Comment: Business rates are scaring off overseas retailers

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The UK’s outdated business rates system is scaring off overseas retailers and we are losing much needed investment as a result.

New Yorker, Crate & Barrel, Oliver Peoples, Koton, Michael Hill, Aeropostale, Cotton On, Target and Teavana. Some of the international brands that have so far chosen not to progress expansion strategies in the UK, partly because our business rates are the highest in Europe.

I have advised a large number of American retailers on their expansion plans into the European and UK markets over the last 10 years and on every occasion, without exception, clients are astonished at the high level of business rates they face in the UK.

“Nowhere else across Europe has the level of property tax that we have in the UK”
James Ebel, Harper Dennis Hobbs

When comparing Munich with Manchester, Brussels with Birmingham, or Lisbon with Liverpool, nowhere else across Europe has the level of property tax that we have in the UK.

That’s because no other European country has business rates as we do. There are some very minor property taxes across the continent, but they amount to a few thousand euros a year.

So when looking at European expansion holistically and seeing such a high price to enter the UK, many retailers are opting to focus on other countries.

Making the UK market sustainable

Take our client Forever 21, for example, its growth in the UK has been restricted by high occupancy costs due to rates and it has decided to continue most of its expansion outside the UK. We have instead signed for additional stores in Germany and are pursuing locations in Spain, France and the Netherlands.

Some international retailers have tried and failed to crack the UK market, due in part to real estate costs, for example, Borders, Best Buy, Gymboree, Eddie Bauer and Bebe. Why aren’t we doing more to make new entrants into the UK market sustainable?

Other retailers such as Uniqlo, Ralph Lauren, Lulu Lemon, Forever 21, J Crew, Williams-Sonoma, American Eagle, Starbucks and TK Maxx have been more successful.

However, isn’t it time we took cross-border strategies into account and started competing with other European cities on a level playing field? Why are we losing investment to other countries that have scrapped or capped business rates?

The business rates model in the UK is outdated and needs a major overhaul if we are to compete at a European level. Perhaps rates increases should be based on store performance or stepped up as the retailer can afford it? It is time the retail and property industries placed greater pressure on the Government to force change.