Chief Executive's Blog: The Cost Equation

I’m writing this on New Years Eve against the backdrop of two important stories for our sector. Firstly, we planned to use today to publicise our concerns about recent reductions in the LINK interchange fee that funds free to use ATMs, and to argue for future increases to be scrapped. LINK really needs to reverse the 10% reductions they’ve already made, which have led to lots of our members seeing their free to use cash machine apply charges, or be lost altogether. I’m pleased that voice is being heard on national and local TV and radio.

Secondly, the Low Pay Commission has announced their decision on minimum wage rates from April 2020, with a whopping 6.2% increase in the headline National Living Wage rate to £8.72. This completes the journey mapped out by then Chancellor George Osborne in July 2015 when he stated in his budget that this rate would reach 60% of median earnings by 2020.

My point in writing this blog isn’t to go into detail on these issues individually (you won’t struggle to find lots of ACS comment on both) but to explain how they’re connected, and how understanding this is crucial to addressing the challenges facing retail, the high street and local services into the next decade.

We all know about the problems facing high streets, and the jobs lost from business closures in recent years. What’s less clear are the reasons behind these changes, and the reality is they’re complex and sometimes contradictory, ranging from business rates to poor business management and in some cases unethical practices, on line retailing taking market share, other consumer trends, slower economic growth since the financial crash in 2008, and sluggish consumer confidence. You can go to all sorts of conferences and read the trade media on all of these. But the thing that I hear from all types of retailers is that the cost of operating physical retail stores is going up, and that the biggest single reason for this is the cost of employing people, driven by increases in the National Living Wage. I hear exactly the same from businesses like restaurants and pubs that have a slightly different mix of challenges, but which are an equally important part of the high street scene. Meanwhile, the high street’s competitors in on line retailing aren’t as severely impacted by these costs because they can automate more of their systems, and they can use gig economy models for delivery which at very least take out some of the additional costs borne by businesses using traditional employment models.

So, faced with these conditions, businesses that have operated on the high street move, but not out of town where they went 25 years ago, but on line, where they try to give physical access to their products and services through the remaining businesses still offering a bricks and mortar outlet … like convenience stores. And one of those services that has most notably migrated away from high streets has been banks, which continue to offer their services to their customers who may not want to bank on line include ATMs, Post Offices and other banking services in convenience stores.

I totally understand why banks and others have moved away from the costs they face with high street trading, but they have to support the models that have emerged in their place. The businesses offering these services – whether its our members or their partners like the Post Office or ATM companies – are also facing rising costs for paying people who work in stores, or deliver cash in transit, or perform any of the other roles that computers can’t do. Raising the National Living Wage is an understandably popular policy among the general public – who wouldn’t want to see the lowest paid get more for their efforts? But we also have to understand the wide-ranging impact when the biggest cost line in lots of businesses (not just convenience stores) goes up at four times the rate of inflation. Those who bemoan high street woes and the loss of free to use cash machines, while celebrating big increases in minimum pay, are very least failing to take an honest look at the deep relationship between these issues.

This entry was posted by Chris on Tue, 31/12/2019 - 15:07