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So it is no surprise that two leading groups of interest to our sector have issued statements connected to the situation and its effects on their members. The British Retail Consortium is campaigning on retail rent reform, hoping to lessen the burden of one of businesses greatest running expenses. The CBI survey meanwhile reports that manufacturers are being forced to raise their prices due to growing costs.
Rent
The British Retail Consortium (BRC) is welcoming the new impetus given to retail rents reform by some of retailing’s biggest names.
Arcadia owner Sir Philip Green and Lord Harris, Chairman of Carpetright, are among those now calling for commercial landlords to accept rents monthly rather than quarterly in advance.
The BRC believes its two-year campaign has lead to monthly terms becoming the norm on new and re-signed leases. But, for the rest, toughening trading conditions are making the extra costs and cash flow difficulties of paying quarterly in advance more significant.
The BRC estimated the survival of this historic rents practice adds £145 million a year to retailers’ costs.
The retailers’ organisation is calling on landlords to respond to the economic slowdown by offering flexibility, even on existing leases, where that is what businesses want.
British Retail Consortium Director General Stephen Robertson said: “The BRC has made significant progress in establishing monthly rents as the norm but today’s tough trading conditions mean the impact of quarterly leases still out there is that much greater.
“At a time when retailers are battling a range of rising costs in order to keep shop prices and overall inflation down, the new momentum given to rents reform by some of UK retailing’s key figures is welcome.
“Requiring rents three months in advance is at odds with standard business practice. It’s a historic and costly practice, rooted in the days when communications were governed by the speed of a horse.
“So far this year a number of retailers have gone into administration. Seeing retailers driven to the wall is on no-one’s interest. By agreeing to a fairer rents regime, landlords will be contributing to the retail prosperity on which they themselves depend.”
The BRC’s case to landlords is:
- Asking for rent three months in advance is at odds with standard business practice.
- Landlords are adding £145 million a year to the costs of retailers who are also struggling with sharply rising commodity and energy costs.
- It is in landlords’ own best interests to see a thriving retail sector. They lose too when retailers are driven out of business by excessive costs.
- Landlords cannot argue they are running a credit risk requiring up-front payment when they are dealing with substantial, reputable businesses.
- Monthly payment would significantly ease cash-flow pressures, especially for hard-pressed smaller retailers.
Rising Costs
Manufacturers have continued to raise the prices of their goods, in the face of the fiercest cost increases since 1980, a CBI survey shows.
The latest Industrial Trends survey reveals that persistently high costs coupled with firms’ expectations of slowing demand have led to a widespread drop in business confidence.
In the last three months, average unit costs rose for 65% of manufacturers while they fell for just 7%. The resulting balance of +58, the highest since October 1980 (+58), comes on the back of soaring oil prices, up by over a third in the last quarter alone. Firms expect costs to increase at a similar rate in the next three months.
As a result, firms have attempted to offset some of the damage to their profit margins by raising prices. For two quarters in a row, domestic prices have risen markedly (a balance of +21 recorded in April and +27 this survey period) while export prices have also gone up at an accelerated rate (+12 and +19). This quarter’s figures are the highest since April 1995, and firms expect prices to increase over the next three months at the highest rate since January 1990 for domestic prices, and January 1995 for export prices.
Firms’ mood about the business situation darkened considerably for the fourth quarter in a row, but this time sentiment has taken an even greater dive - the balance of -40 is the weakest since October 2001 (-54).
Levels of activity in the last three months held up reasonably well, however, with firms reporting manufacturing output as flat (-1), much as expected (0). While domestic orders fell markedly again for manufacturers (-19), export orders held up well and were broadly stable (-2).
In the monthly question asked about manufacturers’ total order book levels, a balance of 8% of firms considered they were below normal in July - a return to the negative perceptions recorded in April and May but still considerably above the long term average (-15).
However expectations for manufacturing activity are less positive for the coming quarter, with the weakest balances for expected output (-7), domestic orders (-21) and export orders (-8) recorded for at least five years.
There was a surprise let-up in the pace of job shedding over the last three months, with the slowest rate of job losses (-7) since October 2004 (-4). Firms’ expectations for the coming quarter are much more negative, however, with a balance of 27% expecting to cut jobs. Based on the survey results, the CBI forecasts that 10,000 jobs were lost in the second quarter of 2008 and 26,000 will go in the third quarter.
Investment intentions have weakened since the last survey. Plans for plant and machinery investment continue to deteriorate, they are well below the long-run average, with -24 the weakest balance since October 2002 (-25).
However, despite more difficult lending conditions brought on by the credit squeeze, manufacturers are reporting that any constraints they may be facing in terms of cost of, or access to, external finance are not hampering their investment plans.
With the slowing in the global economy already underway, firms are more worried that uncertainty over demand will be a constraint to investment (55% is the highest percentage of firms since January 2006).
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Airstream Business Communications Ltd