Investing for Growth?

Two things happened last week that have prompted me to write this: we had Rishi Sunak’s second budget, and closer to home our Voice of Local Shops survey results came back. This is our quarterly survey of about 1,200 retailers in which we find out their levels of optimism, future plans, and views on a range of issues where we’re talking to government. It’s an invaluable part of what we do, making sure that we’re able to share facts as well as sentiment as we take part in policy discussions on issues that retailers care about.

There was one topic that came up in both of these: investment. The Chancellor spoke of his strategy to see private sector investment lead the economy out of the Covid recession, most notably through the super deduction policy, and this chimes with what ACS has been saying about promoting investment through mechanisms like the business rates system. We’ll wait to see what rules and definitions are put in place for the super deduction, and how convenience stores avail themselves of the benefits of the super deduction, but on paper it looks like a great idea. If there’s one thing that defines our sector, it’s change and adapting in line with your customers and community. But change costs money, so any help in making the leap to invest in a new food to go offer, or energy efficient lighting, or smart fridges has to be welcomed.

What our VOLS survey suggests is that this help may be long overdue for our sector. You can see from the graph below that up until mid-2015, better than one in five independent convenience retailers were investing in their stores. Then … a marked drop off to a new normal for the past five years and counting: worse than one in seven retailers investing in sites, and more of them looking to sell than buy new sites. We’re very cautious about reading too much into a couple of results, but this is a sustained trend now – even encouraging results this quarter don’t take us anywhere near the levels we were seeing up to mid-2015.  

What might have caused it? In July 2015, one of Rishi Sunak’s predecessors George Osborne delivered his post-election budget including a number of measures that could have interrupted investment plans for convenience retailers, most notably the introduction of a new National Living Wage which significantly increased the baseline of costs in our sector. Attributing the decline in investment to this alone doesn’t feel like it captures the complexity of how decisions are made, but it is backed up by our own member research: 62% of respondents to our National Living Wage survey said that increases in this rate would cause investment plans to be cut back, with 57% saying they would respond in the same way in 2021.

So, that’s it: simple cause and effect? I’m not so sure. Retailers’ conservative investment model – most investment in funded out of retailers’ own reserves rather than through borrowing – is consistent with investment moving in line with ability to make profits, but it’s too simple an answer for me. What do you think? What’s caused this change and what can government, the supply chain and retailers do to turn it around and make our investments – the benefits of which reach into communities more than those made by any sector – part of the UK economy’s recovery?

This entry was posted by Chloe on Tue, 09/03/2021 - 11:00