Comment: The Fool - Selling a pup

Thursday 25 October 2018

In this month's column for Connect magazine, the secretive business guru known only as 'The Fool' weighs in on the debate around the £240 GST threshold for online orders, following calls from the Chamber of Commerce and local shop-owners that it should be lowered.

"The difference between Retail and Reality is a ‘y’.

That little truism might be something worth pondering by the head of the local Chamber of Commerce, who, in what appears to be a common thread in this column of late, seems to believe that what is essentially a private sector problem can only be solved by greater government interference.

Here’s the deal. In common with much of the rest of the world, local consumers seemingly have less cash to throw around these days, and a greater percentage of what they are spending is finding its way to online retailers, where choices are wider and prices are cheaper. Many high street shops are therefore making insufficient profit to justify their existence, and are closing.

Our government has apparently had a ‘Retail Strategy’ in place for a number of years which, according to our local CofC, needs amending to stop our high street becoming a “wasteland". It’s easy to have some sympathy with the CofC’s view, given that the government’s retail strategy thus far seems to have consisted of little more than inventing GST to increase the price of everything bought locally.

Pictured: Local retailers and the Chamber of Commerce have been calling for the GST threshold on online orders to be lowered.

Where it is less easy to sympathise, however, is with one of the Chamber’s suggested solutions to the problem, and that is asking the government to begin charging GST on online retail purchases below the present threshold of £240. As ideas go, suggesting that strapped consumers pay even more for their shopping, so your members might benefit, comes straight from the ‘beatings will continue until morale improves’ playbook. (A strategy rivalled only by strikes by public sector workers, achieving little but punishing the very people whose patronage is required, if the organisation’s members are to survive in the future). Monsieur Gun meet Senor Foot.

Other than attempting to inflict more costs on those that can least afford a broad rise in prices, what makes even less sense about this suggestion is that the CofC seem to have forgotten why the GST de minimis limit was set at £240 in the first place. The reason was that it would cost more to collect the tax on sales up to this level that than tax itself would generate. What the Chamber appear to be suggesting, therefore, is that taxpayers should suffer a loss (receipts being less than collection costs) in the interests of the survival of their members. It’s enough to make even a Unite shop steward blush.  

As usual, however, when there are calls for government intervention to protect a special interest group, there is actually a solution that benefits the majority, rather than the minority; and that is for the organisation concerned to get out of the damned way, and to allow the market sort things out. 

Pictured: For the Fool the market should decide whether shoppers want chain stores or one-man operations.

If your business relies on selling stuff to the public, you need to actually sell stuff that the public want, and with a total revenue, which exceeds the cost of operating the business. The most significant of these costs are the prices you pay for stock, staff wages and rent for the premises from which you operate. The price of each of these is negotiable. You can find cheaper stock, adjust (ironically, after government mandated minimum wage legislation) staff costs, and find cheaper premises. And it is the latter of these where the market will, ultimately, help. 

Most retail premises, if not owned by the business itself, are leased from private landlords. If there is one thing a landlord likes less than receiving a reduced rent, it is receiving no rent at all. If shops are presently closing, that means that certain landords are now receiving no return on the capital they have invested in owning those premises, and ultimately, rents will adjust downwards until a new market level is found at which businesses can begin to operate profitably. The problem is that this process takes time, and for a while (as we are presently experiencing), certain properties will be empty, awaiting new tenants who can afford only a certain level of rent.

If one visits most large towns and cities across Europe, there will be areas where large premium brand retailers are based, and areas, where rents are lower, where smaller niche, artisan shops proliferate, and where businesses can survive on much lower margins. 

If the future of retail in Jersey is a move away from chain stores, to one-man operations selling interesting statuettes made of discarded paper clips, or macramé drinks coasters knitted from Jersey cow hide and good intentions, maybe the outcome won’t be so bad. But it would be much better if the market decided that, rather than asking taxpayers to subsidise shops that can’t pay their way. 

Maybe that’s something the Chamber of Commerce could try and sell?"

You can read the Fool's column every month in Connect, here.