Department Store Doom: The Valuer Strikes Back

Sports Direct said it is not about to close 50 of the remaining House of Fraser department stores, as some weekend reports suggested. The company insists press reports are a misunderstanding about who is surrendering leases to whom as it unwinds existing commitments as part of the new ownership structure.

But life is still grim for the UK's department stores.

The exact degree of grimness is made clear in new data from Colliers International about the extent of rates liabilities which face struggling operators. Huge rates bills threaten viability at many department stores.

Its analysis suggests that the John Lewis store at Manchester’s Trafford Centre is paying a business rates bill of £1.7M this year (2019-2020), due to rise to £1.754M in April 2020. Meanwhile John Lewis at Oxford Street is facing a business rates bill of around £10.4M this year.

Colliers found that 22 John Lewis stores are paying rates bills of more than £1M each in the 2019-20 tax year. It estimates that John Lewis’ department store portfolio is facing a business rates bill of around £56.4M in the current year. This is about 20% higher than a comparable bill before the 2017 Valuation.

The unwelcome news comes as John Lewis threatens to withhold some of this quarter’s service charge payments to landlords, as well as announcing its first ever half year loss, which was £26M for the six months to 27 July.

“Nobody is really taking into account the impact of the business rates environment,” Colliers Head of Business Rates John Webber said. “Whilst John Lewis is currently negotiating with landlords over the rents and even the service charges that it pays, business rates are set in stone, and there is no room for manoeuvre. And bills are likely to continue to rise over next year too.”

With the 2021 revaluation around the corner, John Lewis should get some reprieve in 2021-22, since rate bills should reflect the reduction in retail rental levels, as seen at April 2019. But this would only kick in if the Government allows values to move to their correct levels immediately and does not implement a period of transition, as it did so disastrously after the 2017 revaluation, Webber said.

In any case, rates bill relief and revaluation may come too late for some stores.

“Like other retail operations, John Lewis is facing rising costs which it is attempting to keep under control in a difficult market," Webber said. "The threat to refuse to pay some of its service charge bills is a case in point. Business rates are playing their part in keeping such costs high. It would be massively disappointing if the Government shows it has learnt nothing from the current retail predicament and goes down the downward transition route as it did at the last revaluation. We need to allow retailers such as John Lewis a chance to ease their rates burdens immediately.

“Sadly, no one in power or even the opposition seems prepared to tackle the business rates crisis despite the rhetoric. And they still seem to fail to appreciate that it is the bigger retailers, the chains that are the big employers in the sector.”