% reduction in its rateable value following the Revaluation. But its rates bill only decreased from £51,191 to £46,609 in the first year and is still this year at £41,261 which is much too high.
“It’s no wonder Debenhams is looking at shutting up some stores and is trying to reduce its rent bills and even cut its store sizes in some areas," said Webber. “As business rates are tied to rental values, it would be mad not to!”
Webber added: “Debenhams, House of Fraser, Laura Ashley, New Look - the list of retailers with uncomfortably high business rate bills is never ending. Yet still the Government talks and does nothing."
This is why Colliers has launched its Business Rates Manifesto calling for an immediate freeze on any new rises and immediately removing downward phasing enabling struggling stores to pay their true rates bills now. “And of course, a total overhaul of the business rates system, a look at reliefs and reform of the appeal system is need too,” said Webber.
Colliers has been following those sizeable retailers or restaurant chains who have announced CVA since the 2017 Revaluation and believes if Debenhams goes down that route it would take the number to 30. “That’s 30 companies too many," said Webber. “The Government really needs to stop fiddling on the margins and prioritise this issue higher up the agenda.”
