5th March 2019

We are in this together

We are in this together

‘We are all in this together’

In response to Mark Robinson’s article https://www.retail-week.com/opinion/property-owners-and-retailers-must-be-honest-with-each-other/7031207.article I feel compelled to share of few observations from what I have experienced in the first two months of the year, during which I have found myself on more than one occasion exclaiming ‘we are all in this together’ which is my polite way of hiding a number of frustrations!

I have to say that it appears to be a comment that resonates with those that I have been speaking with, as there is a frankness in this language that we understand and I am pleased to see that progress has been made since. At the moment though it feels like a drop in the ocean and I will be repeating myself for months to come.

Whilst I totally get why parties strive for the best lease terms possible, I see a lot of apparent short term gain, and in a lot of instances ‘because we can’. I fear it is inevitable this will lead to long term failure for many stakeholders.

At the same time, Landlords and the Government need to make radical changes in their approaches too in order to make enough of a difference.

If there is to be a long term sustainable future to our town centres, then in agreement with Mark Robinson, we urgently require honesty, transparency and collaboration across all key groups.

So, on to a few real life examples of what I have been challenged with recently, which considers some key areas where Landlords, Retailers and Central Government need to work together:-

Are service charges getting out of hand?

‘How much?!’ is a typical response from a prospective tenant. ‘What do we get for that?’.

Landlords on shopping centres need to take the lead in proactively reducing service charges. One of my biggest annoyances is the expression ‘it is was it is’ which too often I hear this linked to service charges.

Something has to give, as service charge caps are becoming the norm, so if service charge budgets aren’t reduced, the owners’ shortfall will grow. In a growing number of examples, unit service charges are at the same level as rent or more which can’t be right. Does this sound familiar to the perennial business rates debate?! It’s becoming that serious.

Short cuts in reducing cleaning, providing less security, less mall repairs can’t be the answer as this leads to poorer trading environments which hurts occupiers as much as Landlords. A more radical solution needs to be found.

Never ending Crippling Business Rates

A well-documented topic that I don’t propose to dwell on for that reason. Suffice to say that they continue to cripple the high street and if major measures aren’t taken soon to make a real impact, we are going to continue to see more major retail casualties. They are so far out of kilter with reality it is quite frankly a joke, and not a very funny one at that.

They affect everyone no matter of size. The national casualties in recent years have been well documented – not directly linked to rates alone, but the sky high rates undoubtedly haven’t helped. Current rate levels continue to block many start up and independents from expanding their business models into bricks and mortar. Recent measures put in place by the government have made no real impact. Radical changes are needed and urgently. Empty units are not a good thing even if the local authorities are picking up empty rates.

Landlords are flexing on deals by accepting much lower rents, local authorities are flexing by granting planning permissions and putting money behind new developments, but central government is continuing to tax the industry into stress.

‘One rent fits all’ approach needs to go – prevalent turnover rents

It can’t be right to assume that what a fashion store can afford to pay means that a book store or a jeweller next door can afford to pay? This has total disregard to the vast differences in each operator’s financial makeup, margin, etc.  The broken model that is the ZA approach - it needs to go. The market is taking this natural course anyway but why sit back and wait to see what happens.

Prevalent turnover rents. This has to be a good thing leading to better transparency and both sides benefitting if sales are healthy, yet the tenant is protected against weaker sales.

I have had retailers recently claiming that Tenant X has agreed to a turnover rent % of Y so they should also have the same % as Y. There is no regard to unit size, total occupational costs, sales densities, nothing – simply ‘they got it so we will have it’. Transparency from the retailer in terms of their store P&L would greatly help this understanding. There is still a significant reluctance from retailers to share this information. Why?

How Retailers and Landlords deal with internet sales when working out the turnover rent terms is a huge grey area. Transparency and honesty is again key. For example, retailers need to clearly define how click and collect purchases and returns are dealt with – i.e. centrally as a head office cost, or a direct store cost. We see situations where returns which can be deducted from store sales in one business but not in the next. Too many times I hear that local stores get penalised on their P&L when receiving returns bought from their much larger sister stores. How does this incentivise the local store manager regardless of its impact on the turnover rent?

There is growing data to suggest that the click and collect customer is increasingly likely to spend in store on impulse when collecting their pre-ordered items. The more data from each retailer on this area can only help in transparency and making sure that the Landlord and retailer understand how they can both win by working together.

Poor engagement from stores at local level

I hear too often from centre managers that the local stores just don’t or can’t get involved in local initiatives due to head office policies. A good centre management team is there to help the local stores – no matter whether it is a large national or smaller independent. Surely retailers need to trust the local store manager by providing them with the authority to interact with the centre on promotions etc when applicable.  

In-store customer service

From my own personal experience, as well as receiving over-whelming feedback from centre management teams on the same point, generally the level of local store customer service is poor. There are so many times when I hear that a poor performing store has radically picked up due to a new manager. Basics!

Add to this that bricks and mortar stores seem to continue to struggle with poor stock levels – retailers need to help themselves. 

 

So going back to my original point of ‘we are all in this together’, I have attempted to demonstrate that Landlords, Retailers, Local Authorities and Government all need to be in this together more than ever.  Us agents are in the middle of all this too and need to play a vital role in pulling all parties together for a shared goal of protecting and in some cases restoring our wonderful town centres.