Sir Terry Leahy: Retailers' vital role in regeneration

Sir Terry Leahy is happy. He's back in his home city of Liverpool, a city he says has been "transformed" and now radiates the confidence it has lacked since its heyday of the 1960s.

"Liverpool in the 1960s was a bigger, more influential city than it is today. It lost its self-confidence after several generations of decline and disappointment," Leahy says. "That confidence is now coming back and people are looking forward not back, that's the big difference."

Speaking exclusively to Retail Week after addressing the BCSC conference in the city, Leahy speaks warmly of Liverpool, proud that it has a new lease of life and of the role Tesco has played in its regeneration. But he is also worried. Worried that government intervention and the grinding wheels of the planning and competition systems could combine with the recession to derail retail's regenerative role.

This has been Liverpool's year. £1 billion shopping development Liverpool One opened, and the city is celebrating its status as this year's European Capital of Culture. "The physical change is dramatic and what it's bringing out is that it was always a graceful city – the architecture is outstanding and the setting is very good – so this new investment is allowing people to see it in a new light," he says.

Retail, he says, has played a key role. "The investment put into Liverpool One has been a magnet for other investments in the city centre," he says. "It has been the key building block and now the convention centre has opened too, people are using the city, going to the restaurants, staying in the hotels – and all because the facilities are so dramatically improved."

Leahy has been at the heart of the regeneration of Liverpool, both investing in stores but also in a personal capacity, sitting on the board of regeneration company Liverpool Vision. He is reluctant to blow his own trumpet, but Liverpool Vision chief executive Jim Gill enthuses about Leahy's involvement. "Terry always sees the bigger picture," he says. "He doesn't need the details of the individual projects, but just wants to know if what we're doing fits in with the strategic objectives. He gives our agency credibility and reminds us that it is as important to market the city as it is to get the fixed bits right."

But while much has been done, particularly in city centres, Leahy believes there is much more retailers can do to regenerate run-down suburbs. As part of Tesco's Regeneration Partnership it has created a blueprint at Gorton in east Manchester for how it wants to work with deprived communities. The grocer opened a Tesco Extra where more than half the jobs created were reserved for the long-term unemployed. The blueprint is now expected to roll out at its Toxteth and Kirkby projects in Liverpool.

"When we make a commitment to a community we provide a promise which is vital in that, if someone has been trained for a job, then we will give them a job. That's the key," he says. "And they're not just jobs, they're careers, and it's important that people do well long term."

The regeneration principles that Tesco has honed in the UK have also been taken overseas. Tesco's newest international venture, Fresh & Easy in the US, has worked in communities even more deprived than some of the worst in the UK.

Leahy explains: "There are parts of Los Angeles with older communities where the smaller supermarkets have all left. We have been going back into those communities, reviving shopping centres and for the first time providing modern food shopping."

He points out that in some of the suburbs where Fresh & Easy has opened, such as Compton, there has been no retail investment for more than a generation. "These places just got run down and never picked themselves up," he says.

While Tesco could not have predicted the economic downturn that hit the US as it launched Fresh & Easy, Leahy is confident the chain is progressing well. "The slowdown in the US inevitably affects the pace at which the business can develop," he says. "The consumer response has been better than we had hoped for, but obviously the economic backdrop is not what we would have wished for."

Leahy believes Tesco's willingness to invest in deprived areas in the US is part of its success. "Tesco is classless and that's a feature that is missing in the US," he says. "A US retailer would tend to go for more prosperous areas and not invest in challenged areas."

More support for good work

In the UK, investing in deprived areas does not get the recognition it deserves from the Government, Leahy says. He believes that it is important retailers such as Tesco continue investing, even in a downturn. "Development projects are planned over many years and it is important to carry on through the slowdown in order to produce the development.

"This is where developers and retailers don't always get the credit. They have to make these long-term investments – from 25 to 40 years – through thick and thin and they need to be supported and assisted in doing that. We don't want these developments to be bogged down in lengthy inquiries if it's not absolutely necessary."

Leahy points to the Liverpool suburb of Kirkby – where it is working with Everton Football Club – as an example of how retailers' role in regeneration is not fully appreciated. "Why are we in an inquiry in Kirkby?" he asks. "We want to create 2,000 jobs in a very deprived area, with a proposal to invest £400 million. The town has been looking for this sort of investment for more than 20 years and it's the sort of place which is not going to get professional services flooding in."

Tesco issued a legal challenge to the controversial competition test, one of the key recommendations to emerge from the two-year Competition Commission investigation into Britain's £120 billion grocery market, which last week began its hearing at the Competition Appeal Tribunal.

Leahy believes the competition test would hamper investments such as Gorton. "The test will reduce investment and therefore reduce job scope," he says. "It is also wholly disproportionate to any problems they have found in the inquiry. It's out of date for the times we are in now and we want investment, we want competition and we want customers to be able to choose where they shop, not some remote authority."

Leahy hopes the Competition Commission will review its recommendations in light of the economic climate. "Nobody should pretend that the world hasn't changed," he says. "All businesses have got to tear up all their plans and all their prejudices and look at the world today. If we can do it, the Competition Commission can do it."

The changing world that Leahy describes is one where customers are trading down. "One of the ways they cope with inflation is to buy a different mix of products," he says. "And they are shopping more frequently, shopping around more and shopping promotions more."

Leahy says if retailers adjust to customers today and accept that they have less money to spend, then "it can still be a good Christmas". He says: "If customers can find any money, they'll find it for Christmas. They will spend but on things they think are useful, so maybe that's not a good thing for novelties."

This downturn, he says, is hard to compare with previous ones. "This time around has the special component of the credit crunch, it's also global, very sharp and very sudden," he explains.

On the plus side, he adds, the currency can float and it was fixed last time around. He says interest rates are lower and "ironically, the sudden adjustment to the downturn may help in that they may get rebased to a lower level".

Leahy is widely believed to have been instrumental in persuading the Government that interest rates should be cut, leading to the 1.5 per cent chop a fortnight ago, although he remains coy about any part he played. "The Monetary Policy Committee takes soundings from all around the economy and there is still room to go further if they need to," he says.

He also believes the Government can help businesses further through the downturn by cutting the multiplier for business rates, postponing the 2010 revaluation and reassessing how business rates are calculated. He also thinks the Government should act to secure reductions in wholesale gas and electricity prices.

"The modern economy is based on computers, mobile phone masts and ATM machines – these are the networks of a modern economy and none of them are rateable. So it doesn't make sense that you've got a major tax rate based on property," he argues.

For Leahy, it is important that regeneration is allowed to continue despite the difficult economic climate. He sees Liverpool as a role model for other towns and cities.

"Liverpool is one of the first great commercial cities and has lots of context with the outside world," he muses. "People would go away to sea and bring records back from America and other places, which is why it has such a great music scene. It's also a warm city, irreverent; the people have a great sense of humour, so it feels different."

It is this difference, says Leahy, that was partially lost with its economic problems, but as visitors to the BCSC saw, the city is coming back now with renewed confidence. And if Leahy has anything to do with it, its rebirth is only just beginning.  www.retail-week.com