Rathbones Review Summer 2019 Fall and rise? Reviving our High Streets Contents — Summer 2019 10 Bitter pill 18 Reaching for the stars 4 The regeneration game Contents 4 What is going to happen to our 26 The end of meat? High Streets? From animal protein to insects Reviving traditional shopping 29 Why sustainable investing is here 10 The hunt for new antibiotics to stay Where will the next penicillin come The continued rise of ESG from? 32 Rewilding our world 14 Modular homes The quest for diversity, beauty and resilience Assembling a solution to the housing crisis 36 The Rathbones Folio Prize shortlist Our picks from this year’s competition 18 Commercialising the cosmos Is space the final frontier for 38 Planning on a long life? privatisation? Budgeting for longevity 23 Urban mining 40 Sixty years of Barbie There’s gold in them thar iPhones Role model or bad influence? John Holcroft/Ikon images illustration: Cover Nik Wheeler/Alamy Impossible Foods, Hatley/Alamy, Space X, Anthony Images: Fahroni/Alamy, 2 Rathbones Review rathbones.com A word from Rupert Baron Welcome to the summer edition of Rathbones Review 26 Where’s here are more things in heaven and earth, Horatio,” the beef? Hamlet observed, “than are dreamt of in your philosophy.” “TFast-forward from the Danish royal court of the Middle Ages to the boardrooms of the 21st century and we find this sentiment resonating perhaps more strikingly than ever before. 29 Today heaven and earth alike are increasingly in thrall to two phenomena that neither Shakespeare nor his tragic prince could Sustained have dared imagine: the power of market forces and the innovative success brilliance of technology companies. Both are now in evidence not just all around us but far above us, with space recently emerging as a new and dramatic frontier for cutting-edge private enterprise. Whereas a handful of government-funded agencies were once alone in reaching for the stars, the trailblazers in this sphere are now tech billionaires. As in any business arena, the advent of entrepreneurship brings the promise of both risk and reward. We explain how the unfolding commercialisation of the cosmos is giving rise to legislative, regulatory and political questions and unprecedented investment opportunities. Meanwhile, back on terra firma, the UK’s High Streets continue their struggle to adapt in the face of another tech-driven shift: the relentless ascent of online shopping. In this edition’s lead article we explore efforts to revive the traditional retail experience in the face of this seemingly irresistible threat. Editor Martha Back Other topics include the complex world of “urban mining”, the Investment Director search for new antibiotics, the renaissance of prefab housing and the chequered history of the world’s most famous doll. We also If you have any comments on this examine changing dietary habits, the “rewilding” of the natural publication or suggestions for topics that environment, the cost of later-life care and the continued rise of you would like to see discussed in the future, sustainable investing, as well as surveying this year’s Rathbones please let me know. Folio Prize shortlist. [email protected] As Hamlet also remarked: “Words, words, words.” I hope you enjoy every one of them. Connect with Rathbones @Rathbones1742 in Rathbone Brothers Plc Rupert Baron General Manager and Investment Director Rathbone Brothers Plc [email protected] rathbones.com Rathbones Review 3 What is going to happen to our High Streets? Image: IR Stone/Shutterstock 4 Rathbones Review rathbones.com What is going to happen to our High Streets? What is going to happen to our High Streets? The British High Street has always been susceptible to the vagaries of the economic cycle. It has survived wars, recessions and the rise of out-of-town retail parks. But the internet may pose one threat too many. Can our High Streets survive — and what will they have to become to do so? Graham Waddell, Investment Director, Rathbones, Glasgow (Graham recently joined us with Speirs & Jeffrey) Coffee shops, tearooms and restaurants increasingly dominate many of Britain’s High Streets as traditional retailers succumb to the rise of online shopping. This is the scene in Rochester, Kent. rathbones.com Rathbones Review 5 What is going to happen to our High Streets? he Centre for Retail Research “ Online spending now Committee recently published a report, (CRR) keeps a running tally of High Streets and Town Centres in 2030. Tthe major retailers entering some represents around 18% It found that Amazon UK’s business form of insolvency in Britain each year. of all retail in the UK.” rates amounted to just 0.7% of its UK It makes grim reading. Last year 43 turnover, while High Street retailers shut up shop, including famous names were paying up to 6.5%. It welcomed like HMV, Greenwoods, Evans Cycles, lower costs — lower rents and lower rates the new 2% digital services tax that House of Fraser, Poundworld, Henri mean they can charge lower prices. large online businesses will start paying Lloyd, Maplin and Toys ‘R’ Us. Some, Inevitably, the starting point for many from next April, but it warned that this like House of Fraser, were resurrected when seeking to rescue what is left of the does not go far enough in addressing — but only following deep cuts. High Street is to find a way to level the the tax imbalance between online and playing field. For most this means High Street retailers. This chain-store massacre resulted in addressing the archaic model of business the loss of 2,594 shops and over 46,000 rates — a pre-internet property-based tax Mike Ashley, the pugnacious chief jobs, but the true picture is much that raises £29 billion a year, an undue executive of the Sports Direct Group, was bloodier. Other big names have had to proportion of which is squeezed out of one of those called to give evidence to take drastic steps to survive. beleaguered retailers. The retail sector the inquiry. He told the Committee: “The Carpetright announced it was to close accounts for 5% of gross domestic vast majority of the mainstream High 92 of its 400 branches, Mothercare 50 product yet pays 25% of business rates. Street has already died... It’s in the bottom of 137, Debenhams 50 and New Look of the swimming pool — dead… [The rest] 85. Smaller businesses are closing each The Parliamentary Housing, is flat-lining. The only thing you can do day without media ceremony. The CRR Communities and Local Government is give it a massive electric shock.” estimates that overall nearly one in five stores has closed on our High Streets since 2012. Reasons consumers shop online instead of in stores A number of factors are held to blame, including weak consumer demand since the 2008/2009 crisis, intensive price 40% 46% 58% competition and our growing preference To save time Online sale/ Ability to better prices shop 24/7 to spend on ‘experiences’ — like travel and eating out — rather than ‘things’. But the biggest threat is the internet. Latest figures from the Office for National Statistics show that online spending now represents around 18% of all retail in the UK — the equivalent of £61.4 billion. 27% 29% 39% It is almost double what it was just five Convenience Free shipping Convenience of years ago and is expected to rise to nearly of everything offers not going to shops 23% by 2022. in one place Surveys suggest that lots of factors drive 54% us online. The ability to shop at any time Ability to from your sofa, the ability to compare compare prices prices and products, the ability to see 15% 15% 20% reviews from fellow shoppers — all make Products To avoid To locate shopping on the internet a much better are not sold crowds hard-to- 29% experience for many. And then, of course, in my city/ find items Greater there is price. country variety/selection Level taxation 11% One of the biggest advantages e-tailers To avoid checkout lines have over bricks-and-mortar stores is Convenience Push from offline Free shipping Source: Global Online Consumer Report, KPMG Price-related Ease of selection Only option to buy International, 2017 6 Rathbones Review rathbones.com What is going to happen to our High Streets? His cure was a 20:20 internet sales tax for businesses — a 20% tax on all companies that make more than 20% of their revenue from the internet. This would affect not just companies like Amazon but also many High Street stores, including his own. He said it would incentivise retailers to keep 80% of revenues going through the High Street, stalling store closures and encouraging cross- subsidisation and click-and-collect. In return, councils would need to offer free parking for shoppers. He complained: “You still get some towns that charge for parking. Therefore, you have negated the whole free click-and-collect voucher, because they have to pay it all away on If the High Street is to survive it needs to attract the millennial parking fees.” generation. Money blogger Bronni Hughes offers suggestions Ashley said that such a tax would have for change. to be accompanied by business rate reductions — in return for retailers committing to invest in High Street stores he High Street is no longer the Offer something different: Shopping — and cuts in rents. The Committee failed cheapest or most convenient in-store has become less of a necessity to back his idea but urged the Tplace to shop and the selection to young people — it is something we government to assess other online sales of goods is almost guaranteed to be choose to do as a social activity.