Data: Business rates turn up heat on department store chains John Lewis, Marks & Spencer, Debenhams and House of Fraser

The likes of John Lewis, Marks & Spencer, House of Fraser and Debenhams are battling to reinvent themselves in order to remain relevant to the modern consumer – and avoid the pitfalls that sparked the demise of their former high street rival BHS.

But the long journey to achieving that transformation is proving to be a bumpy one – a fact exemplified since the turn of the year.

Last week, Debenhams issued a profit warning, slashing its full-year profit forecast from £83m to between £55m and £65m following a “challenging” Christmas.

Boss Sergio Bucher is on a mission to create “social shopping” destinations under his Debenhams Redesigned strategy, and said the business will now “move faster” to restructure head office, call centre and in-store teams to make it more agile and, just as importantly, cut costs.

Days after Debenhams’ bleak statement, it emerged that House of Fraser was seeking to cut the rents of around half of its 60 stores in a bid to decrease overheads.

“Putting the impact of the national living wage, the apprenticeship levy, rising rents and increased sourcing costs to one side, business rates alone represent an increasingly heavy burden on their cost bases”

M&S’s mixed Christmas bag and a slump in sales from House of Fraser – both reported this morning – have only emphasised the need for department stores to invest in transforming themselves, despite myriad cost headwinds.

Data collated by commercial property consultancy Colliers International and shared exclusively with Retail Week illustrates the scale of the pressure department store operators find themselves under.

Increase in department stores’ business rates liabilities

Putting the impact of the national living wage, the apprenticeship levy, rising rents and increased sourcing costs to one side, business rates alone represent an increasingly heavy burden on their cost bases.

Colliers has collated a representative sample of 20 stores from each of the retailers’ portfolios, showing the 10 stores with the biggest increases in rateable value, as well as the 10 in less desirable locations that have benefitted from the steepest falls in rates.

And, analysing the impact that business rates are having on the P&Ls of House of Fraser, Debenhams, John Lewis and M&S, it is easy to see why they are actively striving to cut costs in other areas.

House of Fraser

House of Fraser’s flagship stores in Westfield London and on Oxford Street have seen their business rates surge following the 2017 revaluation.

The rateable value of its Westfield London store experienced the biggest rise, more than doubling to £2.37m.

Its shop on Oxford Street increased at the slower rate of 57.2%, but that took its rateable value to an eye-watering £9m.

House of Fraser is lumbered with a number of stores in less desirable secondary and tertiary locations, including Altrincham, Shrewsbury and Croydon, where rateable values tumbled 50.5%, 42.6% and 30% respectively.

Despite those favourable movements in its rates bill, Colliers’ data suggests that House of Fraser’s total business rates liability has increased 11.4% since the 2010 valuation to £64.9m.

Debenhams

According to Colliers’ data, Debenhams has 132 properties across the UK, far more than House of Fraser or John Lewis.

Its overall business rates liability is therefore heftier than those two rivals – and climbed a further 7.5% to £149.6m after the 2017 revaluation.

Three of its stores have seen their valuations at least double, including its Westfield London shop, which now has a rateable value of £2.9m.

The values of Debenhams’ shops in Derby and Shrewsbury have also ballooned 100% and 128.5% respectively, albeit from very low four-figure bases.

Debenhams Barrow in Furness store was given the biggest decrease in rateable value, falling 36.9% to £65,000, while its shop in Croydon has benefitted from a £350,000 downturn.

John Lewis

John Lewis has suffered the steepest increase in rateable values of the four department store businesses, following a 24.15% increase to £134.1m after last year’s property valuation.

The retailer’s rates at St Pancras International have almost quadrupled, while the rateable value of its Oxford Street store has swelled more than 50% to £19.9m.

Shops at Westfield Stratford, plus those in Reading and Norwich, have seen rateable values increase more than 40%.

John Lewis’ Peterborough store benefitted most from last year’s valuation, as its rateable value fell 19.9% to £1.6m.

According to Colliers’ data, Futura Park in Ipswich was the only other John Lewis store to benefit from a decrease in rates.

Marks & Spencer

With the largest store estate of the group, M&S predictably has the largest business rates burden of the group.

But its already onerous liability has jumped a further 5.4% to £538.4m since last year’s revaluation.

Four of its properties – three of which are London – have seen their valuations more than double since 2010, while five others have been handed rates increase in excess of 80%.

The biggest beneficiary of the 2017 revaluation in the M&S portfolio is its store in Shrewsbury, but the 52% decrease in rateable value pales in comparison to some of the eye-watering hikes in other parts of the country.

With an uplift in its business rates liabilities, coupled with rising rents and staff wages, M&S’ drive to shutter some of its larger full-line stores to make significant savings on overheads appears a difficult but logical move to make.

It wouldn’t be much of a surprise to see its rivals do the same.