An Overview of Retail from Sandpiper - Part 1

Prefix: this was written before my cough and cold. I like to prepare blogs in advance, in case of illness!

An Overview of Retail from Sandpiper

The “Economic Affairs Scrutiny Panel” conducted a “Retail Policy Review”, and one of the witnesses was the CEO of Sandpiper.

There are some interesting nuggets which I have extracted and commented on after reading the review. The CEO's submission is in italics.

Freight Costs

It is clear that freight costs add a significant amount to the cost of food in the Channel Islands, although it should be noted that the Iceland franchise of Sandpiper.has managed to bring a good many products at UK costs plus GST.

Inevitably whenever you have a new entrant come into the marketplace there is always a challenge and of course every new entrant that comes in comes with wonderful promises about the price of food and the J.E.P. (Jersey Evening Post) is full of the fact that the price of food is going to come down and then the realisation dawns, whether it be when Waitrose come in or whether Tesco come in or when even Morrisons comes in, that the reality is that prices of food in the Channel Islands are more expensive.

So understandably people agitate but as one example when we are spending £8 million a year just to bring stuff across from Portsmouth to St. Helier in St. Peter Port that £8 million a year has to be paid for.

One matter not explored here is whether it would be cheaper to source some products from nearby France rather than the UK. Clearly, with impending Brexit, there may be difficulties here, but it would be interesting to know what the comparative costs are, as the distance is considerably smaller.

Retail Strategy

When you consider strategy with respect to finance as opposed the retail, I think he has a point. In fact there are out of town shopping centres, but with relatively small amount parking – even the Co-Op at St Peter’s does not have a huge amount of space – this was never going to be such a draw for town dwellers. It would be interesting to note if the vast Diamond Garden Centre in Guernsey has had any effect on retail there.

I guess for me the question is, how do government view retail? Are retail an industry to be looked after or are they an industry to be used as a cash cow. I have to say regrettably at the moment I see it as being pretty much as a cash cow. I have been here 11 years and if you look at what has happened to retail more by luck than sound judgment we have avoided the decimation of our town centre purely because we did not have the location for out of town shopping centres. No government strategy. No real thinking but it happened, thank God, and we therefore up until, I would say, probably about 18 months ago had a very vibrant town centre but inevitably as the pressure comes on particularly with alternative shopping channels that town centre is coming under more pressure.

My synopsis would be we have not had a retail strategy for years. There has been no grand plan to manage the reduction in space. No thought of the impact of attrition of alternate shopping channels. In essence, no joined up thinking and policy made on the hoof. I am sorry but that is my perspective. So retail closures continues. What do the States do about that? The States decide to introduce a 20 per cent retail tax on the very day that Mothercare and Thomas Cook … the very day Mothercare and Thomas Cook announced they are closing and leaving the Islands for good.

When he was in the States, Constable John Refault did comment on this line of argument, which had also been used by Senator Philip Ozouf. He noted that “Thomas Cook and Mothercare. Thomas Cook is not a retailer. They do not pay tax. Mothercare have not gone out of business because they pay retail tax in Jersey. I am just trying to read some of my own writing. BHS did not go out of business because it paid retail tax in Jersey, neither did Woolworths and neither did many others. Not one Jersey company has paid a penny piece in retail tax so far. None of the empty shops in St. Helier or anywhere else in Jersey has been caused by the implementation of retail tax.“

Internet Shopping

This is interesting, as he is aware of the advantages of internet shopping over the de minimis level reduction. It is partly a change in lifestyle, but what is also interesting is that he notes that going to town to shop means spending money on parking before you start, an extra saving made by shopping online, and one often missed.

There is no silver bullet, as I am sure you are all fully aware of. Therefore, it is not fine and dandy for me to say: “Well, government has not done anything for years” but in some respects what has been lacking is an attempt to try and get our arms around this situation and to understand it. In the U.K. internet shopping is accounting for 17 per cent of sales at the moment. I would think it is slightly higher here out of total sales by the nature of airfares etcetera. We are sleepwalking.

I will be true to form and say that no matter which way you cut it, I do it myself, it is easier to sit at home in your armchair and buy a product than it is to go walking round town, particularly when the wind is howling in, et cetera. What we need to do is to think about how we can make things more attractive.

I think my point [on parking] is less about the availability of spaces and more about the fact that you have to pay to use them. I do not have to pay to sit in my armchair.
So I think the challenge is there for us but equally, I keep on coming back to the point to say we can do as much as we can and we can do better, but it is coming … and it is a tide and we are not going to stop it. To my mind we are not together working with government to understand what measures we can take to improve the situation.

20% Retail Tax

There is a clear and I think justified criticism of Senator Alan Maclean for making a rather ridiculous statement in the States.

In spite of what has been said there was never one piece of single consultation and on that basis somebody comes along with no consultation and takes 20 per cent of your earnings away what is the implication of that? The implication of that is your capital investment gets slashed to pieces. You cut and run because you know you are not going to get the return on the investments that you were making before. You also have to balance your wholesale budget so when the Minister stood up and said: “And I can assure you there will be no price increases” my jaw almost fell open.

How on earth could that statement possibly be made? If you and your household income lose 20 per cent of that income overnight you either have to increase your income or you have to cut your cost base. So it is really simply economics.

I do not buy the justification but I also do not also understand why you would take one particular sector of the commercial make-up of the Island and say: “We will take retail. Not only will we take retail, we will whack a 20 per cent corporation tax on”, which is higher than the U.K. I used to own the largest pub chain in the Island as well. We used to run that. I can tell you I made more money out of pubs than I made out of retail. So how come the powers that be have decided that: “We will leave pubs … we will leave gambling shops alone but yet we will charge the people that supply food to the consumers. On top of the G.S.T. we will charge the people tax as well. By the way, prices will not go up.” There is just a lack of joined-up thinking here and it is more about the question about where is the priority.

I think it should be standardised and I think it should be applied across the board. Everybody who enjoys this Island should pay their share to enjoy. There is absolutely no justification for singling out one particular sector and overly-penalising a sector that irrespective of the retail tax is under huge pressure, as it is. We do not need this helping hand to fall down the hill. We are already falling ourselves. Just give us a break. We do not want any favours from you because competition is good but we do not also need you pushing us in the back.

I would in no shape or form be suggesting standardising of 20 per cent. I was thinking more along the lines of the finance industry are paying at 10 per cent, and if it is deemed that it is necessary for the States finances that tax is levied then I believe it should be levied at 10 per cent.

Deputy Eddie Noel commented on the 20% that it had been expanding already to encompass different companies: “Such efforts resulted in expanding the 20 per cent tax regime to include mineral extraction companies - that is quarries to you and I - fuel importing businesses - there is the La Collette Fuel Farm – and the like, bringing them into the corporation tax net along with utility companies, property development companies, property rental businesses, all paying 20 per cent”

So the question is what determines whether a retailer should be bracketed in the 20 per cent area, or the 10 per cent of finance companies? Fuel seems more akin to utility companies, as it is used for central heating, but what criteria are used for 10 percent or 20 percent? That’s something which still doesn’t seem to have been resolved. It seems a kind of fuzzy determination done on an ad hoc basis that something thought out from first principles.

If there was any kind of principle, it might be that the finance industry supplies services, and is regulated by the Jersey Financial Services Company with an annual levy but are ISEs as a result (and GST exempt), whereas retailers and utility companies supply goods, on which GST is levied. But this is looking at it trying to find structure, and as far as I am aware, there are no fixed principles on which the structure was built in such as way as to allow extending tax rates to new domains such as retail.

But when Senator Maclean brought in the tax, it seems more to have been an ad hoc tax grab to fill a hole in the budget, so that it would fit within the Medium Term Financial Plan. It highlights a significant problem with the MTFP. Just as people change behaviour to meet targets, rather than changing behaviour to address the purpose of those targets, so too politicians may well bring in stealth taxes, and retail taxes, to plug a hole in the MTFP, and that can be just as much based on short term fixes.