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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 168-iii
House of COMMONS
TAKEN BEFORE the
Business, Innovation and Skills Committee
UK REtail sector
Tuesday 2 July 2013
alex gourlay, tony wheeler, mark lewis and tony ginty
martyn hulme, tim fallowfield and david hobbs
david owen, professor joshua bamfield, alexandra birtles and liz peace
Evidence heard in Public Questions 183 – 251
USE OF THE TRANSCRIPT
This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Taken before the Business, Innovation and Skills Committee
on Tuesday 2 July 2013
Mr Adrian Bailey (Chair)
Mr Brian Binley
Mr Robin Walker
Examination of Witnesses
Witnesses: Alex Gourlay, Chief Executive, Health and Beauty Division, Alliance Boots, Tony Wheeler, Head of Branch, Peter Jones, John Lewis, Mark Lewis, Online Director, John Lewis, and Tony Ginty, Head of Public Affairs, Marks & Spencer, gave evidence.
Q183 Chair: Welcome to our session today, and thank you for agreeing to give evidence. Before we start the questioning, I need to declare an interest, and I believe Mike Crockart does as well. I, of course, am a Labour and Cooperative Member of Parliament, and prior to coming to this place I spent 18 years-may I say, a very happy experience-working for the Cooperative movement, so I do have a background there. Mike, I think you also wanted to declare an interest.
Mike Crockart: Yes. I should just declare that my wife provides the public affairs consultancy for Marks & Spencer in Scotland.
Chair: Thank you. Just before we start our questioning, I will ask you to introduce yourselves-starting with you, Alex-for voice transcription purposes.
Alex Gourlay: Good morning. My name is Alex Gourlay. I am the Chief Executive Officer of the Health and Beauty Division of Alliance Boots, with responsibilities for Boots the Chemist, in the UK.
Tony Wheeler: Hello, there. Good morning. I am Tony Wheeler, Head of Branch at Peter Jones. I have been with John Lewis for 28 years, and I have run four of their shops: Norwich, High Wycombe, KingstonuponThames, and Peter Jones.
Mark Lewis: Good morning. I am Mark Lewis. I joined the John Lewis partnership at Easter this year, and I look after the online business-so johnlewis.com.
Tony Ginty: Good morning. I am Tony Ginty, and I am Head of Public Affairs at Marks & Spencer.
Q184 Chair: Thanks very much. Now, we have got four of you. We have only got an hour or so, and we have got loads of questions. Could I just ask you to be brief in your responses, and indeed I may ask the members of the Committee to be brief in their questioning. Do not feel that you all have to answer every question, if you feel that what you have said has been covered by another speaker.
The current buzzword, or buzzsentence, in retailing is "omnichannel retail experience". How would you define it? Who is going to lead on that? Yes, okay, Mark, since it is your responsibility.
Mark Lewis: My responsibility is for the online bit of John Lewis-johnlewis.com. The main thing I would encourage this group to consider is exactly that question. For us, omnichannel means understanding that our customers now like to shop across all the different channels that we put in front of them, and this is a change that is being driven by customers as much as it is being driven by anything that any one retailer is doing, or the technology that is available to our customers or us. We, for example, see at the moment that about twothirds of our customers, when making a purchase, will actually use a combination of channels to execute that purchase. They may browse in Tony’s store; they may then come onto our website and purchase online. They may ultimately clickandcollect that item from one of our stores, or one of our sister company Waitrose’s stores. For us, being omnichannel means meeting that need of a fully integrated customer experience, and providing one seamless experience for our customers, no matter how they choose to shop with us.
Q185 Chair: I will go on, as you seem to be the authority on this. What is the breakdown in the percentage of store shopping versus online?
Mark Lewis: In our results for last year, we published that about a quarter of our overall sales are now transacted online. That is a mixture of on our websites, and also increasingly people transacting on mobile devices.
Chair: So that is well above the average percentage of online versus conventional retailing, isn’t it?
Alex Gourlay: In a business like Boots, which is health care and beauty care, the number is more like 3%. It is probably 4% on average, if you look beyond Boots into pure online players. It does vary by category, and it varies by the personal care and experience the customer wants. I agree with Mark: it is completely driven by what customers want-convenience, value and care-and therefore it does vary a lot by category. Therefore, in the categories that we are focused on, it is a much lower number than 25%.
Tony Wheeler: We anticipate that our online trade will get to about 40% by 2020, but it does mean that the majority of our business will still be done in physical shops.
Q186 Chair: I appreciate that some of this could be commercially confidential, and you may not want to say too much, so I will rephrase my question. There is an increasing trend for certain types of retailing to have a display shop in the town centre, whereas those who come and look at them will actually do the purchasing online. What is your view on that? Do you think it is going to expand?
Tony Wheeler: Our shops are very, very important in terms of interaction with our customers. They do enable us to showcase, of course, but they also enable us to give customers excellent service. From John Lewis’ perspective, customers want excellent service and great products, and the shops enable us to showcase that really effectively. We do think, going forward, that we will continue to invest in shops, because we see that as integral in terms of complementing our online business.
Q187 Chair: That is just the word I was going to ask you about. I will come to you in a moment, Tony. How do you complement your business?
Mark Lewis: I would totally endorse what Tony has said. Although our customers may ultimately pay and transact, press the button and commit to buy online, in twothirds of those cases that shopping journey-if you look at it as a whole-has involved walking into one of our stores. That could be a combination of having a chat with one of our partners in the store, receiving advice on the product, and understanding which camera is exactly the right camera for their needs. It may be feeling the cloth or the fabric of a sofa, or whatever it may be. For us, those two businesses entirely sit side by side.
I think that the comment before, that that may not be the case in all categories, is probably very fair, but certainly in the categories that we trade in-be that home products, fashion, or electrical items-that is certainly the case. We see the two businesses sitting very closely together. To your comment of "25% feels like a large share of trade that has moved to online", I would say that that is because we have taken steps to embrace that shift in consumer behaviour quite early on.
Q188 Paul Blomfield: I have a quick question, following up on the online/inshop sales split. You have been very successful in pioneering clickandcollect. What is your split in terms of sales between home deliveries and collect in store, and what is the impact of collect in store in driving more conventional retail sales?
Mark Lewis: The split, at a rough order of magnitude, would be about a third of our orders purchased for clickandcollect into our stores, and that is both into the John Lewis stores and into the Waitrose stores within our partnership. That is a very fastgrowing part of our business. Customers have absolutely adopted it with vigour. They really like it, and the customer satisfaction scores are very high on that element of our service. We like it, because customers like it, but also when they do go into the store-although we make it very easy and convenient for those customers who just want to pop in, pick up the item and go-some of those customers then either browse or research or purchase something else while they are there. Obviously, it does drive footfall into the store.
Tony Wheeler: It is absolutely essential for us that clickandcollect continues to grow. Once again, the value you get from an online business really then does come through to physical space. With clickandcollect, it is really critical, and I do see on a daily basis customers pitching up in the shop, picking up their clickandcollect purchases, and then enjoying the rest of the shop, whether that be food or interaction with partners. Another really important point for us that has worked is that we also have clickandcollect collections in both John Lewis shops and Waitrose shops. It is absolutely paramount from a customer’s perspective that it is easy and it is convenient. They have got the choice to do whatever they wish to do, and many choose to have an item delivered, but many now choose to collect it, both in John Lewis and in Waitrose.
Alex Gourlay: In the Boots model, almost 50% of customers collect in store. As Mark has said, it is a completely integrated offer, and we are a very mass retailer. We have essential services in 2,500 pharmacies and shops, on almost every high street in the UK. This effectively allows people to order online and collect in the store-at no extra cost to them-lowcost merchandise, and merchandise that is sometimes for essential healthcare needs as well. We absolutely embrace the world of integrated retailing, which I think is the right terminology for it, and we think it is really, really important for consumers and for communities that they can pick up the things they need quickly, whether they are looking at sofas or basic medications or daily products.
Q189 Mr Binley: Can I take your point about communities and also make the point that you cannot divorce retail from the high street; the problems of the high street impact directly upon retail. What you are telling me gives me some hope for the high street. My apologies for my phone, Mr Chairman.
Alex Gourlay: It is an order.
Mr Binley: It is your blast from Boots. It seems to me that this is one of the hopes for the high street. Can you expand upon it? Maybe I can bring Tony in there, because I know that you clearly wanted to get in. Can you expand on that, and maybe hint to us how we might use whatever influence our report might have to tell local authorities and those people who are responsible for designing our high streets how they might work a little to help them improve high streets for you?
Tony Ginty: Just to add one or two comments regarding points already made by my colleagues, we call it "multichannel" at Marks & Spencer, but it is effectively the same thing. Our overall strategic priority is to become a leading international multichannel retailer. That is our driving strategic priority. Multichannel itself is about integrated retailing. It is actually about a seamless experience for the customer, and in that case, it is about the offering. We have something called "Shop Your Way", which allows people to order and collect by whichever channel they actually wish-the one that is most convenient to them. Indeed, to take Alex’s point, last year something like 44% of people chose to collect from the store. That actually is increasing, in fact, so there is an integration between the two. We see it as very much an integrated offer, and in that sense it does actually offer some hope for the high street itself.
As far as the high street is concerned, the key thing is for people to recognise the major transformational change that is occurring in retailing, which is driven by ecommerce and by the digital economy. One of the things they have got to do is to think about the composition of the town, but also to consider how they actually apply technology to that town, because I think they have an equivalent challenge there. We as retailers are actually thinking about how we deploy technology for the benefit of our consumer. Towns themselves and local authorities in towns need to have the same thinking process of saying, "What is the structure of the town that I actually need?" Retailing will be an essential component of that, but not the only component. Then they should think, "How do I engage technology, in terms of actually selling the town?" Frankly, that is what customers want, and it is what people who use towns want.
Tony Wheeler: I think that is absolutely correct in terms of the high street. One of the things, firstly, that Governments really do to help is to provide frameworks that encourage partnerships between various stakeholders in inner towns or city centres. I was chairman of the Business Improvement District at Kingston-upon-Thames, and during that time I found the relationship between private and public sector really fascinating. The value we got from an integrated strategy for that town centre, which involved retail, public sector and community groups trying to make sure that we had a strategic vision for the destination that attracted consumers into that space, was absolutely vital.
Q190 Mr Binley: Can I ask a very quick supplementary? Are local authorities, planning departments and development people aware of a changing need here that is important, in terms of structure?
Alex Gourlay: Again, I really speak from some of the work we have been involved in in Boots, both in BIDs and LEPs, and also more recently in the Portas review. It is growing. It really is quite encouraging. I am seeing, in the Portas pilots for example, many local authorities embracing a process that is integrated and working with businessled leadership to create a real vision for their town centre and then a solution. It is at the early stages. There is a long way to go, and investment will be required in many of these places in the medium term. I think people are really starting to understand, and many customers want their high streets back. They see them as community high streets. It is a social issue as much as a business issue.
Chair: Quickly, Tony; we need to move on.
Tony Ginty: The answer to your question is that it is variable. Some local authorities are absolutely first class in terms of thinking about the future, addressing the challenges that they are going to have to deal with, and starting the process of putting things in place. There are others, inevitably, who are lagging behind in that particular process. One of the things we would be looking for, certainly from the Portas pilots, is to take the learning experiences from those pilots and disseminate that best practice information throughout the various towns in the UK. That, to me, is the big potential of Portas. It is not so much the 27 that are currently doing it; it is the learning experiences that we pull out of it, and then finding a way of actually making sure that they are put through both to the Town Teams elsewhere and, most importantly, to local authorities.
Q191 Mike Crockart: I have a very quick question, before we move on to look more at government assistance. It was just really on the point of high street versus online, because you are painting a very rosy picture, saying that one complements the other and that there is no damage caused to one by the other. Isn’t this really just a zero sum? If things are moving online, they are moving from somewhere. If they are not moving from you, are they moving from other high-street participants who do not have an online presence? What is the impact on the high street from online?
Mark Lewis: I would say a couple of things. Broadly, we are very positive and optimistic about the opportunities that the shift in shopping patterns creates for us, and for retail in general. That does not mean to say that it is straightforward, so if you were to look at the broader retail landscape, there is an inevitable shift to online in certain categories-media products are a very good example-because of the nature of those products and the ability to digitise that content. That has very significant implications. What we have seen is a shift in how customers want to shop, and as a retailer in that environment, we are not afraid of competition. We compete for our customers’ trade and hardearned money, day in, week in.
What we are finding is that the rules and the nature of that competition, and who wins and who loses, is moving. For us, it becomes important to anticipate and stay ahead of those trends. That is not a trivial thing to do. We started trading online in 2001, so we have been doing this for an awfully long time, and one of the elements that allowed us to be in the position that we are in today is the fact that we have been prepared to invest very significantly in the early years of that migration-not necessarily on a profitable basis-to enable us to put in place the infrastructure to serve customers the way they want to be served. Although we are painting a very positive and optimistic story, we have got there by some pretty heavy lifting, for example in the supply chain, to allow us to provide the shopping experience that our customers want. It is quite dramatic, in terms of the implications for investments for us as a business.
Alex Gourlay: It is a zero sum game, here in the UK. I think as Tony has indicated, there is reasonable evidence to suggest that the UK market from an integrated, online, multichannel point of view is the most advanced market in the world. There are pretty strong data to support that. That gives UK retailers the opportunity to internationalise their products, their services and their brands in a more costeffective way, generating more opportunity for the UK to prosper. I think it is a zero sum game in the UK, for sure, especially in the current situation, but the opportunity to defend your position and then grow it internationally is the opportunity we are all trying to work our way through today.
Tony Ginty: I completely agree.
Chair: I really need to move on now.
Q192 Mr Walker: All three of the businesses represented, I think, have both outoftown shops and high-street presence. In terms of some of the things we have been discussing, can you outline the differences in the way they are performing in the omnichannel world?
Tony Wheeler: Two-thirds of our shops in John Lewis are town or city-centre based. We very much support the Town Centre First planning policy. Where we have outoftown shops, invariably that is because the town or city centre does not have either the space or infrastructure for us to put a shop in that space. The trading dynamics are actually very similar, in that-and I know we keep saying it, but it is absolutely true-our online business and our physical space work very well together. I used to look after our shop in High Wycombe, and that is an outoftown shop. What was fortunate about that was that, as clickandcollect grew in popularity, with customers buying online and then collecting in the shop, we saw a significant increase in footfall to that outoftown space. The trend dynamics do differ in regions, of course, but ultimately the strategy and the way both our online and physical space works is very similar, whether city/town-centre based or out of town.
Q193 Mr Walker: Has there been a shift in the balance between city/town-centre based and out of town? We have heard some evidence in earlier sessions that, despite the Town Centre First policy, more planning approvals have been given for outoftown retail developments than city centre ones.
Alex Gourlay: I think the evidence would suggest that there is potentially just too much retail space in the UK. If you look at it from a complete space point of view, that has been said by many commentators. In our business, we have not really opened up much new space in the last 10 years. We have focused much more on what we have, and also developing our multichannel/integrated offer. We are seeing similar patterns to what Tony has described, which is more or less the same trends in store and out of store, but we have seen big growth in the online and integrated channels, which are becoming more convenient for the consumer than travelling to outoftown stores, particularly for some categories.
Tony Ginty: Just very quickly on that, I would agree with the points that my colleagues have made. Marks & Spencer are investing both in town centres and out of town, and we obviously build and develop and get involved in retail parks. We have also got a significant investment in town centres as well. If you look at the portfolio at the moment, despite all the changes, you are still talking about 70% of our portfolio sitting in town centres and 30% out of town. The predominant stores are actually sitting in town centres, so clearly town centres are extremely important for us going forward, given that particular breakdown. The other thing, also, is that apart from the actual new investments, we have carried out a major modernisation programme of our estate over many, many years, and we have therefore also put in significant amounts of money in terms of modernising stores, the majority of which actually do sit in town centres themselves.
Q194 Caroline Dinenage: There are several initiatives to help on the high street: Portas pilots, the Town Teams and the BIDs, as well as the High Street Forum. Is there a danger that the sheer number of initiatives could in some way dilute the level of their impact and confuse retailers and customers?
Alex Gourlay: I think that the way they are being communicated today is an issue. I do believe that there is a lot of communication of some of the things that are not working, rather than the things that are working. I think it is really important that we have the data on both the things that are working and the things that we will have to work at. That is a really important communication piece for us all to work on, rather than saying, "There is too much going on." For example, the Portas review was pretty clear, and the recommendations of the Portas review backed up many previous recommendations from the BRC and from many other previous reports. The one additional thing it talked about was the social impact beyond the high street, and that was where the Portas pilots came from, to really develop the idea of local leadership and local ownership of community high streets. I think it is a communication issue, rather than too much activity. I do not think we can go fast enough to really start to deal with the issues that have been around for a while-to recover the social fabric and the look and feel of many of our town centres.
Tony Ginty: Just adding to that, given the complexity of retail, I think it is inevitable that you are going to face a number of initiatives to tackle various aspects of the overall issue in relation to high street vitality. BIDs, for example, have been around for many, many years, and we certainly think that is a very, very successful model. Marks & Spencer is currently in about 50 BIDs, and we think they are excellent in terms of specifically going after and regenerating parts of the town itself.
With regard to the other ones, to some degree there is a connection between them, because obviously the Portas review started off the whole process. That spawned the Portas pilots, which I think were a good idea, because it was right to trial various things to see what worked and what did not work, so that we could develop best practice. If you then also take the High Street Champions and the Town Teams, for example, they are all part of the same issue about getting local engagement. In the case of Town Champions, Marks & Spencer has two Town Champions in Lowestoft and Ashford, giving some degree of commercial expertise to the Town Teams.
In terms of confusion, the key thing now-and this is where I think the High Street Forum will perform an extremely important role-is ensuring the High Street Forum takes all the lessons of the various initiatives going around and develops them into a slightly more strategic approach in terms of how we tackle town centres. That would certainly be my hope and expectation for the High Street Forum.
Caroline Dinenage: Tony?
Tony Wheeler: One thing I would add is that I am just delighted that there is so much focus on retail. You could argue about whether there are too many initiatives or not, but ultimately there is real focus on the high street and retail, which can only be a good thing, particularly at a time when there is so much change. We have not been so involved in the Portas Pilots, just because of the locations, but we are involved in the Future High Streets forum. Like Tony says, we believe that there is an absolute need for strategic thoughts and planning in terms of "How do we make our high streets as attractive as possible?" As we have mentioned before, the ability for various stakeholders to come together and work in partnership in a galvanised way to make the high streets, town centres and city centres more attractive from a consumer’s point of view is very, very important.
Tony Ginty: The key thing is going to be the importance of developing sustainable initiatives. There is a danger sometimes of what I call the "sticking plaster approach", and that has its value, but if we really are going to fundamentally change the dynamic of towns, we have to hit the really big, fundamental issues about the sustainability of towns. These are things like: access; car parking; security; the public realm. We can do lots of other things. Putting on events and all of that is a very, very good idea, but if you do not have the fundamentals right-if you do not have the access right and the security and the public realm-you can do all sorts of events, but people simply will not come into the towns, quite frankly. That is absolutely crucial.
Mark Lewis: That is absolutely right. It is important to understand that these are significant, long-term decisions for us. If we decide to open a store in a location, that is a multiyear project, and we would expect to trade in that location for decades to come. Getting clarity on the longerterm implications, the longerterm understanding, is very critical.
Rebecca Harris: We are pressed for time. Chairman, I think my questions have been more broadly answered already.
Chair: No, I wanted you to ask about the High Street Forum.
Q195 Rebecca Harris: I think we have covered that quite well-the role of the High Street Forum and how it might differ from other forums on promoting retail.
Alex Gourlay: The role of the High Street Forum is to take the recommendations, primarily from Portas, the 26 out of 27 that were agreed by the Government, and implement them. The Minister, Mark Prisk, has been very clear that it is about Task and Finish Groups. Therefore we have organised around three Task and Finish Groups. One is all about local leadership of the high streets, the idea of that, which is a very powerful thing that is happening.
The second one is about understanding how we enable the right conditions for the high street to prosper-the point about sustainable high streets. The third one is about a vision for the high streets in the longer term to make sure that we predict better what is happening to our high streets rather than reacting after the event. That is what the purpose is: to get real work done against these three objectives, and there is a broad collection of retailers and high street users beyond retail-it is much more than just retail, which is really important.
I would say that the next two years is a really important time for us to get behind this piece of work and to make both the short, the medium, and the long term come alive, in terms of policy changes if required, engagement of local authorities if required, and, importantly, really driving people to invest properly both in retail and nonretail in the high streets and on brownfield sites. That is where we are; I think we are in reasonable shape, but the next two years will be critical in ensuring we follow through and we are not here again in five years with an even worse situation.
Chair: I think Caroline wanted to come in on that.
Q196 Caroline Dinenage: I just wondered to what extent these new initiatives have given you, as significant retailers, a greater opportunity to correspond and communicate with some of the smaller independent high-street retailers, and help them to prosper on the high street, as well?
Tony Wheeler: In the King’s Road in Chelsea there is a King’s Road Retail Forum that is an eclectic mix of retailers predominantly, but landowners, the public authority and community groups as well. We have spent a lot of time working as a group of people together, trying to make that destination better. One aspect that is really important for the bigger retailers is to take responsibility for how we do that.
One of the most important aspects of my role is to work with various stakeholders, to support and make sure that we have a strategic vision for that space, but equally to, without being patronising, coach and support some very small independents in how they might present their shop, how they might do their window displays, etc. My team and I spend quite a lot of time talking to colleagues on the high street, being very open with the advice that we give, to try to help and ensure that the high street is as vibrant as possible. Mark mentioned it earlier; it is very important we have good competition, and that we try to make sure that competition is fit for purpose and meets the consumer needs. We do see that as a very important responsibility, and we spend a lot of time on it.
Tony Ginty: I would agree with that, in the sense that if you look at the Portas pilots and the Town Teams, an awful lot of the Town Teams have got small retail independent players on them. Certainly with the two Champions, one of the things that they have attempted to do is to add their commercial expertise into that group of retailers. Beyond even the Town Teams and High Street Champions, in other Pilots we have asked our store managers to be helpful to the Town Teams in passing on that knowledge, experience and knowhow. That has been very healthy from our point of view, and hopefully it is helpful for the smaller retailers themselves.
It reflects a point made earlier on: a healthy town is not about one retailer; it is about the mix of retailing, because it is the mix of retailing, and the variety, that will bring people in.
Q197 Mr Walker: Tony, when you mentioned the King’s Road Retail Forum, you mentioned that landowners are involved there-that is relatively unusual in some of these organisations. The one criticism that has been levelled at some of the bids is that they are good at engaging the ratepayers but not necessarily the landowners themselves. Do you think that there is anything that can be done to get the landowners and the freeholders of some of the commercial property we are talking about more involved with the process of regeneration and supporting the high street?
Tony Wheeler: Certainly in Chelsea, Cadogan Estates are an important landowner that we work very closely with, and they have a very strategic view of their property and what they want to do with it. The point was made earlier that some of this planning for the high street takes a long time. In fact, if I talk to my colleagues in Cadogan Estates, they have been planning this for 15 years and, as a result, have very long strategies in terms of the environment and that space.
From the Government’s perspective, it is really important to ensure that we have a framework that encourages landowners to get more involved. Certainly, when I looked after our shop in Kingston the framework was less prevalent through that BID, but at my current site it is extremely prevalent; that is because we do have a framework of working that seems to involve all the stakeholders in that area.
Q198 Mr Binley: My concern is that we have a lot of fine words on this whole subject of bringing new people, new thoughts and new ideas into retailing, but we have not got the structure, and it is too expensive. They are really put off by that. We have not got the small units in many of our high streets to be able to cater for them sensibly, and the price of our high streets is too high. How do you deal with that particular problem?
Alex Gourlay: The price point is a growing issue-the data on business rates has been around for a while. There is a report from PwC, which I would recommend that the Committee read, that very clearly talks about the indirect taxation levied on retailers in the last 10 years, which is now causing significant structural problems on the high street. I have got a copy here if you want to read it rather than go through the detail, as we will not have enough time. That is an important point.
The other thing that is really important is getting to the root cause of why things do not happen, even with a powerful commitment from the local people. In Nelson, near Burnley, for example, there is 23% vacancy rate, but the Town Team tells me that it could not unlock two shops to give to an entrepreneur to set up a new business, because it could not get to the landlords, because the landlords effectively were in the bank. We have unlocked that for them-a combination of various people unlocked it. I think property owners can play a much more practical role, and should play a practical role. There is also a lot of Town Centre First planning regulation that could be more bravely interpreted locally to make these things happen.
It is a combination of understanding the local issues and having the commitment to get through them, like in Nelson, and also making some structural change to things like business rates, which allows the cost of doing business to be fair for retailers. The reality of this is that if you look at corporation tax, if you look at business rates and if you look at the cost of employing people, twothirds of the cost for retailers is from indirect taxes, business rates and the cost of employing people, not corporate tax.
Tony Wheeler: With the smaller retailers that I work with, there are no two ways about it: the business rates and costs of running retail are rising and are difficult. It is true that in the propertyintensive business that retail is, business rates hit retailers quite hard. We would be very keen for a rebalance of business taxation that recognises the changes that are going on in the market space now, so that we have a tax system for business that helps both physical and digital businesses thrive. From our perspective, that would be very important.
Chair: We now move on to skills.
Q199 Paul Blomfield: I wondered if you could share with us the impact of the shift to omnichannel or multichannel retail on skills needs. I am thinking not only of the obvious stuff in relation to IT skills, but the impact that has had in store, and across the board, in terms of the staff you employ?
Mark Lewis: I am happy to have a crack at that. First off, it has a huge impact; it is a new skill base that is required in the business. If you look at the team of partners that from day to day run our online business-the front end of that, the marketing, the actual website, the presentation of the product, how customers navigate through our website to ultimately select and buy things-a skill set that simply did not exist a very short number of years ago in our business, or in retail broadly is required.
Without a doubt, there is a skills and talent gap that the industry as a whole is trying to fill. We find that it is very hard to find the right people with the right talent, because it is a relatively new discipline, and it is also quite hard to retain them, because partners that develop these skills are in strong demand. An implication of that is that we put a greater importance on training programmes and ensuring that we have to develop our own skills within the business in that area. We have a healthy mix of relatively new joiners to the team and people who have grown over the 12 years that we have been trading online and developed within that. That is one area.
The second area is the implication for the more frontofhouse partners or staff in the stores, who themselves now are engaged in technology and web platforms in a completely different way. For example, if you walked into one of our stores today and tried to buy this shirt, and found that by chance we did not have it in the size or colour that you were looking for, our partner would say, "Don’t worry. I could have it delivered to your home tomorrow; or I could have it into the store for tomorrow, so you can come and collect it." They would try to walk that customer over to a terminal where they would show them the range of items online, and conduct that transaction on the terminal, using essentially the website in the store. That is a new skill for which we have had to invest in training for our partners in the frontline selling of our business. It is not just the core online team; it is across the broader business more generally.
Tony Ginty: I would agree with all of that, and particularly the last point. If you take our general sales staff, in the main you are talking about customer-facing skills as being the traditional requirement that you want. You still need the same skills, but now allied to being able to do it through technology-exactly the point that Mark made. It is the same sort of requirement, but doing it in a different way, and that is going to call upon more technical skills, which will be interesting from a public policy point of view, because it means we are going after the same sort of people as an awful lot of other sectors, because we are applying customer-facing and technology skills together.
Q200 Paul Blomfield: You are both probably companies that have traditionally invested fairly significantly in your human resources. I am interested to know how you think across the board in retail; looking beyond your own stores, things might have changed. I may be wrong, but I have got it in mind that for many shops, if I am going to make a choice about whether to buy online or in store, what is the additional USP, if you like, that an instore purchase can offer? If it is just about a simple transaction, then you might as well just do it online. Does that change the skills needs of the sector beyond the obvious technology ones, in terms of having a better understanding of products and helping people navigate purchases?
Tony Wheeler: It is a really interesting point, but I do not think it does. From a customer’s perspective, what is absolutely important to them is that they interact with somebody who knows what they are talking about, gives them unbiased opinion and helps them navigate through what might be a very big assortment of goods to find out what is right for them. Inevitably our teams are our biggest asset, and our USP is how we invest in them to give differentiated customer service, which is frankly what I am talking about.
Q201 Paul Blomfield: I would accept that, Tony, in relation to John Lewis-well, all of you represented here today-but that is probably not people’s experience across retail as a whole. Does retail, looking beyond your own stores, need to up its game in terms of customerfacing skills?
Tony Wheeler: I will just finish off. Generally, it is an incredibly competitive market, and that is a good thing, because it means that service levels can only get better. We are big retailers, but I think all retailers understand the importance of the interaction. In answer to your question, inevitably service will continue to grow, and in the UK it should grow; there is a need for us to continue to meet what customers require of us. We need to continue investing in our teams to ensure we meet what customers want and what good service looks like from a customer’s perspective. What is vital to us is ensuring that we listen to what the public want in terms of service, because it is very different now from what it was even two years ago, because of the dynamics around the marketplace.
Alex Gourlay: I agree with what has been said. Fundamentally, retail has not changed; it is about a trusting relationship between two people-one buying, one selling. What has changed with technology is the ability for people who want to be entrepreneurs to start up their own business and do something different to access the market; it is much more open. I suspect that if the conditions are right in the UK, you will find many more start-up businesses and many more independent businesses that are able to get to markets, both through the online business and eventually through showcases, in a way that they have not done in the past.
I think 40% of youths in the UK are employed by the retail sector; I started off as a 16-year-old in Boots, and there are many stories like mine in the sector. This is a fantastic sector to understand and in which to learn business and commercial skills. People coming into our business today come with a natural ability with technology, which they have learned as they have come through the education system; they are much more natural than we are in using that technology. I go back to the fact that the UK is probably more advanced than most in turning these skills into commercial, entrepreneurial opportunities to sell products and services. It needs honing; it needs to be done through deliberate policy, but the opportunity to develop these skills and to protect employment, and drive entrepreneurship in this new world is there, for everyone-whether you be John Lewis, Marks & Spencer, or independents.
Q202 Paul Blomfield: Perhaps off the back of that point you could, very briefly in view of time, describe the work that you do-Alex, you described your story as joining at 16-in terms of induction, lifelong learning, apprenticeships, graduate schemes, and so on, to get the best out of your work force?
Alex Gourlay: Really quickly, we have always done structured development through levels of careers, so there would be training to look after customers properly or training to look after people properly in terms of management, or training to look after the company’s moneys properly in terms of the general management career. That has always been a feature of organisations like Marks & Spencer, John Lewis and Boots.
The thing that is different with technology is the ability to get in-the-moment advice down to our associates to care for customers and give them great advice, whether it be on shirts, or in our case on health care, through using new technologies. Online development, backed up by facetoface developments wherever possible, is definitely there. In the modern world, consumers love to be empowered and in charge of their own decision-making. Even in health care we see many more patients searching online to take charge of their own advice. The ability to speed up advice and get the right advice, and give people the power to make the right decision, is being driven through structured training and through technology enabling that to happen much faster and much more accurately than before.
Tony Wheeler: For us, this is one of the most exciting aspects of being in retail. I could be here all day talking about this, so I will have to curtail myself. The truth be known, first and foremost in retail what is most important is that you recruit and employ the right person. That is absolutely fundamental in terms of both their skill set and their attitude. From then on in, people who work in our business, or our partner, will then go on various different journeys. I have been in the business 28 years, and my journey has been unique compared with anybody else’s, I suspect, but what is fundamental is that a partner will take responsibility for their own development, first and foremost.
We will recruit people through apprenticeships, through graduate schemes, and through recruitment maybe for Christmas. Very often you will talk to a partner in John Lewis and they will say, "I joined as a temporary over Christmas, really enjoyed it, thought it was wonderful, and then stayed." There is formal training, both in group work and in oneto-one coaching, and moreover these days there is more e-learning. There is more independent learning, whereby a partner will learn onetoone with a PC screen or a tablet, to support their coaching and their work with their line manager. What is absolutely fundamental for us is the relationship between a partner and their line manager. Our leaders in our business take that responsibility very importantly, because somebody reaching their potential will be a super investment going forward.
Mark Lewis: That is right. I would add a couple of points. In our online world, we feel as though the UK is at the forefront of this and it is changing at a dramatic pace. We do not assume that we are going to find people who have educational backgrounds or training backgrounds that will provide the skill set that we need, because it is very hard for us to anticipate the skills that they will need in two years’ time. Nobody in this country has been developing apps for tablet devices for more than three years, because these devices did not exist more than three years ago.
Critically, we assume that we will have to invest heavily in developing and training those partners within our business on the job, through various schemes, etc. We look for people who have got a base set of skills that we will be able to develop internally. One of the things that I would suggest the Committee reflect on is the framework that allows retailers to provide that training in their own environment, because that is where it is happening, and things are changing so quickly, and what support could be given to retailers to allow that to happen.
Another dimension is really important here. Because our customers are driving a convergence of shopping patterns across the channels, we actively encourage our partners to rotate or move from one area of the business into the other. For the longterm health of the partnership, they have to understand how these different disciplines fit together, and they have to have a broad set of skills. Last week, for example, I was in our customer contact centre up in Glasgow, sitting next to a partner who had spent many years as a selling partner in the front line of the store and was now handling contacts and questions from online shoppers through the telephone channel, and had been able to transfer those skills across. An active rotation of staff is important for us.
Tony Wheeler: I would just build on that to finish off. One thing that I think is really important is that skills funding is businessled-that is important from a framework perspective. One example of that is apprenticeships; one thing we would suggest with that is that funding should be businessled through the PAYE system, where it is offset through the PAYE system. That would motivate business to get more involved with apprenticeships.
Tony Ginty: I would perhaps just make two quick points. As for my colleagues, people are obviously our most important asset. We use a whole range of training and development programmes within the company. General staff coming in have a six-month structured career path, based on competencies, with coaching over that period of time. It is a very comprehensive approach in terms of getting them to understand what is required of them, and to help them develop the skills that are required to deliver it.
The other point is that we as a company, like a lot of other companies, believe very strongly in work experience. There is an issue of giving people, particularly those who have had difficulty accessing the market, an opportunity of getting an insight into the world of work. We have done a range of programmes. The one that is probably most well known is Marks & Start. With charity partners, we work with a range of people-from young unemployed, to the homeless, to lone parents, to disabled-to give them a twoweek work experience. It is extremely valuable for them in terms of getting an insight into work, and starting to think about some of the skills they need.
We are just about to roll out another programme called Make Your Mark; we are going to take on 1,400 people, about 2% of our staffing numbers, and give them a fourweek experience that is very structured in terms of giving them an insight into the world of work. There will be buddies and coaches there to help them during that fourweek period. The other thing we are trying to do is to call for companies, including our supply base and including other businesses, to do the same sort of thing. There is an issue, as we all know, with young unemployed, and we need to give them that sort of experience, because it gives them the best opportunity of subsequently getting a job.
From Marks & Start, for example, 50% of people found a job with us or somebody else within 13 weeks of completing the programme. It does work, and it is effective, but we are calling both on our supply base, and on others, to say, "Why not all set ourselves that target of having a go at trying to make a difference as far as young unemployed people are concerned?"
Paul Blomfield: There are a number of issues I would love to pursue, but we have not got time.
Chair: We are moving on, but if there are any further comments you wish to make on that, we would be grateful to receive them as supplementary evidence. Mike, you want to go on another angle on this.
Q203 Mike Crockart: Well, it is very much the angle that Tony has just been talking about, because retail does have a traditional position of employing certain groups to a greater extent, whether that is school leavers or people with disabilities. Those are particularly difficult groups for us at the moment, in which unemployment is quite a bit higher. Is there anything you think the Government should be doing in terms of skills policy to ensure that can continue in the retail sector?
Tony Ginty: It is, in a way, in the hands of business to deal with that. We are essentially a people business. We recognise that there is an advantage in getting a range of people into work. One of the reasons why we did the Marks & Start work programme was to give that particular chance, and we saw people develop it. It does give that particular insight. From our perspective, we do not need any further encouragement from Government to do so. We think this is something that business can make a contribution on, and we are quite happy to do it, in the sense that it does make that contribution, but there are advantages to us as a business in terms of dealing with it.
Apart from the people who come in, one of the other benefits that we have got from this is that the people who act, for example, as coaches or buddies for the people who are doing the attachment get enormous benefits out of that particular activity. There are all sorts of gains and benefits. From our perspective, we would not be looking for any particular thing from Government, although they may be able to give some help possibly in terms of encouraging SMEs to get involved.
Q204 Mike Crockart: Mark, can I turn to you, because you are talking about people who have knowledge of iPads and apps and things. You could not do much better than bring in young school leavers.
Mark Lewis: Absolutely. There is an element of that part of our business that is dependent on typically bright, entrepreneurial activity from a generation that is very comfortable with these devices and with technology. I encourage the Committee to reflect on the changing nature of retail, and what that means for those roles, for opportunity and for employment. It is perhaps an oversimplification, but if we think of what a modern retailer looks like, and the direction of travel over the next few years, lots of those school leaver jobs, for example, that we may have in our mind involve working on the shop floor. A modernday retailer will have many opportunities in its supply chain, for example, because that becomes an increasing part of the business, and in customer support, contact centres and the like, because they have become an important part of the business as we collectively migrate more to online, to omnichannel retailing. I wonder whether the range of opportunities has a shift in mix that perhaps there is an opportunity to stay ahead of and get ahead of.
Alex Gourlay: There is potentially a bigger risk to the 40% of people today who join retail as a first job. As the shift to integrated retailing happens and there is less physical retailing and more online and supply-chain retailing, fewer people are employed in the sector. I think that is a risk, and so far, because the property bubble in retail has continued to go beyond where it should have been, in my view-there are a lot of comments about that-the next phase could be reduction of space for retail as a whole, and therefore a reduction of jobs on the shop floor. That is a risk, given the level of employment of young people in retail, and what we get from that, as we have described so enthusiastically today. I go back to indirect taxation on physical retailers and rebalancing the costs of doing business in a physical shop: there is real opportunity for the Government to act.
Q205 Mr Binley: Social skills lie at the very heart of retailing. It is a very basic requirement. Do you get enough quality from our education system to give you the social skills you need to develop people further?
Tony Wheeler: I actually concur with Mark that there is a skills gap at the moment when we are recruiting, and some of it is very obvious, to be honest with you. Whether it is social skills is quite a difficult one to answer, but we find there is a skills gap in IT knowledge, analytical skills and strategically how new recruits work. The curriculum in schools and in colleges needs to be addressed. It needs to be understood that for people going into business and retail now, the needs are different. We would ask, from that perspective, that there be a framework to look at the curriculum and make sure it is fit for purpose, so that people leaving schools and colleges have the skills that are required going into retail.
Alex Gourlay: There is a gap between education and business that needs to be closed. What I mean by that is perhaps not so much skills-I have not seen the same issues in our business, to be honest-but the relationship. Again, we have workinspiration programmes, which are very similar to what Tony has described at M&S. When you bring young people into your business for two weeks and you treat them properly, with a proper programme and an understanding of what it is like to work in retail and what it is like to work in a function, you see people who love it and people who say, "It’s not for me," but they get a real experience of work.
Closing that gap between education and work in a more deliberate way-it is a relationship and a process-is more important, potentially, than the skills they learn in classrooms.
Tony Ginty: The key thing we look for is attitude. Once you have people with the right attitude, you can build on top of that the knowledge and skills that are required. An awful lot of our recruitment procedure consists of looking for people who want to be involved with other people, because essentially a lot of the roles are about that, and looking for people who have the right attitude in terms of dealing with people, because you then just build upon that.
In terms of whether we have a problem with it, the answer is we are in the lucky position of being a well-known brand. For our vacancies, we get 250,000 online applications a year. We have 5,000 vacancies at any one point in time through normal churn, and we take on about 10,000 to 15,000 people at Christmas. However, we have literally 250,000 online applications, plus, on top of that, normal referrals from people who have worked for us or other people etc.
Mr Binley: Could you pass some of those to my company, please? I do not find them that easily.
Mark Lewis: Could I just add a couple of concepts? On the social skills point, I would not say we necessarily have a huge problem, but I would make the point that, again, as our industry changes, the types of social skills that are and will be required are also changing. A front-line customer interaction, which, historically, would have happened in a branch, is increasingly likely to happen over the telephone, over a livechat channel or through Twitter. Inevitably, that requires a different set of social skills. The core need of being able to empathise with a customer is still there, but there will be an increased focus, for example, on literacy skills, because you are typing-and things like that. We are seeing the start of a shift, which, I would suggest, will accelerate.
If I could broaden my answer briefly, though, I would say that one interesting area-having had the opportunity to compare the UK with California and the west coast of America-where I fear there is a gap is in developing a generation of people who have a real overlap and blending of IT and business skills.
The real talent shortage is in that rare commodity of people who can wire together the technical side and the business side with the creative flair of retailing. I have seen more of that package overseas than in the UK.
Q206 Ann McKechin: Earlier this morning, Tony Ginty urged the Government to avoid sticking plaster solutions. Could I turn, now, to the BIS Department’s own Retail Strategy? What do you think are the key areas it should prioritise?
Tony Ginty: I will start off on that.
Chair: If you could, summarise very quickly, because we are running over time.
Tony Ginty: I can do it very quickly indeed. For us, as I mentioned earlier, the major strategic priority is to develop an international multichannel business. From that particular perspective, if you look at the Retail Strategy, one of the key elements in there is international sales and, also, ecommerce. That is the one thing that is most important to us. It is the one that we are spending the most time thinking about and interacting with BIS on, in relation to its development.
Mark Lewis: I would say three things. The first we have touched on, which is skills and training, so I will not go over that again. The second is taxation. We have touched on it briefly, but, as trade moves more omnichannel and more online, the geographical boundaries fade into the background.
Q207 Ann McKechin: Can I ask you about that? Other witnesses have talked about business rates, and the fact that the valuation has been postponed and that businesses have been penalised-perhaps not so much in your sector, because you are in the largerstore sector, but rather in the smaller stores. Given the fact that so many retailers are now moving online, where they are not subject to business taxes, could this be an opportunity for the Government to look at taxation in the round in the retail sector and consider whether the current business tax model is fit for purpose?
Mark Lewis: I would suggest that is probably fair. We are seeing an industry that is in a period of dramatic changes: in operations within the country, shifts of patterns from one channel to another, the blending of channels and, then, also the breakdown of geographical barriers to trade. This creates great opportunities for retailers to trade internationally and also for overseas retailers to trade into the UK. From our perspective, a review of the taxation structure in the round would be very welcome.
We have not touched on the third point that I would suggest. We have talked a lot about the convergence of channels between physical stores and online. What we are also seeing in the world of online is a very rapid migration from, essentially, computers to mobile devices. There is an infrastructure piece to be considered to ensure the UK’s leadership in online retailing. We need the broader infrastructure that will allow highspeed connections and allow us to stay ahead of the curve in mobile devices.
Tony Wheeler: Very quickly, in terms of what the Government can do that would really help, one of the absolute commercial advantages that John Lewis has is that we are a longterm business. We plan years ahead. A department store will often take us 10 years to plan. One of the things we would be very keen on is a planning policy that is long term and is consistent. These shops are a significant investment for us. Some of these shops will cost us around £30 million. Certainty around planning policy-and particularly long-term planning policy-is essential for us.
Alex Gourlay: Number one for me is definitely the focus on changing the costs of doing retail, including taxation between properties and nonproperty. Second for me is about really encouraging Town Centre First planning from the endtoend point of view, sustainably, to make sure that people use the regulators that are there to encourage best practice in car parking, investment and transforming those town centres that maybe have too much retail into holistic town centres.
Thirdly-and really importantly-is, for me, changing the communication from "the high street is dying" to the opportunities of a fantastic industry in the UK-it is probably the best retail industry in the world-and allowing people to celebrate that, while moving to develop an international strength to drive our great brands, products and services in international markets. It is a communication issue.
Chair: Can I thank you for your contribution? I am conscious of the fact that we have had to rush one or two areas. If you feel there is something you wish to contribute over and above what you have said today, do please send in supplementary written evidence. Equally, of course, if we feel there are some questions we should have asked but did not, we will write to you and would be grateful for a reply.
Thank you very much; can I now have the next panel?
Examination of Witnesses
Witnesses: Martyn Hulme, Managing Director, Co-operative Estates, Tim Fallowfield, Director of Corporate Services and Company Secretary, Sainsbury’s, and David Hobbs, Director of UK Operational Strategy and Business Planning, Tesco, gave evidence.
Q208 Chair: Good morning and thank you for agreeing to address the Committee. I will start, as I did with the other panel, by just asking you to introduce yourselves for voice transcription purposes, starting with you, David.
David Hobbs: My name is David Hobbs. I am the Business Planning Director for Tesco in the UK.
Tim Fallowfield: I am Tim Fallowfield, Corporate Services Director at Sainsbury’s.
Martyn Hulme: I am Martyn Hulme. I am the Managing Director of Estates for The Cooperative Group.
Q209 Chair: Thank you very much. Again, I will repeat what I said before: do not feel you all have to answer every question if what you believe has been covered by a previous speaker. I will open, anyway, on the changing nature of the retail industry and whether the closures in the sector have been driven by changes in the business model versus high costs and lower demand. What is your perspective on this? Who wishes to lead on it?
David Hobbs: The consumer is changing dramatically at the moment, with their expectation of being able to buy what they want when they want and how they want. We are seeing significant change. It is about the industry evolving to meet those changing needs.
If you look at our business, we have a successful online business and a successful stores business. Our stores business is still significantly larger than our online business, but the online business is growing. We have a grocery business, a general merchandise business and a clothing business. The suit I am wearing today is a Tesco suit. I bought it on Friday night online and it was delivered on Tuesday to my work address.
Caroline Dinenage: And very nice it is.
David Hobbs: Thank you very much. It was £65.
Mr Binley: Could you stand up, please?
David Hobbs: I do modelling in my spare time. It was £65; that is very good value.
However, the online element is growing. For example, at Christmas, we had over 500,000 orders fulfilled online. It really is not an online business, however; it is a multichannel business. Of those 500,000 orders, 5% were picked up in store, through our clickandcollect operation. Indeed, 30% of our orders-or online traffic to our grocery website-are now through a smartphone. Customers are changing the way they interact with retailers dramatically; retailers need to evolve to meet those changing needs.
Q210 Chair: Presumably, it is changing by age group. Particular age groups are far more likely to use phones and whatever else.
David Hobbs: There is no doubt that "digital natives", as they are called, the young people who have been brought up in this world and know nothing else, cannot imagine any other way of living their lives. The digital revolution, however, has hit all age groups. I have an elderly mother: she uses the internet; she uses online. I have to phone on quite a regular basis to explain how to use the thing at times, but it is appropriate for all ages, and all ages are seeing that revolution happen to them.
Chair: Is there an obvious bias between the ages?
David Hobbs: There is: there is no doubt the digital natives can imagine no other way of being able to interact. Their expectations are dramatically higher. They expect to be able to interact in any way that they see fit.
Tim Fallowfield: If I could just add to what David said, I largely agree with what he said. I heard some of the evidence from the previous session. Everyone talked about the multichannel retailing now. It is absolutely the same at Sainsbury’s. One of the things we did not get on to in the previous session was the number of convenience stores, particularly food stores obviously, that are also growing in the market. If you look at Sainsbury’s business, our online business is growing by about 15% to 20% per annum from a relatively low base. Our convenience business is also growing by about 20%. We opened 87 stores last year. The vast majority of those are in the high street-again, responding to customer needs.
Effectively, one of the things we have seen-probably since 2008, when we saw the recession-is that customers became more and more savvy with their shopping. We use the expression "savvy shopping" all the time, which has basically seen more and more customers go to convenience stores, because they can, amongst other things, regulate their waste better. They buy what they want for their next meal and, in addition, they do not have to get the car out of the garage and therefore use petrol at a time of high petrol prices. We have also absolutely seen that development in our business. We anticipate it will continue to grow. We anticipate, for instance, this year that we will be opening between one and two convenience stores every week across the country.
Martyn Hulme: There are two key points in terms of what has happened so dramatically and some of the failures we have seen. It was probably not that long ago that you would go along, park your car for free in the high street, walk up and down and fulfill your shopping needs. We have a very different shopping world now; the high street itself is competing with an online environment where people can probably sit at Glastonbury at the weekend and order their food shopping for the week without moving from the concert venue. Alongside this, outoftown retailing is taking place, which is impacting on the high street as well. Those retailers who were faced with a fairly simple world not so long ago now have to react to the changing demands that are made on us.
Very specifically, what has probably topped that in recent years, quite clearly, has been the economic environment, with austerity for the last five years. It is something I have not seen in living memory, in terms of the dramatic effect it has had on consumer confidence for such a long time. If you put alongside that the customer push for value and lower prices at a time when we see costs rising, particularly commodity costs, the success of sustainability is for those retailers and businesses that can react to these very different, changing circumstances.
Q211 Chair: Can you just give a brief breakdown of the percentage of store shopping versus online?
Tim Fallowfield: In our business, we do 23 million customer transactions a week, of which around 200,000 are online transactions. In comparison with the kind of proportions you were talking about previously, food is still different in our business.
David Hobbs: I would argue that the online/offline split is actually quite arbitrary these days, because the business is so interconnected that you cannot really differentiate the two. Grocery homeshopping is predominantly picked in store by our teams and then delivered to somebody’s home. Groceries can also be collected from a store. The direct business can be collected from a store, but it is ordered through a warehouse. The business is so interconnected that it is an arbitrary split between online and offline these days.
Martyn Hulme: It is massively different depending on which business we are talking about within The Cooperative Group. Within food, we are largely a convenience retailer. Interestingly enough, the online shopper shops in a convenience store three times more often than a noninternet shopper. There is actually a nice fit in terms of the model that we have for the internet shopper. Clearly, in banking it is a large proportion of our activity, and it is less so in our pharmacy.
You will be interested to know that we are investing fairly heavily in our funeral business’s online capability at the moment, but it will largely be information, I suspect, and making sure we get the right service for the bereaved.
Q212 Chair: From your perspective, how is this affecting the traditional small shop that does not have the capacity either to be part of an online setup or to complement a bigger retailer? Do you think they are closing? You can then perhaps set up one of your convenience stores, which does have that capacity.
Martyn Hulme: You mean an independent small store.
Martyn Hulme: Yes, there is definitely an impact, if they are not reacting in the way I was describing. There is a key part of the market for the small independent retailer that recognises the change that has taken place. A lot of the more commoditytype and bulkier goods are clearly being delivered, but the independent retailer that recognises the transition that is happening in convenience retailing, from emergency through to more of a meal solution-something a bit more exciting-will succeed.
Tim Fallowfield: It is worth pointing out that convenience stores can definitely be a force for good in the high street. They help create footfall and create regeneration in high streets as well.
Q213 Chair: We are going to go on, in a moment, to this particular point, so just leave it for the moment. Can I just bring in one other factor? What is the difference between your outoftown shops and your anchor stores in the high street-if, indeed, you have them?
David Hobbs: We have a whole range of stores, from small Express stores to large Extras, that are suitable for different physical locations, and we are able to adapt them for affluent locations and more pricesensitive locations. In fact, we are doing a lot more work at the moment on how we adapt stores to meet the needs of their local consumer much more. This is never more so than in London, where you can have two stores just a few hundred yards apart with very different customer bases. How do we adapt those stores for those different needs?
Our outoftown stores are still popular. We have a store in Camberley that we recently increased the size of. You go there at the weekend and it is clearly meeting a customer need for a destination experience. It is a site that is shared with Marks & Spencer. You go there and you see customers doing their grocery shop, having a meal in the restaurant, looking at the electronics, buying clothing-it is something to do on a Saturday afternoon. Outoftown stores are not dead, but they do need to continue to reinvent themselves.
We have recently made some acquisitions of Giraffe and a share of the Harris + Hoole coffeeshop business; that is part of our strategy for how to make those outoftown stores more like destinations.
Tim Fallowfield: We have a range of locations for our supermarkets. I have already talked about the fact that we have 550 convenience stores. Those are largely located in high streets. We have 200 supermarkets in town centres and just over 300 on the edge of town or out of town. Customers will use a range of these for their shopping. Effectively, we apply a universal appeal approach to our customers, so we are looking to provide great customer service and respond to customer needs wherever we have a store.
Chair: Do you have anything to add, Martyn?
Martyn Hulme: I do not, because out-of-town is not really where the Cooperative is at. The key thing is that we are a community retailer; we are in every postcode district in the country. We are trying to serve that need.
Q214 Rebecca Harris: How do you see changes in consumer behaviour and footfall affecting the role and the basic nature of our town centres and high streets?
David Hobbs: The challenge for the high street is not the supermarket; the challenge for the high street is to evolve to changing customer needs. This cannot just be a retail solution; it needs to be much broader. It needs to be leisure, services and faith groups all coming together to create town centres that customers want to go to and shop.
As Tim was alluding to, we have seen that multiple convenience businesses opening up on high streets create a magnet to encourage footfall, and that therefore encourages other retailers and leisure services to be successful. This might be a changing profile for high streets, but it is about how high streets in town centres can evolve to create these destinations.
It would be no different if you were looking at an outoftown store: it needs to create a destination. The town centres need to create destinations for customers and a reason for them to go there.
Tim Fallowfield: I do not have much to add. I absolutely agree with that. It is obviously helpful when local authorities work on that basis as well, and think about having a vision for the future and how to move the high street on, so that it becomes a destination for the 21st century.
Rebecca Harris: Do you mean in terms of things like planning policy, car parking and that kind of thing?
Tim Fallowfield: Yes, that is right.
Q215 Mr Binley: I want to pursue this point. The point about the high street being much more holistic than it has perhaps been viewed as in the past is very important. However, all the research I have done suggests that local authorities, in the main, have been the enemies of the high street, rather than their friends and supporters. Is that too harsh a statement, or do you see some truth in it?
Martyn Hulme: It certainly varies up and down the country. I have had some very positive experiences of working with local authorities, but there is a key part of this that is relevant. From some of the Portas work, we have seen Town Teams that have been almost divorced from local authorities. As Tim said a moment ago, the bigger point is about the vision and making sure there is a real understanding of the neighbourhood plan, where the retailers, the local authorities and the leisure activities are working together to bring life back into what is, in my view, a key part of society.
Tim Fallowfield: We continue to open highstreet supermarkets. In fact, we are opening one next week. In those circumstances, it is important to have the confidence to know that local authorities are going to maintain a consistent policy in relation to traffic planning.
Delivery restrictions affect a lot of our business. We find that in many circumstances we have had a supermarket in a town centre for some considerable time; some residential property has opened subsequent to that; we have noise issues raised by the local residents; and at that point, delivery restrictions are imposed on the store. Those are the kinds of characteristics, together with the activity of other competitors, that are all important in trying to create certainty in relation to investment in town centres.
David Hobbs: Certainly, our heritage is in the town centre. We started as a market stall in Hackney 100 years ago. Now, over 50% of our sites are in towncentre highstreet locations. There is no silver bullet in terms of what local authorities can do. It does need to be a co-ordinated effort to continue to evolve and grow the high street.
Martyn Hulme: If I may, on a related point, local authorities need to understand the National Planning Policy Framework and Town Centre First. There is still decision-making taking place that seems at odds with that. I do not know whether that is driven by some of the need for finance they have-if they have a piece of land that breaks that particular rule. However, it is unsettling to see that when that framework has been put in place and still needs to work.
Q216 Rebecca Harris: How optimistic are you about the potential for the Town Centre First policy delivering?
David Hobbs: We would be fully supportive of Town Centre First. As I say, over 50% of our sites are town centres. We would always prefer to open in a town centre.
Martyn Hulme: I completely welcome it.
Tim Fallowfield: I agree, absolutely-subject to what I said about certainty and longterm planning from the authorities.
Q217 Caroline Dinenage: There are several initiatives to help retail on the high street: the Portas pilots, the Town Teams, BIDs as well as the Future High Streets Forum. Is there a danger, do you think, that the sheer number of different strategies and initiatives are diluting their impact and confusing retailers and customers?
Tim Fallowfield: The first thing to say is that it is very positive that there is that much focus on retail; we should generally encourage that. As you say, there are a lot of different initiatives. It is probably time to allow them to bed down a little bit and find the best learnings from them. Our own experience, for instance, is that we see the best results coming out of BIDs. We work very closely with 64 different BIDs around the country. They have the framework and-particularly when they are supported by great plans, expertise and financial backing from local authorities-can really make a difference.
We are, frankly, less involved in Portas pilots and LEPs, but we need to let all of them bed down a little bit, see what comes out of them and take the best learnings and roll forward with them.
Martyn Hulme: My view echoes that. Many of the initiatives stand alone in a way, but are complementary of each other. It is very welcome; I like the idea that there is this focus on something that is so important to this country at the moment.
David Hobbs: I would just echo that. It is very good that there is so much focus on retail. There is no silver bullet; it will be a number of different things that will make the difference in the end.
Q218 Mr Walker: Talking about the planning system in terms of longterm planning, do you think there is a direction of travel towards more mixed use and more overlapping of residential and commercial areas? Particularly, if we accept the basic premise that the total amount of retail space is probably too great, should there be a deliberate effort in planning policy to allow more mixed use and bring the two together?
Martyn Hulme: In my view, that is part of the solution for the changing high street. Some of the new changes in the budget were welcome for that reason. We have to be careful that it is still part of an overall vision-a local plan. We have to be careful that it is not just here and there, but there is still the thinking to say, for example, that perhaps at both ends of a town we would change that use and keep the core retail and leisure together so that it is not fragmented.
Tim Fallowfield: I do not have much to add to that. What David said previously about the vision for the future is the important thing in that district.
Q219 Mr Walker: I was interested in your comments, Tim, on delivery restrictions and some of the challenges that you can sometimes have when you are working in those areas. Traditionally, for both Tesco and Sainsbury’s, working with larger stores, that is going to be less of an issue than for the broader range of convenience stores spreading out. You are more likely to run into those issues on an ongoing basis. Another area this feeds into is in terms of opening hours. We recently had a meeting in Worcester to discuss the future of the high street. A number of the independents were very keen to push the idea of later opening hours and trying to join up the day-time economy with the night-time economy. Are there opportunities for the industry more broadly there?
Tim Fallowfield: Certainly, if you look at our convenience stores, which obviously have longer opening hours than most stores, we see them catering to a nighttime economy. Yes, retail has to be a customer-led business. Customers want to shop at those times. Retail is absolutely dependent on giving customer service. That kind of flexibility needs to be part of the equation.
David Hobbs: Tim is right. The only thing to add is that each town is going to be different; there is not going to be one size that fits all. We need to look at each town on its merits and decide what the right solutions are for them.
Martyn Hulme: I would agree with that.
Q220 Mr Walker: You made some positive comments about BIDs. We took some evidence last week from the Association of Town & City Management, which was rather less positive about the attitude of LEPs towards the retail sector. Quite shockingly, they were talking about the lack of interest that LEPs have shown in the high street. It was Martin Blackwell who said that some LEPs did not even seem to realise that town centres existed. Is that something that you would echo or do you have examples of LEPs working more effectively with the retail economy?
Martyn Hulme: Again, it does vary up and down the country-as you might imagine. The base of The Cooperative is in Manchester; it is an absolutely critical relationship that takes place there, but we do see good and bad elsewhere that maybe I need to submit in separate evidence.
Tim Fallowfield: We focus on the positives of the BIDs. The fact they have such relevant membership is a positive factor behind them. That is where our focus has been: in relation to trying to support them, rather than LEPs or Portas, necessarily.
David Hobbs: We are actively engaged at the local level through Town Teams and through BIDs, and at the national level. We have not actively engaged with the LEPs. It is still, obviously, very early days. If there were the appropriate opportunities, we would-but as of yet we have not actively engaged with them.
Tim Fallowfield: There are other ways in which we try to engage with local communities as well. We work very closely with Business in the Community, which has put business connectors out into local environments to provide a different link between business, local authorities and town centres generally. Some of those have worked really well, as an alternative, where we have worked closely with Business in the Community to set that up. It is alongside, which is slightly different.
Mr Walker: I would have thought, given your involvement in issues like transport, planning and, particularly, the skills agenda, there was a natural role for retail to play a major part in local enterprise partnerships and to be more engaged there. That is something we may want to look at.
Q221 Mr Binley: I am a businessman, and have been all my life. Quite frankly, I challenge you, because the answers you give me suggest you are missing an opportunity to be involved in your local communities; you ought to think a little more about it. If LEPs are led by local councils and by Government, they will fail and you will have missed an opportunity. I do encourage you to think about the involvement and the effort you are putting into LEPs, because they can be turned massively to your advantage. Is that too harsh for you or do you accept it?
Tim Fallowfield: No, I am not sure I accept the criticism.
Mr Binley: I make the criticism in response to what you said, actually.
Tim Fallowfield: We will take whatever opportunities we can to form great partnerships at a local level. Of course, it is in all of our interests to have thriving local communities. From that point of view, whatever we can do in order to maintain that, we will get behind.
Mr Binley: Let me put my question another way: you are very senior people in your organisations; will you go back and become more LEP-minded and, perhaps, do more to encourage your people to be involved?
David Hobbs: At the local level, we are very engaged through Town Teams, through BIDs and, indeed, through our stores.
Mr Binley: I said LEPs, in particular.
David Hobbs: It is still very early days for the LEPs, isn’t it?
Mr Binley: Get in there; have a go.
Martyn Hulme: It is a valid point, I have to say. I do not know if it is chicken and egg, but I do not see the LEPs working as effectively as we would hope.
Mr Binley: Come to Northampton; I will show you.
Martyn Hulme: If you are on the inside of them, then perhaps it would be more effective.
Mr Binley: Come to Northampton and I will show you. You have a good Co-operative store situation.
Martyn Hulme: I would like to do that, Brian.
Chair: I am not expecting you to answer this off the cuff, but if you could send in details of where your companies are involved in local LEPs, it would be a useful piece of supplementary evidence.
Q222 Paul Blomfield: I wondered if I could move the discussion on to skills, as we did with the earlier panel, and perhaps start by asking each of you if you could describe the work you do in the skills development of your staff. I do not only mean induction, but also lifelong learning, skills enhancement, apprenticeships and graduate schemes.
Tim Fallowfield: We have just relaunched our apprenticeship programme to make it really meaningful, we believe. We are trialling it this year. We will have 400 apprenticeships; they will earn a level 3 apprenticeship, giving them lifelong skills. It is a longterm project. It will run for 12 months and will give them lifelong skills in leadership and a qualification that is equivalent to two A-levels.
We supplement that with a range of training opportunities. Probably the most notable is that we have had 21,000 colleagues who have gone through our food colleges. We could probably call those apprenticeships, although we do not. They get an NVQ that is acknowledged by City & Guilds. It is, I think, the largest City & Guildsaccredited course. Effectively, they are learning counter skills: bakery, butchery and fishmongery.
We have a programme called You Can, which works with a number of colleagues who would otherwise have barriers to work, working with Mencap and Remploy. We have 13,000 colleagues we have taken on, who would otherwise find getting to the workplace difficult.
One-third of our Store Managers started with the business before the age of 18. Effectively, we are really focusing on training, customerservice skills and whatever skills are necessary to rapidly evolve the business. That goes all the way through the journey, from the first day people join the business to the day that they leave us.
David Hobbs: Building skills is a fundamental part of our business. We employ over 300,000 people in the UK. Developing their skills is obviously important to them, but also it is good business for us. We have a long list of programmes to develop skills, ranging from core skills in store-we take them through bronze, silver and gold levels of training, which people can develop and aspire to grow with-to what we call the Tesco Options programme, which supports people making the move from one level to the next level within the business.
We have 10,000 apprenticeships, which we are doing between 2012 and 2014, ranging from level 2 apprenticeships in stores to level 3 in our call centres and level 4 in our informationtechnology team. We are very proud of the fact that we have an 85% pass rate on our apprenticeship programme. We deliver the knowledge element of those apprenticeships ourselves, so we can be confident of the quality.
Indeed, 80% of our management positions are filled internally. If you look at a number of my senior colleagues, there are numerous examples of people who have worked their way up through the business from the shop floor. Phillip Clarke, the Group CEO, started on the shop floor; Chris Bush, the UK CEO, started on the shop floor. They worked their way up through the business to be running the business; that says a great deal for the skills development within our business and within our sector.
Q223 Paul Blomfield: There is an interesting differentiation between the levels in the different sectors of your business. You said level 2 in stores and level 3 in call centres. Do you push further above level 2 in store?
David Hobbs: The apprenticeships are level 2, but the other programmes pick that up. Things like the Options programme enable people to develop further in the business and give them skills.
Martyn Hulme: Education has probably been the core value and principle within The Cooperative for many decades. We continue to have it as a very high priority, right from sponsorship of Cooperative schools, from an educational perspective, to when we start employing people and looking at their development. I truly believe there is a massive underestimation of the skills level that we have in the retail sector-numeracy and literacy, as you would expect, and leadership skills-often from people who are not paid a huge wage. We expect a lot and we have to support them; it is really critical.
We have an apprenticeship programme running for the recruitment of 2,000 apprenticeships. From my own perspective, in Estates, I look into the supply chain to see if we can encourage the right approaches taking place there for the new business support centre we have built in Manchester, for 3,500 people. We had 600 people working on that at peak time and we put targets on our contractors to say, "Actually, we are looking for you to put apprentices in." We put an 8% target on them, for them to be looking for apprentices. We put targets on them for where they can take people off local unemployment lists. How you work inside and outside of your business is an important area for us.
Tim Fallowfield: It might be worth saying that we do not always get the credit for the training we are providing. Nor, in fact, do we necessarily-I am talking about Government and society generally-promote retail careers to be the fantastic careers that they are. We certainly focus on being a great place to work. My colleagues’ businesses obviously do as well.
Again, as part of our Youth Can project, we now encourage as many as possible of our 16 to 24-year-old colleagues-of whom there are 50,000, which is about a third of our business-to go back into schools and promote retail careers. We think it is important that schoolchildren are hearing from their peers, effectively, what great careers we are providing. There is something we can do to ensure that society accepts that a career in retail is a worthwhile career that is very meritocratic and in which the right people can rise through the ranks into positions of significant responsibility very quickly.
David Hobbs: Last week, we opened our 52nd regeneration partnership store. Those are stores that support giving employment to the long-term unemployed. So far, we have given work to 5,000 long-term unemployed. Our 52nd store opened last week in Sunderland and the store manager, Tim Howell, has done a fantastic job and has beaten its budget within the first week, which can only be a good thing. That is also a very important part of bringing people in to the work force and giving them the skills to carry on working.
Q224 Mr Walker: Following up on Paul’s questioning around skills, we heard a lot about the changes taking place in the sector, the shift towards the omnichannel environment and some of the more technical skills that are required now. How is that impacting on your apprenticeship programmes and your recruitment? Indeed, do you have any comments on how the education system is delivering in terms of people coming through? I was pleased to hear you talking about going back into schools; it is very important for the industry to do that. We have heard about all of the changes taking place in technology and the move to create more online channels; how does that impact your skills agenda?
David Hobbs: As consumer needs are changing, the skills we need to have are changing. The UK has been a leader in online commerce. Tesco has been very much at the forefront of that, developing a very successful online business. That means we have had to seek and develop very different skills-core IT skills, webdesign skills and webtrading skills-that we have not had in the past. I can imagine those are the skills we need to be focusing on as a country in the future, so that the UK is able to stay at the forefront of ecommerce. Those core IT, webdesign and webtrading skills will be more and more important in the future.
Tim Fallowfield: However, as an industry-I am thinking of Sainsbury’s specifically-we are quite good at adapting to new customer requirements and providing appropriate training. Yes, of course digital is a growing trend and we have to respond to it, but similarly I spoke about the counter skills of our colleagues. Again, we responded to more and more customer requirements there in order to provide a great service in bakery, butchery and fishmongery. Similarly, when we roll out something like selfservice checkouts, for instance, again there is a growing need for technology; our staff colleagues have to know how to provide a great customer experience for something new.
We are used to this kind of adaptation, preparation and rolling forward for new customer trends. We will continue to do it.
Martyn Hulme: There is something of a bonus that many of the youngsters coming through have-literacy in technology, which is almost a natural gift. That whole point is happening at a younger and younger age. Not so long ago, my friend was telling me that, when a new Xbox product came out, the biggest problem his 10yearold had was a social media one, i.e. how to transfer all of their friends across to it in the right way.
That is helpful, but it is important that businesses and the education system continue to work together, so there is not a huge gap. It is still important that we keep the basics of numeracy and literacy skills going and not just think that it is all about IT now. We do have to adapt to the change, but not forget the core pieces that are important going forward.
Q225 Mr Walker: From the perspective of Government skills policy, is there anything that could be done to help? From what you are saying, are you getting broadly what you need in terms of the input?
Martyn Hulme: It is not top of the list in terms of an issue-from what I am seeing, anyway-as long as the businesses are prepared to get involved, in a way, through the various mechanisms, including through the education system. That is something that is worth continuing.
Q226 Mike Crockart: We have touched on my question a little bit. It is about the tradition-you have already talked about it-of retail having areas from which it particularly recruits. One of those areas, obviously, is young people. I shared the common story of my first job having been on the shop floor in Tesco. In the interests of full disclosure, my suit is from Marks & Spencer and I bank with The Cooperative.
Tim Fallowfield: I will be speaking to you afterwards.
Mike Crockart: I have to apologise to Tim. However, there are particular areas: young people, people with disabilities and the longterm unemployed. You have already talked about the strengths you have in recruiting in these particular areas. Is there anything you think that Government can do or that business needs help with to enable that to continue into the future?
Martyn Hulme: There is not much wrong in what I am seeing-as long as there is the right attitude from the employer and the right diversity programmes etc. to make sure that we recognise that there is a real benefit from that kind of recruitment. It can go into, as I was touching on, not only you as a business but how you can encourage the right behaviours from your supply chain. I am certainly not looking for change.
Q227 Mike Crockart: Can I widen it out, then? If you do not think there is an issue in helping the large companies to do this-and you have shown that there are examples-how do we learn from that best practice and get it into other industries or smaller companies?
Tim Fallowfield: Martyn is right in relation to the need to have the right attitude. Personally, it would not be at the top of my wish list either. From our point of view, our You Can programme has successfully recruited 13,000 colleagues into our business from areas where they might otherwise find it difficult to get into the workplace. We have successfully worked in that environment. We would be happy to share our best practice with smaller businesses and that kind of thing. There clearly are opportunities there; we have found that it works very well. We have a very positive towards that kind of employment and we would be happy to share it with others.
Q228 Ann McKechin: The BIS Department has introduced its own Retail Strategy; what do you believe are the key areas it should focus its resources on?
Tim Fallowfield: One of the areas we have been talking about publicly has been business rates. I am not sure whether that is necessarily a BIS priority or whether it might be more of a Treasury review, but certainly we have talked about the fact that, with the rapid growth of online retail, there is an opportunity for the Government to look again at the tax system-particularly business rates, which is clearly a tax on property.
To give you some stats about Sainsbury’s, we are the 46th largest company in the FTSE, yet we are paying the 12th largest amount of taxation. The vast majority of that is in business rates. Our corporation tax bill would have been about £140 million; we would have paid business rates of £360 million, and we are seeing it increasing rapidly.
Q229 Ann McKechin: Do you think that those who are engaging in online shopping, primarily, should take a larger share of the tax burden or take a tax burden that they currently do not?
Tim Fallowfield: We certainly think there is the opportunity for a debate in relation to redistributing the tax burden. Previously, someone referred to the PwC report; it is very important to look at that. We also have some stats in relation to the UK in comparison with European countries. The UK’s proportion of property-related taxes as a proportion of GDP is significantly higher than that in any other country in Europe.
Ann McKechin: Business rates are related to the value of property.
Tim Fallowfield: Yes.
Ann McKechin: Some would argue that the value of property in the UK-not just in the commercial sector but in others-is just too high overall. Is that the root of the problem? Obviously, it drives up rents as well.
Tim Fallowfield: You can look at the existing system and decide whether you need to change the component parts of business rates, or you can do a fundamental review of the businessrates system itself.
In the United States, for instance, they have introduced a mainstreet fairness tax, which is redistributing the tax burden by applying effectively a local sales tax, which would obviously apply equally to online retailers and bricksandmortar retail. We would suggest that would be a very worthwhile review by Government-to try to make sure there is a level playing field.
Martyn Hulme: For me, the Retail Strategy document highlighted the importance of retail to local economies. It is quite close to our heart and something that I would certainly echo: there is the multiplier effect not only in terms of traders, from a retail perspective, but what else this creates around it through other employment. Clearly, if that falls away, the multiplier effect goes in the opposite direction.
Government could take a more active role in some of the core challenges. It is really important that we are looking at the parking charges, which produce what I consider to be a nonlevel playingfield. Yet there is this tension for local authorities in terms of raising revenue and the choices that they have. It starts a downward spiral, in my opinion. I would welcome some of the comments that you were just coming on to in terms of business rates, which, effectively, were set in motion many decades ago, which is not the position today. It would be worth having a clear look at that form of taxation in a more enlightened way of business, as it stands today.
We also need to look at some of the strange things to do with the RPI inflator happening one month and having a disproportionate effect on the payment. Over 10% between 2011 and 2013 seems very wrong to me, when costs of retailing are so high and are causing pressure on the high street. There is also the whole point, which we were touching on earlier, around the National Policy Planning Framework and Town Centre First being implemented properly.
David Hobbs: You asked about the focus. It is very challenging in a sector that is so diverse. The focus does need to differentiate between national, local, European and international issues and acknowledge the fact that it is multichannel in the modern world. The biggest challenges we are facing at the moment are the economic challenges that the whole country is facing. Those are impacting small and big retailers. The primary focus, of course, that we would like to see is on a growing economy.
The business rates point is an important one. Retail is disproportionately impacted by business rates, because of the nature of property in the sector. It is important to focus on dealing with and supporting that.
Q230 Mr Binley: I have had the good fortune to visit a couple of your stores in Hungary. I know that Sainsbury’s are also involved. I am not sure about The Cooperative Group.
Tim Fallowfield: No, not in Hungary, just the UK.
Mr Binley: You do not have any in Hungary, but you are involved in marketing outside of the UK, aren’t you, in the United States? Am I wrong?
Tim Fallowfield: Hopefully no one is doing that on our behalf, but we are not doing it.
Mr Binley: There is a good opportunity, so get out there and do it, but that is by the by. I want to touch on global retailing, because Britain is one of the leaders of global retailing. You only have to go to a mall in the Middle East, the Far East or the States to know just how important global retailing is to this country. I recognise that you are not involved, but you certainly are. I wonder if there is anything we can do to help get Sainsbury’s off their backside and get them out there.
David Hobbs: Tesco operates in 12 markets around the world. I have had the good fortune to have been the COO in both Malaysia and China. It has been an amazing experience, as you rightly say. UKTI has been supportive. For example, in Malaysia it helped us develop the right relationships and contacts with the Government in Malaysia, so that they could help to push our case and support our growth there. International retail is a great opportunity; the UK is world class in our retail capabilities. Supporting that to grow internationally is a great thing.
I am not sure about having Sainsbury’s out there, but it is certainly a good thing to do.
Tim Fallowfield: We certainly recognise the opportunities. We have not invested, as such, outside of the UK yet.
Mr Binley: I just wanted that on the record, because it is very important.
Chair: If you feel that there is evidence you would have liked to have given, but for one reason or another did not give at this session, please feel free to contribute it as supplementary evidence. Similarly, if, in retrospect, we feel there is a question that we should have asked but did not, we would be grateful if you would respond to us if we send it to you. Thank you very much. Can I have the next panel, please?
Examination of Witnesses
Witnesses: David Owen, Chief Executive, GFirst Local Enterprise Partnership, Professor Joshua Bamfield, Director, Centre for Retail Research, Alexandra Birtles, Head of External Communications, TalkTalk, and Liz Peace, Chief Executive, British Property Federation, gave evidence.
Q231 Chair: Good morning and welcome; thank you for agreeing to contribute to our inquiry. I will start, as I did with the others, by just asking you to introduce yourselves for voice transcription purposes, starting with you, Alexandra.
Alexandra Birtles: I am Alexandra Birtles. I am the Head of External Communications at TalkTalk Group.
Liz Peace: I am Liz Peace. I am the Chief Executive of the British Property Federation, which represents the commercial property industry, so effectively the landlords for an awful lot of the retail industry.
David Owen: I am David Owen. I am Chief Executive of GFirst Local Enterprise Partnership for Gloucestershire.
Professor Bamfield: I am Joshua Bamfield, Director at the Centre for Retail Research. We look very much at the changing retail structure of Britain and Europe.
Q232 Chair: Thank you very much. I will start with a fairly general question. I would repeat what I said to the other panellists: do not feel that everyone has to contribute an answer to every question, if you really have nothing more to add to or subtract from what has been said. I will start with footfall and changes in consumer behaviour, as we have had outlined by the previous panel. Do you think that, in the future, the sort of geographical scope of retailing will be profoundly different as a result of this? Who would like to lead on this?
Liz Peace: I am happy to kick off on this.
Chair: You have beaten Joshua by a short head, but, Liz, you can start and then I will bring in Joshua.
Liz Peace: I promise I will not go on. Certainly, we have seen a very substantial change-particularly in relation to the impact of retail on town centres and high streets. Basically, town centres and high streets blossomed. Lots more retail came through the 20th century, but now it has shrunk and it will have to shrink back again. There is less demand for retail in traditional high streets. Obviously, what you have seen is a blossoming of malls, property malls, outoftown shopping centres and outoftown supermarkets.
From the perspective of the property industry, we are winners and losers, because we own property in town centres and high streets. However, a lot of my members have also benefited hugely from the developments out of town. We do not challenge that change; we think we merely have to adapt to it. The key, from a sociological perspective, is how you adapt to the impact that has had on the town centres and high street. We cannot put the genie back in the bottle; we have to learn to live with it.
Professor Bamfield: We do not challenge the change either, but it is possible that undesirable consequences will occur from everybody changing either too quickly or quickly, with unexpected consequences.
We have several problems. One is driven by the slow-growth economy, particularly after a very fastgrowing economy in the 1990s and the early years of this century. We have technological changes online, as you say. We think one of the factors that has led consumers to shop so much online is that they have been shocked by the way in which the economy has grown so slowly. Then we have the competition and structural change, where retailers like supermarkets, for example, have very successfully hoovered up parts of spare business.
Although everybody blames Amazon for what has happened in media and books, if you go around any Tesco or Sainsbury’s you will find they have a big book operation as well. They are selling newspapers, homeware and crockery. Sainsbury’s is the seventh largest retailer of clothing in the UK. All these things have been happening at the same time. If it was just one of those changes, more businesses in the retail sector would have survived. It is difficult, however, to cope with all three.
We expect consumer behaviour to change again. As the economy moves out of recession, we expect people to go back to high streets and spend a bit more, but it is a bit like the 1930s. When I was a young man, everybody was talking about the 1930s and what you should not do. The 1930s had a big impact on the way in which they thought-and particularly in Germany this was the case. We will find that people will still be talking about this recession, what it meant to them and why they cannot borrow or spend as much as they did, for example, about 10 years ago-even in 10 or 20 years’ time. This is something retailers have to accept and live with.
Due to the structural change and the change in technology and innovation, our conclusions are that there probably are too many shops and we may well see 20% of them disappearing over the next few years.
David Owen: The challenge as we see it is more about the definition of what retail is. We see retail as a customer experience that goes beyond shopping and purchasing goods to going to cinemas, restaurants or cafés. It is about injecting passion into the high street and town centres, and injecting an experience. Our chair, who comes from a very strong retail background with a company called SuperGroup, talks about the theatre of retail. It is not just about the shops where you buy things; it is about the whole experience you go through. It is a leisure activity, not necessarily a direct purchasing activity.
Some of the challenges this creates are in usage. We heard, previously, about the change of usage from mixed residential and retail, but this could also be about usage between different types of retail and what we might consider to be part of our retail experience, and about planning being more flexible around what it will allow in specific buildings on high streets or in town centres, which adds to that broader experience.
Chair: You do not have to say anything, Alexandra, unless there is anything you wish to add.
Alexandra Birtles: I thought I would pick up on the point about consumer behaviour. Obviously, consumer behaviour is changing. Increasingly, consumers are expecting shops’ retail presences not to be confined to a physical shop but to expand into online. People like to start their shopping and purchasing journey online. On the flip side, business has also recognised that. There is a tension on the skills side, which I know has been discussed quite a lot in the earlier sessions, about how they can embrace that and see it as something positive that can enhance their business, rather than something that is scary and is going to be a detriment to them.
Q233 Chair: Do you think all of that renders the Town Centre First approach irrelevant?
David Owen: No, I do not think it does. Town centres are absolutely vital to our local communities, because a dead town centre creates an atmosphere, environment and culture in an area that becomes increasingly challenging. People do not see opportunity; they do not feel good about the place in which they live or work or play. I think Town Centre First is absolutely the right approach.
Liz Peace: I agree with you on that, but it does require a different way of thinking about a town centre. This is where you need very strong leadership from those bodies who can exercise leadership. This is not necessarily the local authority; it might be a business improvement district, a business forum and, maybe, a LEP. They have to have a plan and a strategy for what that town centre should be. It is no good trying to say, "We will stop all outoftown supermarkets." Big supermarkets do not want to come into town centres, but smaller shops do. Service industries want to come into town centres. You cannot get your hair cut online-yet-or your nails painted or whatever else. There are a lot of other things you can encourage into town centres, plus cultural and entertainment uses.
It is not much use just going on about Town Centre First unless you have a strategy and a plan for how you are actually going to implement that to create something out of your town centre, which might be very different to what it was 30 or 40 years ago.
Chair: I am intrigued by your comment about online hairdressers. Could we have pick and crop or something?
Liz Peace: I shall continue to prefer to get mine done by a real person in a real shop, but then I am old and old-fashioned.
Chair: I was going to say you have rather more beautiful hair than I have.
Liz Peace: Thank you. I will take that as a compliment-partially.
Mr Binley: I think that is fair.
Q234 Chair: Yes-in more ways than one. Coming back to the subject, do you have any further comment on that? Could I raise a further issue, which is mixed-use development, retail and residential areas? Do you think there is a case for the Government considering policies that might encourage that?
Liz Peace: We are obviously very interested in this, because it is all about the freedom to use your real estate-the property, which you own, as the owner or the investor-in the most lucrative way, which is no problem, but also in a way that will most benefit a town centre. As I said in my opening remarks, town centres’ high streets have spread. There is now not the same amount of demand for that spread of retail. Therefore, facilitating sensible shrinkage of retail back to the retail core would be very useful. You could also then look at alternative uses around that retail core.
What we do not advocate is a complete free-for-all. This is where it is important for communities and local government to get their policy approach to this conversion from retail to residential right. Our view is that the local authority should work out the retail core that their population needs and can support and should draw a line around that. It should not allow easy change of use within that, but there should then be easy change of use-permitted development, as it is termed-for the rest. As I say, we do not want a complete free-for-all but much greater flexibility for those sorts of places that clearly do not have a sensible retail future.
Professor Bamfield: It is absolutely right that the high street and town centres need a clear strategy. We feel it would be great to get families and real people back into living in the high street-as opposed to the high streets that, in some night-time economies, are disaster areas.
We have spoken to 60 people who are involved with managing town centres or are key people in their Portas or Portasplus groups. What I should say-and one thing they say, as well-is that we have to run the high street like a business. We need to communicate with our local shoppers. Totally Locally was an example. Landlords have to be more flexible and reduce their rates. Business rates are horrific in some areas. We should consider financial incentives for new entrants, i.e. new people who want to practise retailing and perhaps will be the Tesco or Sainsbury’s in 20 years’ time.
David Owen: I would agree with both of the last comments. Setting a vision and a strategy for a town centre is absolutely crucial. The work we did-with the support of BIS and a number of privatesector partners-to develop a successful highstreet toolkit demonstrates that a lot of places need to wake up and realise what kind of town centre they are and what kind of opportunities they have or do not have. Not every town centre or high street can be Oxford street, but they can all be successful in their own right.
Mixeduse development can add real vibrancy to a town centre. Our challenge, as the local enterprise partnership, is to get the other local enterprise partnerships waking up to the opportunity that retail in town centres offers, as was said in the previous session, but also to get more places using the toolkit and understanding what their opportunities are and what the key tools are that they could be using to improve their position-not to try to compete with other areas that are not like them, but to maximise the potential they have as places. It can be really difficult for some town centres to realise that they are not competing with the people they once thought they were.
Liz Peace: Very quickly, on this point about residential and retail, I take the point about not wanting a residential desert at night, when the nighttime economy takes over. However, of course, one way of getting integration of residential and retail is to allow the retailers to have the ground floor and use the space above the shops for residential. We actually produced a report-I think it was back in 2006 or something-under the previous Administration looking at LOTS, as we called it, or living over the shop. We would be very happy to send the Committee a copy of that report, because we recently found it again. The current Administration said they were very interested in this. We said, "Here is one we prepared earlier." There are a number of barriers to making it happen. There is a lot of wasted space above shops, and that is a good way of doing this: retail on the bottom, residential on the top, with lots of other uses around that residential core.
Q235 Mr Walker: It would be very interesting to see that report and I encourage you to send it in. However, you mentioned a range of other barriers. It strikes me that this has been an issue for a long time. We have had high streets with space above them that is very, very underutilised. Partly, the current structure of the businessrates system almost encourages that by having different rates set for different levels of retail space. What other barriers do you think we should be looking to remove to make sure that it is worth commercial property owners’ while to convert some of their property into residential if they can?
Liz Peace: As you rightly say, there are some practical problems with that. A lot of retailers have been very nervous about tying themselves into the inconvenience and administrative burden of having people living above their shops. There is then the possibility of complaints: early morning deliveries etc.
There are practical problems, but there are also some interesting financing problems with this. From personal experience, having looked at trying to help my son buy a flat, when times are tough, mortgage providers are very nervous about giving mortgages to residential property over retail premises. I took this up with a number of people, and one of the big property owners I know who buys residential property said that they would not normally, out of choice, buy residential property above a shop unit. They tend to get some, because it comes in portfolios.
This is something to look at, because there is a lot of reasonably priced accommodation above these retail units that could be brought into use. However, I do not underestimate the practical problems. A lot of retailers do get quite nervous; they would rather keep it for storing boxes in, because boxes do not complain when there is noise or a problem.
Q236 Chair: Could I ask about the Portas review? What progress do you think has been made on the implementations of the recommendations? Who would like to lead on that? I was going to say they are all looking at you, Professor Bamfield.
Professor Bamfield: In this report, we have a chapter on the high street and Portas. There are two ways of looking at it. One is that what Portas has done is actually used her celebrity glitter in order to make everybody talk and think about the high street. She has generated lots of ideas. The report that came out at the same time as Portas is excellent. There are a lot of ideas around and many people have been enthused.
We have talked to some of the people who run some of the schemes-not the Portas schemes, but the Portasplus schemes-and they were thrilled that somebody was thinking about them now, that people actually did love them, and that town councils that, 20 years ago, saw the high street as a creator of traffic congestion-and, perhaps, car park revenues-were actually saying, "There is a problem; we want to help you."
One question is whether things would have been worse without Portas. No, things have been brought together and people are thinking about this area. However, the weakness is in the administration of the policies. It is much too early to judge whether or not it has been successful. After all, you could have lots of brilliant retailers entering a town centre at the same time as some not very good multiple retailers closing down. To look only at whether there are more shops or whether there are more voids or fewer voids, at this time, is just wrong.
The issue, however, is that the high street, as we have been discussing, is not just a matter of, "Let us improve communications, let us tart it up; let us do this and put flowers in"-and so on and so forth. If the high street was brilliant, communication would be all that was required, but it is not. It is a structural issue; a property issue; a legal issue; an economic issue; and a technological issue, as well as a celebrity and communication issue.
There is nothing wrong with what Portas has done, except that we now are in a situation, as people who advise people who are involved in the high streets, where it really is a much bigger problem and we have to work together in order to do it. It cannot just be done by the Government.
Q237 Mr Binley: Can I just follow that up with Professor Bamfield? He will know Northampton just as well as I do. The remarks he makes fit Northampton’s sizable town centre absolutely superbly: this is a holistic problem. For instance, without really thinking about it we have put a ring road around the town centre, which makes access very much more difficult than it might have been. We have more traffic lights and coloured lights than Blackpool has in illumination week. It is this sort of thinking that opposes increased use of the town centre as the community’s heart. It is a much wider perspective than we are considering, isn’t it, Professor Bamfield? Is that what you are saying?
Professor Bamfield: Absolutely. One of the things that people do not talk about very much is car parking. Obviously, in some areas, car parking has been used as one of the few ways of local authorities getting money, but even in areas where the carpark charge is low, often it is a psychological barrier to somebody. They might well prefer to drive more miles and spend £5, instead of spending £1 in a machine in their local car park. One has to accept that, whilst the customer is always right, you need to provide some voucher or some sort of ticket so that it is less of a problem.
Every local authority-we have said that every high street is different and probably needs a different policy-has to think about what is required in order to bring people back and, once they have come back, to keep them coming back, so that it then becomes an economic proposition to open more and more shops on the high street.
Liz Peace: I would not disagree with any of that. We got to know Mary very well when she was doing the report and I ended up having a lot of respect for what she came up with. In a couple of her recommendations, she alluded to the fundamental issue, which is that the solution for the high street is not about retail, necessarily. There are a lot of other things you need to bring into the ambit of a town centre.
This requires a huge degree of co-ordination, because if, for example, you want the local doctors to move their surgery into the town centre, how do you persuade them to do that? What is the role of the local health authority, the local clinical commissioning group or the health trust? I do not know what the structure is; I am not an expert on health structures.
It seems to me, however, that it is a wonderful way of bringing footfall and life into a town centre. In my particular town in rural Hampshire, they stuck the surgery a mile out of town. People who do not drive cannot get there very easily. There all the attendant things that go with something like that: people need a chemist for their prescription; they want to have a cup of coffee to relax afterwards. The holistic plan that goes beyond retail is hugely important.
I would be slightly worried that the Town Teams that the Portas pilots gave rise to have been very focused on just bringing in retail solutions.
Q238 Chair: You have mentioned the Portas pilots. It is fair to say there has been some variability in their delivery. I am not going to mention the town publicly, but I know one town that has been beset by political arguments about the allocation of the money. Do you have any particular perspective on those?
David Owen: The biggest impact we have seen at a local level-we did not have a successful Portas pilot in Gloucestershire-is actually the galvanising of Town Teams that did put bids together but then were not successful. They have come out of the other end of a bidding process with a strategy and a vision for their towns and they have recognised that, actually, maybe it was the best thing that they were not successful, having seen how some of the towns that were successful have suffered.
They have started to think about strategy and vision. I totally agree with your comments earlier: what Portas did was put retail, the town centre and the high street back on the map again, which has then led to places thinking in a more strategic way about how they can develop. That has been fantastic news for us. We have very active Town Teams in Cheltenham, Stroud, Cirencester and in small towns in the Forest of Dean, who are really starting to think about what the future holds for their place in terms of retail and high street and the experience.
The glaring gap in Portas was the lack of reference to the night-time economy and the importance of the nighttime economy and how it fits with town centres. You actually need to think about not just a 9 to 5 or an 8 to 6 economy but a 24-hour economy. So many town centres that we see are either dead or are places that you would not want to go to in the evening, because of the kinds of services that are offered. That was the gap, for us. There was no real mention of the nighttime economy and how important it is in the 24hour economy that so many of us now live by.
Chair: As a native of Cheltenham, I welcome your reference to the work being done there.
Mr Binley: I want to think about the daytime economy too, and the lunchtime economy, especially. You only have to look at where the county council have put their big offices; they are out of the town. The borough council shoved their people out of town and they are now bringing them back, because they recognise that the heartbeat of the community hub is absolutely vital. There are things we can do in that respect.
Q239 Mr Binley: I thought you might guide me, Chair, and I am grateful. I want to talk about the LEPs, because I do think that business is missing a sizable opportunity. I know that their induction has been patchy over the country, but I do think business has not taken up the challenge in the way it ought to do. I wonder whether, David, I can direct this at you initially. Could you describe how the Gloucestershire LEP is doing, in that respect? I repeat: if it is all local government or quasiGovernment, it will fail. How are we doing in terms of getting private business into LEP work?
David Owen: I should only really talk about my own LEP.
Mr Binley: Yes, I have asked you to talk about Gloucestershire.
David Owen: The real treat for us was getting the right person to chair the local enterprise partnership. Diane Savory is our chair; she was at SuperGroup for 22 years, which founded the Superdry clothing brand. She was with them from market stall through to float-they floated on the stock market three years ago-as Chief Operating Officer. She is a true entrepreneur. That was the trick for me, and I count my blessings every time I meet some other LEP chairs, who are less entrepreneurial and less businessfocused. Without that entrepreneurial flair, that spirit of innovation and genuine business focus as a chair of an LEP, you do start to see more influence from local government, the public sector and others, who have a slightly different slant on the direction that LEPs should be going in. The trick, for us, was getting in the right person as chair. Diane has an absolute passion for retail, as you might expect.
We set up a very strong retailsector group alongside nine other sector groups, which cover our key sectors in Gloucestershire. They are purely businesspeople: they are genuine businesspeople running businesses right across the county. That is at the very heart of what we consider our role as a local enterprise partnership to be. We have strong leadership from a chair with a very credible business background who is well known locally; we have very strong relationships with the local authorities, because we cannot deliver, as local enterprise partnerships, without a genuine partnership with our local authorities; and we make sure that the LEP is seen by local businesses as being led by business for business, to grow the economy.
That is why we have been reasonably successful, I would say, in Gloucestershire at driving the LEP agenda forward and engaging a very wide community of business people in it.
Q240 Mr Binley: You may have heard-I do not know if you read the minutes of our last meeting-that Martin Blackwell, who is the Chief Executive of the Association of Town & City Management, was quite disparaging about LEPs. He said they do not even realise town centres exist. Quite frankly, I find that remark remarkable. Nobody involved in business in any given area can actually think that way, but there is an underlying point there. I wonder if it is just about getting a good chairman or whether there is more to it than you are telling us.
David Owen: It is not just about getting a good chairman. However, we are fighting against a tide of not particularly supportive comments from either central Government or local government about retail as a sector for a number of decades now. We have felt that the commissioning of Portas, the change we have seen in attitude and the delivery by BIS of a Retail Strategy has started to shift the tide at a local level. We are starting to get much more engagement from retail businesses locally, who see a purpose in the LEP. It has been a real struggle for us to engage other LEPs in the importance of the retail sector.
Q241 Mr Binley: Let me widen it out. Of course, retail is an important sector within our local economy, but it is not the only sector. How do you balance that?
David Owen: For us, locally, it was about looking at which sectors were the most significant in terms of employment and value to the economy and which sectors were predicted to be the most important to our local economy in 10, 15 or 20 years’ time. In Gloucestershire, advanced engineering and manufacturing is our biggest employment sector, which is closely followed by tourism, leisure and retail, followed by the health sector and followed by the public sector. For us, it was about working through what the primary employment sectors were in our location and then setting up a series of sector groups that would address the needs of those sectors.
I suspect that retail and high streets are, in some areas, taken for granted as something that is always there-or that their demise is inevitable, because we will all buy more online. We do not believe that; we believe there is a role-and there will be, certainly for the rest of my lifetime-for high streets and town centres to play, so long as the focus is on the theatre and the experience of retail.
Q242 Mr Binley: I am going to be immensely provocative: I was disappointed with the response I got from our business leaders in terms of LEPs and the opportunities they provide. Am I being mean or are my comments fair?
Liz Peace: Perhaps I could chip in on the part of the property industry. You would imagine that people who own real estate would be very interested in getting involved in the LEPs, because their stuff is immovable; it is in a particular area.
First of all, most of the LEPs started off in an extremely difficult position with very limited resources and, frankly, very little power. That is why the progress of some-yours sounds terrific; I do not actually know the Gloucestershire LEP, but I know a number of the others-has been a lot better than others.
My industry was very sceptical about engaging with LEPs, partly because of the resource involved. If you are going to put senior people on these boards, have you got the senior people who can do that? They are supposed to be back in the office or out in the field actually doing the business, not talking about it in local talking shops. Frankly, there was a deep scepticism that they would be just talking shops. Where they have shown they are not, my industry has been keen to get involved.
However, there is still a resource issue, because, from the perspective of property owners and the big propertyowning companies, they need to engage with local authorities at the county, district and borough level. A lot of them have put their weight behind business improvement districts; some of them have got involved in business neighbourhoods. There are all these different ways of getting involved, and then somebody comes along and says, "Come and sit on a LEP board." It is a confused scene out there.
Q243 Mr Binley: The LEP has the option to have a much more strategic overview. We are talking about really rather small areas. Whilst town centres are very important, and I have made that point, transportation, connectivity, roads etc. are vital parts of creating a local economy that works. I wonder whether people like you are selling that opportunity enough. I am sorry to be so challenging, but I do challenge.
Liz Peace: You are right-and, indeed, I spend a lot of time challenging my membership and saying that they need to get out there and be involved in these bodies. The response I get is, "We try. We do not have the resource to serve all the bodies that we need to serve out there. Where we can see a real purpose in being there, we will be."
For instance, talking to one of our big property companies that is an extensive landowner in Leeds, I said, "Why aren’t you in the Leeds LEP?" His answer was slightly different. His answer was, "I am a little nervous that, if I am there banging my drum in the LEP, people will think I am doing it for selfserving purposes-to try to get planning permissions for our particular property company." I said I thought that was daft and he should just get in there, throw in his lot and put in his tuppence-worth and look at how to develop the bigger region.
The other point is that a lot of business are quite localised. If you are a property company and you own a shopping centre or a swathe of land in one particular place, you are interested in what that local authority can do for you. Therefore, you build relations with that particular local authority. Having the time and resource to look more broadly is a luxury a lot of businesses cannot afford; however, I agree they should.
Professor Bamfield: Fist of all, I agree that it must be not only businessoriented but businessrun. One of the issues with the way in which central Government and local government interact with retail is the fact that the borders or boundaries of local government and central Government do not relate to anything that retailers do. You may say, "You retailers ought to change your boundaries," but nonetheless they have set these up. If you saw the way Tesco changes its boundaries-it is almost every month, because soandso has been promoted etc.-you would be amazed.
The problem with that, as Liz was saying, is that it is very difficult to find enough smart people who you would be prepared to send off to an organisation for a couple of mornings a month for two or three years, for example. They are there as the head of a store in Cheltenham, perhaps, and after a couple of years they are off somewhere else. It takes them a year, actually, to find out about the road pattern of where they are. They are then ready to sit on this committee or the committee that is concerned with crime or another committee that is concerned with some other aspect that retailers are supposed to be consulted about, and then they are off.
Retailers always have this problem. Obviously, the local authority says, "This is our area and we want to talk to everybody." For example, if you are operating an aluminium works in Bristol, it is relatively easy to ensure that you have continuity there, but because retailers are always being rotated around different regions, it is very difficult to provide that. Hence they are always told, "We want your opinions; please get involved; please help us to run this policy." This is great, but it does not relate to anything that retailers can really do. What is amazing is the amount of work that they do, but it is extremely difficult to respond to all of the requests that are made to them.
Q244 Mr Binley: The answer really is that we have to make them more meaningful to the business sector, but the business sector also needs to recognise that they are an opportunity, too-and they need to rise to that challenge. Is that the answer you would give me?
David Owen: There is always a challenge with the engagement of either global or national businesses at a local level. We see it in retail. We get far more enthusiastic engagement from locally based retailers, who have a direct personal interest in the area as well as a business interest.
We do not just see it in retail, however. We see it in some of our global engineering businesses, which in effect fly in an MD for a three-year period before they fly them back out to go and run another part of that business. That is all well and good, and it works very well as a business model, but it does make it more challenging to engage in local issues, as you have described. It is not exclusively retail, I do not think.
Chair: I want to move on from this subject, because we still have plenty to get through. The next subject may well take a bit of time, as well. Please make it as brief as possible.
Q245 Paul Blomfield: I wanted to return the discussion, as we did with the earlier panels, to skills. Earlier we were talking with fairly big retail players. You may be able to offer a different perspective on what the skills needs and training needs of the sector are, and whether they are generic or sector specific. Professor Bamfield, perhaps we could start with you.
Professor Bamfield: Retail has done a lot, in conjunction with the Government, to improve the overall level of skills and, obviously, relate this to a framework. There is a tendency to try to train people for particular jobs, with the view that you can add things to it as part and parcel of the person being promoted. One problem that retailers do have, of course, is the churn or the turnover you have in retail staff, which obviously is less than it was in the middle of the last decade, but is still considerable and is a problem where people enter a particular profession not because they want to be there but because they cannot get a job elsewhere and they are waiting until a better opportunity comes. This is not a good way to start education.
Nonetheless, it is accepted. There are things like online education; retail is at the forefront of online learning. I listened very carefully to the people from the supermarkets in the last session. I agree very much with what they were saying, but there is a "but". The "but" is that we are moving from a situation where we have online retail, of which some is done by store groups, and then we have store-based retail. We are supposed to be moving to multichannel and then, obviously, omnichannel, which of course is the latest thing.
That is where we have a terrible skills gap. We need people who understand business and are going to be able to operate so that, whatever channel the customer uses, whether it is standing outside the shop, their mobile phone, using their computer at home or simply only through shops, the price, the experience and so on are the same. In the IT world, people are needed who understand the architecture that is required and who are going to be able to cope with the massive changes needed. Another need is for people who protect retailers and consumers against fraud and cyberfraud. We have a terrible hole there, as a nation-because, of course, retail is not the only industry that wants to move very quickly in that way.
As far as ordinary trends are concerned, we are pretty good; as far as this tremendous technological need is concerned, we are weak.
Q246 Paul Blomfield: In the discussions we were having earlier with the big players, I was struck by the fact that, clearly, their organisations had a critical mass and were able to engage in training in a very holistic way at all sorts of different levels. What is the position of training needs in the smaller independents, which are so critical to so many of our town centres and high streets?
David Owen: At the moment, we are doing work with the National Skills Academy for Retail, the University of Gloucestershire and Cheltenham Borough Council, which have invested some of their highstreet innovation fund in training and mentoring for independent retailers. We see it as a real opportunity. The challenge for retail in the UK is where the next generation of globally successful retailers is coming from. The Borough Council decided, with a very strong base of independent retailers, that they should be looking at what support could be provided to make sure that those retailers survive and then grow. That scheme has been extremely successful. Big numbers have not gone through it yet; I think eight independent retailers have been mentored. However, they all now have accreditation and they are looking at rolling that out in other towns in Gloucestershire.
We have put in an Employer Ownership of Skills bid to try to roll that out with the National Skills Academy for Retail right across the country, because it is a real challenge for independent retailers to be able to take the time out to think about how they are running their business and the mechanics of it. It is a challenge in any business, but it is particularly challenging when you are customerfacing all of the time that your business is open. We are working on ways for them to get that mentoring support and skills development at the same time as being able to run their business and work with their customers.
Alexandra Birtles: I might come in here as well. From our perspective, both as TalkTalk and in our role as cofounder of the charity Go On UK, chaired by Martha Lane Fox, which is looking to improve digital skills in both consumers and businesses, we see that there is a real opportunity and responsibility for larger businesses to provide support, much as David has just been saying.
We think that a lot of that focus is on bringing in national companies, such as us-bigger businesses-and building partnerships with local, ontheground organisations, who have the networks and the reach, while we perhaps have the skills and more of the resources. We are going to be launching a pathfinder in the north-east from the autumn, where we are trying to super charge the region and focus on improving digital skills there.
One of the key things we are doing in this space is on the digital skills side, as part of Go On UK; we are working with BIS on this. There are not many resources there for SMEs to use to improve their digital skills. There is quite a fundamental resource gap, which we are looking to build resources to help fill. We are building an online marketplace of tools, but there is a real opportunity and responsibility for bigger businesses to take their expertise and mentor and champion small businesses and teach them to overcome the skills gap. We know from our own experience and research that businesses are really optimistic about the opportunity that technology affords, but there is a basic skills gap there. More businesses should be lending their expertise and support to local small businesses.
Q247 Mike Crockart: The question I was going to ask is in the area we have been talking about. Professor Bamfield, you recently gave a report card for the technology gap for skilled employees; it was a "weak" rating. Whose responsibility is it to tackle that? Is it Government or is it, as Alexandra has been outlining, for big companies to step in? Who should be leading on it?
Professor Bamfield: It is a combination: universities; the Government, in the sense that it is always the Government’s fault; and retailers themselves, who have to give the message to the marketplace that this is an important area that at the moment is relatively small but is going to be absolutely massive. We need people there. It is not good enough to say, "Well, there are lots of people in India who can do this; let us bring them over." That can be part of an approach to the problem, but it is not the answer to the problem.
Alexandra Birtles: If I might add to that, it is a combination of people. You cannot say it is only Government or only business or only the third sector. It is about them working together. There are some encouraging signs that Government are taking this perhaps more seriously than they have done before. As I mentioned, we are going to be working with BIS on an SME digital capability programme, which was announced a couple of weeks ago. It is too early to say what the results of that will be.
There is much more that we could do and that Government could do across existing programmes to make sure that they are embedding proper digital skills training for all jobseekers and people doing National Citizen Service work programmes. Government should then be challenging businesses to do more as well.
Q248 Mike Crockart: I hesitate to use the phrase, but this is a backtobasics problem. In one of my other roles, I sit on the Parliamentary Information and Communications Technology Forum and meet CEOs from IT companies on a regular basis. They have a common complaint: kids are not interested in IT as a potential career. They were put on the spot and asked, "What are you doing to go into schools to make them interested in that career?" There was deafening silence. There does need to be a pipeline of interested kids coming in to fill these gaps, because tinkering around the edges is not going to fix it. How do we get that?
Alexandra Birtles: There are two different things we look at here. First, there is still a really big skills gap at the basic level. Some 16 million adults in the UK do not have the skills to use the internet properly and safely. Businesses do not know how to set up a Facebook page and so on. There are some quite basic skills issues.
In terms of the more highly skilled stuff, you are starting to see some brilliant programmes coming through. We work with an amazing organisation called Code Club that teaches kids to code in primary schools. They are doing some fantastic things. People are starting to realise there is a gap; there are some more programmes coming through. On how to get kids interested in IT, on the girls’ side I would say get them young. We work with Code Club, and they say once girls go to secondary school something very strange happens and they stop being interested in IT. There is a really important thing about making sure that, from a young age, we are teaching kids that digital is a good career path for them.
Liz Peace: Can I just add one point? Going back a little bit, you were talking about skills for the retail industry. A lot of my members have told me that, when they have gone to local authorities with planning applications for retail developments, the local authorities have been quite sniffy about the jobs. They say, "They are just retail jobs." In fact, we should be talking up the value of retail jobs, because not only does it teach you about how to deal with customers and clients, which happens in every industry, but there is that underlying IT skills base to a lot of retail, as Alexandra has pointed out. There is a role for both local and central Government in talking up the value of training in the retail world. It is not demeaning to go and work in a shop: you can learn an awful lot and it can be a springboard to an awful lot of other things.
David Owen: As well, it has to be a joinedup approach. There is a part for everybody to play. We have some very enlightened headteachers in schools; we have some very unenlightened headteachers in schools. We have some schools who are biting our hand off to get as many businesses as possible to talk to their young people at both the primary and secondary education level. We have others where the door is slammed firmly shut and they are not interested in engagement with business.
How we or the Government encourage schools to have open doors for businesses to come in and talk about careers is a real challenge. That is the only way in which many of our young people will have any understanding at all about a career in retail or engineering-or whatever it may be. Careers education is simply not good enough right now.
Q249 Mr Walker: You will be aware of the BIS Department’s Retail Strategy. Within that, in which areas would you like to see it concentrate its resources? Also, we have had the discussion about business rates with other panels; I am sure there will be views on that. However, are there any practical suggestions about improvements that could be delivered without massive cost to the Exchequer and to local authorities? They would be very gladly received.
Liz Peace: I want to add my support to what the previous panel said about the need for a fundamental rebalancing of business rates between traditional retail and the less traditional forms of retail. I know it is not easy, but if you were to look at the turnover per pound of business rate paid in a little highstreet shop compared with an ASOS warehouse or something like that, it would be fundamentally different.
Q250 Mr Walker: Can I come in on that? One thing that has been discussed and tried in other markets is linking rents and rates to turnover. That is something that, obviously, the property industry, which you are representing, would have a role in implementing.
Liz Peace: A lot of landlords have actually introduced turnoverrelated rates or they have a turnover element to them. In some cases, this works very well. The industry is not against that. In a lot of cases, the retailers are often not too keen on that. It also depends on the place and on having a good open relationship between the landlord and the occupier, because they need to share data. Fundamentally, however, the industry is not opposed to turnover-related rents.
My next point may sound like a very niggly, small issue, but it is actually a very lowcost issue: we should give business improvement districts more teeth by pushing through legislation that would require the involvement of landlords in them. The framework legislation-at least for London-has been in place for four years. It has still proved impossible, somehow or other, for Government to lay the secondary legislation to actually make that happen.
Good landlords get involved in a business improvement district anyway; the landlords who cannot be bothered do not. This would ensure that, if and when the vote went that particular way, all the landlords would be involved and you would not get the freeloading element. It would put more resource into the business improvement district and it would allow for a better, more holistic management of that particular area. The business improvement districts tend, on the whole, to be retail-focused or a group of streets in a town or city.
Professor Bamfield: As far as rates are concerned, it is a problem, but the problem is also about occupancy costs, which very much relate to the retail climate of the early 2000s, rather than now. If the rates review had not been postponed, people in most of England would expect to pay about 17% less. People who have the benefit of operating out of London would be expecting to pay 22% more.
The answer, of course, is not to say, "Let’s do it," but to think creatively about people for whom rates are now a real problem, because rates have lost the links they used to have to rents. In other areas, rents are massively high. In some of these areas of poor demographics, the problem is that the rents have not fallen, even though the commerce has fallen. The rates are neither here nor there. We do need an overall approach towards this.
There are bits of legislation. One of the problems here is that most town centres have approximately 200plus landlords. Often, the identity of these landlords is unknown. London has either passed or is trying to get legislation through so that people can insist on knowing who landlords are. This will be helpful in a) starting communication and b) trying to ensure that, if a place has been empty for too long, you are able to do something about it.
Essentially, the Government do not really have a role in this. It is about local retailers and local authorities and other stakeholders in the high street. The really important thing is to enable them to have a strategy, so they can manage their own high street. This means that having a high street that is all payday lenders, finance and betting shops is as bad as your high street being turned into a range of Selfridges and Prada shops; it is good for some types of customers, but not good for everyone. The local community must be allowed to retain some sort of control over it, ensuring that you get variety, which is what is so wonderful about the high street.
David Owen: I would totally agree with that. We are very supportive of BIS’s Retail Strategy, and the fact that BIS has a Retail Strategy. We have had great support from what is a very small retail team within BIS. If we were asking for one thing, it would be to see retail come slightly higher up the pecking order in BIS, so that it is given the significance that it deserves as a sector that employs 3 million people in the UK.
The opportunities, as we see them, are very much about how you can enhance the high-street experience by using technology, rather than seeing technology simply as a threat and a thing that stops people going to the high street. Secondly, we need to do more to export some of our smaller retail brands internationally. The launch of the GREAT campaign in the next week or two weeks is a good start, but there is a huge opportunity for our niche retailers to export into emerging markets, because of the value that is placed on Western products and the premium value that is placed on products we would not necessarily see as premium products. There is much more to do around exports of retail brand.
Alexandra Birtles: Finally, to echo that, I would like to see more reference to online and the opportunities that it offers, both in terms of giving businesses the opportunity to grow and bring people back into the high street, and connect and better serve their customers.
Sometimes, we talk too much about online versus offline; it is actually about bringing the two together. That message is really important to businesses that might be afraid of embracing the internet. We need to speak much more positively about it, and we need to make sure that there is this focus on skills and training for SMEs, so that they have the support to make the most of the opportunity that the internet offers.
Q251 Chair: Thank you very much. That concludes the formal part of the questioning, but before we finish I have a question for Professor Bamfield. It is, shall we say, most unfair, slightly mischievous and it will be totally incomprehensible to most people in this room, but I am still going to ask it anyway. I do seem to remember that, years ago, there was a reference to a former well known Member of Parliament in the West Midlands. I think the quote was that he was the worst thing to hit the area since the Black Death. Were you the author of that quote?
Professor Bamfield: No, no. What I said was that he was bad news for Wolverhampton. This is so long ago. We used to get along quite well.
Chair: I do seem to remember the quote got transcribed.
Professor Bamfield: Never believe what you read in the newspapers.
Mr Binley: We never do.
Chair: Again, we may well wish to ask you further questions, to which we would be grateful for a reply. Similarly, if you feel you would like to make any further contribution, we would be grateful to receive it. Thank you.