Quote of the day - tax incidence ain't what you think it is...

From John Cochrane's blog:

The top two things our politicians say they want to encourage are jobs and home ownership. Jobs are perhaps the most highly taxed economic activity in the economy, and by this calculation houses come in a close second

So, for all that we want jobs and homes, the tax system makes those jobs and homes more expensive. Cochrane also points out that the incidence of wealth taxes depends on the interest rate - where the level of tax equals the interest rate (or yield or whatever measure of return to property investment you're using) it's effective rate is 100%.

So it makes more sense to tax the returns rather than the sum invested (or indeed its actual, estimated or putative value) and, life being what it is, this is what we do most of the time. Now this might all seem a bit obscure but, if people respond to incentives (like the economists say) then it is the actual incidence of a tax that matters not the rate or the person who writes the cheque.

And, since I'm here and talking about taxes on property, let's talk about business rates. Any, even passing, conversation about business (and especially retail) ends up with a discussion about business rates. Just about everybody says that the tax is to varying degrees unfair, not flexible, and impeding investments. The problem is that every proposal for reform (like this one from Centre for Cities) amounts to tinkering rather than a change to the way in which businesses are taxed.

And we should remember that businesses want to pay less tax because they simply represent a cost to the business with the result that they either reduce returns (see above for why this matters), lower wages or raise prices. As Cochrane pointed out - we want jobs, business and a thriving high street but, at the same time, don't realise that the tax system reduces the incentive for people to do the things that make these investments happen.


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How to save the high street - don't employ anybody

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So it seems:

Customers simply use their cellphones to unlock the door with a swipe of the finger and scan their purchases. All they need to do is to register for the service and download an app. They get charged for their purchases in a monthly invoice.

The shop has basics like milk, bread, sugar, canned food, diapers and other products that you expect to find in a small convenience store. It doesn't have tobacco or medical drugs because of the risk of theft. Alcohol cannot be sold in convenience stores in Sweden.

"My ambition is to spread this idea to other villages and small towns," said Ilijason. "It is incredible that no one has thought of his before."

He hopes the savings of having no staff will help bring back small stores to the countryside. In recent decades, such stores have been replaced by bigger supermarkets often many miles (kilometers) away.

Of course nothing is quite as simple as this - the shelves still have to be stocked and someone has to manage that stock, deliver that stock and handle customers. But the principle - that the simple process of buying a loaf of bread and some cheese can be entirely dehumanised - still stands and means that the advantage supermarkets have over local stores is diminished.

However, it does seem to me that the big losers in this battle (perhaps not in Sweden though) aren't the big hypermarkets with 100,000 lines and sophisticated delivery systems but rather the expanding market of small convenience stores run by those same stores. I suspect that, while this system will challenge 24-hour opening, the market for crisps and baby food at three in the morning is pretty limited.

Interesting stuff though.

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Some stuff worth reading...on open borders, Bowie, vegans and High Street robots (plus other goodies too!)

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The Islamophobic Case for Open Borders

"In America, 77% of those raised Muslim, are still Muslim, according to Pew. That’s a fairly high retention rate, but Islam in the West still loses about one-fourth of each Muslim-born generation. At that rate of member loss, less than half of the descendants of Muslims would still be Muslim after three generations. Germany’s assimilation of Turkish migrants seems to illustrate how this process plays out. Less than 2% of the German population self-identifies as Muslim. Almost twice as many people in Germany are of Turkish descent, and there are also substantial numbers of Arabs. Since Turkey’s population is almost exclusively Muslim, it seems that Islam must have lost roughly half of the natural increase of its emigrants in Germany to apostasy."

Bowie was an entrepreneur before he was an artist or performer

"I wanted to be thought of as someone who was very much a trendy person, rather than a trend. I didn’t want to be a trend, I wanted to be the instigator of new ideas. I wanted to turn people on to new ideas and new perspectives. And so I had to govern everything around that. So I pulled myself in, and decided to use the easiest medium to start off with -- which was rock and roll -- and to add bits and pieces to it over the years, so that by the end of it, I was my own medium."

Why councils are shutting down 'stop smoking' services

'Councils remain committed to helping smokers quit, however they face significant cuts to public health budgets this year, and spending large volumes of money on a service people are not using will fast undermine the cost-effectiveness of providing it.'

The powerful state damages society - always

"Therefore every assumption of State power, whether by gift or seizure, leaves society with so much less power; there is never, nor can be, any strengthening of State power without a corresponding and roughly equivalent depletion of social power."

People promoting meat don't like vegans much

"A provocative advertisement encouraging Australians to eat lamb has been criticised for discriminating against vegans and portraying excessive violence.

The advertisement, which has gone viral on social media and been viewed more than 250,000 times on YouTube, depicts a military campaign to bring Australians home from overseas so that they can eat lamb on Australia Day.

In a controversial scene that has reportedly sparked more than 60 complaints to the advertising watchdog, a team of special agents break into an Australian man’s apartment in New York and ignite a blowtorch after he reveals he has become a vegan."

You can watch the ad here.

Donald Trump and Bernie Saunders are mining the same seam of dissatisfaction

"While the white working class is shrinking in the US, it remains the largest voting block in the country. That may be why leaders of both parties are concerned that white working-class voters, especially in the Midwest and South, are supporting populist candidates like Donald Trump and Bernie Sanders. They don’t understand that many of these voters blame Wall Street, corporate leaders, and politicians – the East Coast establishment –for destroying their jobs and communities over the past few decades."

Robots will save the High Street

"Through all these varying examples, we see an automation of retail that develops itself in full speed. Whether it are new types of vending machines that help increase consumptive convenience, offering fresh and healthy products 24/7, or technology that changes our traditional ideas of ordering and preparing food in restaurant — it’s clear that retail landscapes and practices of consumption are strongly influenced by a sense of automation."

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Hurrah! The High Street is saved! The man from Savills says so!

The man at Savill's who sells retail property thinks the high street is fine:

There is now a clear consensus that the rise of online retail is not killing the UK high street. In fact, in some cases, the internet is helping to promote the need for retail space as the boundaries between online and bricks and mortar become increasingly blurred.

Now the blog in question is pretty dreadful. It presents some half-baked statistics, carefully selected to suggest that all is just hunky-dory on the High Street. Stuff about the growth in click-and-collect (think about this - why should I go five miles to the high street to collect when there's a convenient shop on the corner) and something called 'O2O' - 'online-to-offline'.

This is, at best, wishful thinking and at worst actively misleading. I don't know which because Sean Gillies, the man from Savills in question, doesn't provide us with any evidence. I mean real evidence about rents, voids and vacancies not vague statements like:

It has also been reported that some retailers have found that opening a new store has resulted in an increase in online sales

Reported where? By whom? And on the basis of what evidence? Not this evidence I guess:

Without doubt this is due to both the challenge of the internet and the convenience of out-of-town locations for click-and-collect as they offer plentiful, accessible parking that is free of charge. Despite this, it is good news that the vacancy rate has increased only slightly, to 10.4 per cent; although the number of retail leases that are due to expire over this year suggests that this could rise further over the coming months - particularly as consumers are now demanding discounts, which squeeze margins and adversely impact profitability and long term business sustainability.

Now it's true that retail space in the better high streets now appeals to the growing market for the shop as a brand marketing tool but this does little or nothing for less appealing locations lacking in the right demographic.

I know Savills have shops to rent but when their head of retail pushes a retail recovery on such flimsy evidence we really should question the credence given to its opinion.

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Pointless tears for a lost high street

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Professor Sparks laments the emotional void left by the loss of Woolworths. He makes an important point, putting his finger on the way some retailers can create a sense of attachment that’s more sentimental than economic. But of course sentiment doesn’t pay the bills.

Do you feel an emotional void as a result of Woolworths closing? If you do then your levels of emotional sensitivity are far more developed than those of normal people. Now I understand how marketing and advertising - the presence of a brand over the years - can create attachment. Indeed, as a professional marketer I can respond with a smile of quiet satisfaction at the way in which branding sustained Woolworths as a business long beyond the point where it lost its way as a retailer. But emotion at the demise of a shop few of us visited more than a couple of times a year?

Let's weep for the high street, let's mourn the loss of those shops we cherished in our now forgotten youth. We should wipe away a tear knowing that the greengrocer who always called you "John" has gone, that there are so few bakers and that the comfortable retail brands of yesteryear are now just memories.

We should post pictures of our towns in those glory days when we had, we're told, some 'attachment' to the high street. And have long conversations while hunched over these snaps, remembering past ages and regretting the loss of these past institutions.

Show that emotion, call down a curse on the shops that have filled the void left by those old shops. The second hand shops, dens of evil gambling and places where all that's for sale is the false hope of an easy (but expensive loan) - cry out about:

...predators in Food Bank Britain, leeching on a society that struggles to make ends meet and ensuring their users pay over the odds to survive.

But let's not see that remembered past as a guide to some golden future for the high street, let's not pretend that emotion can ever substitute hard reality. Not the reality of poverty - there is less poverty today than there was when those black and white photographs were taken, when people trudged in worn out shoes, back aching to the high street to haggle and hassle for the things a family needed to survive. No it is the reality that our wealth has brought choice, mobility, opportunity and, in doing so, has left those retailers behind. All the tears of happy memory will not change this fact.

Yet people like Julian Dobson persist in painting this myth:

This is why the future of such high streets lies in a very different approach to prosperity. Instead of desperately competing for the spending from enclaves of affluence, high streets need to return economic value to local entrepreneurs and shoppers. This demands access to property at low rent and with business rates set at intelligent levels; it requires active encouragement of local enterprise by councils and chambers of commerce; and it requires community-based networks of trade and exchange that rebuild local loyalty.

Don't get me wrong, I'm with Julian on the tax thing - all taxes do is make business harder. But the pretence that somehow affluence is fading from places like Rochdale, that poverty and the food bank is somehow the norm of living in these northern towns is a distorted, even insulting, picture.

However, the shoppers in Rochdale, in Littleborough and in Middleton, they're on the tram into Manchester or fighting the traffic round the M60 to the Trafford Centre. Or indeed, and this is ever more the case, sat in their onesie on the sofa, smartphone or iPad in hand buying stuff on-line.

There is a future for the high street, not as a dystopic place filled with betting shops and fried chicken takeaways but as a place for leisure and pleasure. This isn't about some form of local protectionism, an impost on prices that further excludes the poorest, but about getting the scale right and the place right. Above all it means fewer shops.

So wipe away the tears, they serve no purpose beyond the memory that invokes them. Instead recognise the reality of 21st century retailing - on-line provides a scale of choice never before available to the consumer. It drives down prices and brings the world's goods to our sofa. Just as there were once 50 shops in Cullingworth (there are now fewer than 15 and four of these are hairdressers), there will be no future need to struggle with heavy bags to that high street of people's memories to face less choice and higher prices than we get either on-line or in the supermarket.

These tears for a lost high street are pointless.

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Integration and the shop as brand marketing....more thoughts on the High Street

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When I came to Bradford, I came as an account executive at a direct marketing agency. And, back then, direct marketing was flavour of the season. The advent of databases, the collection, manipulation and analysis of information, and the idea that we could tailor our offer or appeal to the target consumer - these things made us the scientists of marketing set against the flash, braces-wearing 'above-the-line' folk making those useless TV adverts.

But direct marketing seemed a stale term, more akin to door-to-door selling than to the white heat of information technology. With all our profiling, multiple regression, expert systems and data-mining we rebadged the business - firstly as database marketing, then as relationship marketing - before realising that the unreliable, untargeted advertising was still there, our clients were still spending more on this than on letters and leaflets.

So integrated marketing was invented. Or rather it wasn't, we simply realised that the different bits of marketing activity needed to work together if the campaigns were to succeed. Our clients needed brand marketing as well as targeted marketing.

What's all this got to do with the high street, I hear you cry? Put simply bricks and mortar based retailing has to make use of on-line promotion and sales - we know this and every retail strategist worth his salt is focused on making this transition. But what we haven't appreciated is that this isn't a shift from real to virtual with the high street vanishing but the integration of different channels and their use for marketing as well as selling.

Here's Adam Stewart, marketing director at Rakuten’s Play.com:

“Our view from the marketplace is that there is going to be a form of humanity, and consumers are still going to be interacting with the high street,” he said, explaining that consumers will always prefer to look and feel products and connect with retailers on a face-to-face basis. “What Rakuten’s Play.com is trying to do is be able to offer the services so that high street retailers can have the services without the massive costs and infrastructure to build a digital proposition within a marketplace. So our position is very much not about Cannibalisation, but more about working together with the high street and being able to offer a digital proposition that works in collaboration with a tangible, physical, high street environment.”

All a bit wordy but, in essence, what Stewart is saying is that the virtual retail world needs the high street environment because customers crave tangibility. The problem is that those tangible retailers will struggle to succeed alone - the store becomes as much about brand development and promotion as it is a sales channel.

This can take the form of the spectacular - here's the Johnny Walker House in Beijing:

Diageo describe this as:

...the Johnnie Walker House serves to meet consumer demand for luxury with substance. Blending a bar, museum, retail outlet and an exclusive members club, the Johnnie Walker House Beijing is a response to the demand from Chinese consumers for in-depth knowledge, not only of the specific luxury brands they indulge in, but also of the broader categories the brands fall under.

If you want the more mundane you can check out Disney's presence in Walmart - for sure this makes sales but it's just as much about maintaining the ubiquity of Disney as a brand. Plus of course there's the wonder that is the Apple store - again there's no obvious need for a high technology brand to have a high street presence but the stores provide a strong brand impression in the real world (as well as flogging the odd iPad). When the new product launch comes along and all the fans want one it's better marketing to have all those fans queueing in the town centre than to have them invisibly poised over the 'enter' key on their laptop.

Just as importantly - and this matters in thinking about our centres - the customers that the brand owner wants in his store aren't simply any old customer who wanders by - here's Stewart again talking about retail banking:

 “A very good, corporate, customer, with a high lifetime, probably wants to go in to see a bank manager, and banks need to be able to facilitate that conversation and offer a good service,” Stewart explains. “But a customer who is churning on zero per cent credit cards, banks want them to interact digitally."

Just as Diageo wants high net worth customers in the Johnny Walker House, the future high street success wants high spending, high end customers - the every day buyer can shop from his computer and have it delivered or collect from the Post Office. In town retailing becomes an event, an orchestrated, animated marketing promotion. The customers walking into you shop are there because you've invited them - to a product launch, an anniversary, a preview. They're dressed up to party not slouching round the shops in jeans and an old t-shirt.

Inside you'll get them to engage on-line even more - to like the Facebook page, to follow on Twitter, to join an on-line club for the best customers. And they'll go away and become your best sales people - bragging and preening about the brand urging their friends to get involved.

This integration will be - for retailers - the essence of success. Without a strong on-line presence the retailer cannot compete once over a third, perhaps half, of retail sales are virtual. But that isn't enough - the best retailers will see the shop as one of their essential marketing tools, as a place of rewards, celebration and excitement. As the thing that captures the idea of that brand as fun - as leisure and pleasure.
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“Our view from the marketplace is that there is going to be a form of humanity, and consumers are still going to be interacting with the high street,” he said, explaining that consumers will always prefer to look and feel products and connect with retailers on a face-to-face basis. “What Rakuten’s Play.com is trying to do is be able to offer the services so that high street retailers can have the services without the massive costs and infrastructure to build a digital proposition within a marketplace. So our position is very much not about Cannibalisation, but more about working together with the high street and being able to offer a digital proposition that works in collaboration with a tangible, physical, high street environment.”
Read more at http://www.thedrum.com/news/2013/07/22/true-value-customer-rakutens-playcom-marketing-director-why-understanding-customer#A2BGjJzbeSo66TWI.99

Adam Stewart, marketing director at Rakuten’s Play.com
Read more at http://www.thedrum.com/news/2013/07/22/true-value-customer-rakutens-playcom-marketing-director-why-understanding-customer#A2BGjJzbeSo66TWI.99

Adam Stewart, marketing director at Rakuten’s Play.com
Read more at http://www.thedrum.com/news/2013/07/22/true-value-customer-rakutens-playcom-marketing-director-why-understanding-customer#A2BGjJzbeSo66TWI.99

Adam Stewart, marketing director at Rakuten’s Play.com
Read more at http://www.thedrum.com/news/2013/07/22/true-value-customer-rakutens-playcom-marketing-director-why-understanding-customer#A2BGjJzbeSo66TWI.99

Adam Stewart, marketing director at Rakuten’s Play.com
Read more at http://www.thedrum.com/news/2013/07/22/true-value-customer-rakutens-playcom-marketing-director-why-understanding-customer#A2BGjJzbeSo66TWI.99

I'd love for the Women's Institute to save the high street but it won't

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The Women’s Institute is a great organisation – not just because it (somewhat childishly) slow-hand clapped Tony Blair or because of those ladies in the Dales who took their clothes off. No, the WI is important because is encapsulates the importance of doing things rather than calling for other people to do things.

Those ‘things done’ might not be earth-changing and indeed might be the ideal target for ever-so-slightly smug comedians (usually the ones who are, you know, faintly embarrassed at being middle-class or worse still posh). But they are ‘things done’ which makes them vastly more valuable than either ‘things discussed’ or ‘things we want someone else – usually the government – to do’.

Which brings us to saving the high street:

The group’s 212,000 strong membership will turn its attention to boosting local town centres, small retailers and communities. There will be a lobbying campaign on a local and national level and it hopes to use its strength to influence Government policy.

It seems a shame that the WI – at least nationally – have slipped from the idea of ‘things done’ and into becoming just another lobbying organisation. One hopes that there is a little more to this campaign than just bothering MPs or trying to ‘influence government policy’. There is a little hope in that the aim is for WI members to do something – or so says Marylyn Haines Evans, chair of the public affairs committee:

“We are not calling on our members to boycott online shopping or to stop using out-of-town shopping centres and major supermarkets. What we are asking is that they go first to their local shops.”

This is admirable. And of course will make absolutely no difference at all to the prospects for the town centre, the high street or the local parade of shops. Not just because there aren’t enough WI members (many of who are already the sorts who use their local shops anyway) but because the high street – even the little local centre simply isn’t about shopping any more. Don’t get me wrong, there will still be shops including those treasured (but underused butchers, bakers and greengrocers) but we’ll head for the centre as a result of other appeals and interests – mostly because of leisure and pleasure.

The little parade of shops might work because it has a little coffee shop and deli or a child care centre. Maybe the presence of specialist housing for older people might help as they prefer the short walk to the shops over the bus ride to Tesco. And it will work even better if there's a little park where folk can sit or a playground for the children. The new mini-supermarkets that cause such consternation will help too as on-line customers pop in for their ‘click and collect’ groceries. The old ‘secondary’ retail location has a good future – it may look a little different from the parade we remember from our childhood but it will work.

It’s the next level up – the town centre – that there’s a worry. The comparison bit of comparison shopping is increasingly done on-line. Even in the malls and centres shoppers are checking goods they fancy against prices on-line – either to give them a bargaining tool in the store or, more likely, to click, buy and have delivered. Town centre retail will be more about things you can’t get online so easily, things like care and beauty where you need to person to provide the attention and titivation. Plus places that are more about brand or event than about sales – the idea of a book shop where rather than to buy a book people go to meet authors, to hear readings or simply to sit and chill isn’t so far away, and we’ve already got shops and spaces from Disney, Panasonic and (in the Far East at least) big spirits brands such as Johnny Walker.

This is retailing as entertainment, a distance away from the everyday task of getting things we need – the weeks shopping, clothes for work or school, things to mend and fix. And for town centres it is part of the mix – not everything but important as retail changes. Alongside this will be the ever changing mix of junk, tat and the unique that is the market – not merely the municipal market but the flea market, the farmers market, the concession store and the bazaar. When rents fall in town centres (and they will) these uses will flood into where we once had department stores and shoe shops.

The town centres that win will be those that embrace these changes not the ones who try to use regulation, planning or taxation to prevent the change. Some of them will be surprising places where local sensibility (and the WI) didn’t get in the way and where different uses were encouraged. Various folk have been talking about this change, of the move from the workaday to the pleasurable, of town centres as stages for events – from the birthday celebration or the stag do to formal organised and promoted occasions, from the spontaneous celebration of a win at football to the Scouts St George’s Day Parade.

Town centres and local councils that try to manage this stage the wrong way – through outdoor drinking bans, herding people away from events or stopping busking and peddling – will find quickly that places with a more open attitude, prepared to tolerate a little more noise, late nights and fun, will get the footfall and the businesses that live off that footfall.

So perhaps the WI, rather than lobbying government, should set up stall in the town centre – sell some jam, play some music, hire a clown and contribute to making local centres lively again!

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