By Richard Pickering, Head of Futures Strategy
Rebalancing Act? – The UK has the highest rate of online sales out of any developed economy. In absolute terms Brits spend about 25% more per head than second placed USA, and in terms of online share of total sales (18%) the UK places almost 20% higher than second placed Germany. What influences the rate of online sales? Factors include: internet access [much greater in Europe (80%) than Africa (25%)], culture, price advantage, convenience factors (time saving, journey time, stock availability) and relative experience benefits. Online stores benefit from cost advantages in the areas of real estate and labour (both of which are relatively expensive in the UK) and also taxation. It is in this latter area that the Chancellor this week announced an intention to ‘rebalance the playing field’. Online-only retailers don’t incur business rates, have fewer employees that pay income tax, and often have global operating models which allow corporate tax to be booked out of geography. If the Chancellor was genuinely concerned about the high street, then he might decrease business rates for physical retailers. However, more likely he is concerned with fiscal revenue, and so the proposal will probably take the form of an increment to Value Added Tax on online revenue attached to UK sales. A modest increment is unlikely to significantly shift behaviour, so shopping centre owners will need to continue to prioritise other factors such as convenience and experience.
Known unknowns – Popularised by Donald Rumsfeld, the ‘Johari Window’ categorises risks into known knowns, known unknowns, and unknown unknowns. The latter are often considered to be the most dangerous because there is no account given to them in traditional business planning. Former Blockbuster CEO Jim Keyes is noted as having said that ‘Neither RedBox nor Netflix are even on the radar screen in terms of competition’. We know how that ended, but that was perhaps a case of a known unknown that was simply misjudged. PwC’s recent Real Estate CEO survey paints a divergent picture between the perception of risks in our sector vs the perception of the same risks by the wider world. Only 10% of real estate chiefs are reported to be ‘extremely concerned’ by the speed of technological change compared with 38% among their wider peer group. Similarly, only 7% felt this way about changing consumer behaviour, compared with 26% in the wider group. Why is this? Real estate tends to be insulated from the ‘real world’ in two respects. Firstly, fixed lease structures and long development lead times provide something of a cushion to market change. Secondly, PwC contends that asset-rich, people-light real estate businesses are less exposed to the feedback loop that presents itself to businesses with larger, more diverse workforces, and therefore they might be ‘lulled into the belief that they can safely proceed with business as usual’. Meanwhile, we shouldn’t forget that there are plenty more where Netflix came from.
Minimum divisibility – This week a Which? survey reports that 300 cash machines are being decommissioned in the UK every month. When you think about it, the idea of swapping bits of paper and metal for services seems ridiculous in the modern age; however, it is a system that has served us pretty well for the past 2,000 years or so. The digital era surely spells the inevitable end for cash; however, this will take some time and the transition period is important. With the notable exception of Sweden, the value of cash in circulation continues to rise globally, and some segments of our own country (notably the old and the poor) persist in the use of notes and coins. For these people cash machines form part of the social infrastructure in a similar way to post offices, churches and local pubs (all in decline). For each of these elements of infrastructure there is a minimum commercially viable level of demand. Once this is crossed, the infrastructure will be removed. For those of us that live in cities, the impact will primarily take the form of a reduction in choice (which pub you prefer, or which way to walk home to pass a cashpoint). However, for those living in extra-urban areas, it might result in the elimination of the only unit of supply within a feasible travel time. For those without cars, or where driving is not an option (e.g. to the pub) this lack of infrastructure can destablise communities and reduce value. Publess villages, for example, have been shown to have fewer community events, and 25% of home buyers report having a pub within a 15-minute walking distance as a key purchase criterion.
Roman Roads – The pace of change is some areas of life is dizzying. However, we can perhaps take some reassurance from the glacial pace of change in others. One such area is our road network. A recent study by Danish researchers showed ‘a remarkable degree of persistence in road density over time and space’, dating back to the Roman era. They found that ‘ancient roads predict modern roads as well as prosperity’. Essentially our modern road network and the economies that have emerged around it was determined some 2,000 years ago. When making the business case for infrastructure investment, long time horizons are typically adopted for payback. These take account of regeneration benefits that typically take a long time to crystallise, but are significant when they do, and secondly the lower cost of capital typically associated with public expenditure. However, in light of this evidence, even a 25-year horizon seems far too short to capture the possible millennia of resulting benefits. Changing transport modes have been shown to break this causality. For instance, in post-Roman northern Africa, following a period of reversion to pedestrian non-wheeled transport, the infrastructure was not rebuilt around the former Roman system and cities shifted. Following this logic, new modes such as AVs, and potentially flying vehicles, could have significant redistributive effects on our cities and geographic wealth concentrations looking forwards.
Flexible fit-out – Do you hate Mondays? It might be because you do more work on that day. A study by Redbooth shows that Monday is the most productive day of the week, with productivity sliding downhill from that point onwards (20% less productive by Friday). Perhaps targeting a work-from-home Wednesday, rather than the more typically taken Friday, would boost week-long energy levels? Looked at on a daily basis the report found that we hit peak productivity at 11am, decreasing thereafter. However, it might not be as simple as this. Top 10 Ted talker Daniel Pink (who recently presented at our High Performance Academy) proposes structuring your day as: brainpower driven analytical tasks in the morning, followed by low value admin in the early afternoon and more creative tasks that allow your mind to wander in the late afternoon. If task focus changes as the day progresses, how could the office environment also adapt to match these tasks? The challenge with most traditional offices comes not in the design of the office, but in the nature of its furniture. We need to give up our obsession with fixed desk settings and move to new modes of adaptable furniture that allow us to mould our environment around our tasks. In the meantime, it is a bold employee who takes the advice of Tesla impresario Elon Musk who tells staff to, ‘walk out of a meeting as soon as it is obvious you aren’t adding value’.
Routemasters – In a month’s time I’ll be bringing my bike out of semi-retirement and joining the TfL-led ‘Routemasters’ on a 4-day ride to Bordeaux. I’m borderline OCD about the planning of these kind of things and so have downloaded the GPS files and studied the route meticulously. For some reason, I had thought that travelling South would of course be mainly downhill; however, the GPS file suggests otherwise. I’m sure that my fellow Routemasters won’t take offence when I say that we fall closer to Pee-wee’s Big Adventure than Team Sky, and as a result it will be the finishing that counts, rather than the time. There are however others that take this a step further. Last month, Exeter-based digital consultant Andy Pardy quit his job and, starting in Loch Lomond, set out on a trip traversing 32 European countries, which he expects to complete sometime in October. Not that unusual? Perhaps not, until one considers that the route was carefully planned, such that when posted as a GPS file it spells ‘Stop Brexit’. The ‘S’ loops through Ireland and down to Cornwall, whilst the ‘B’ takes up most of Spain. Mr Pardy elected to spend the house deposit that he had saved up over a number of years to pay for the trip. ‘I might live to regret it, I might not’, he said.