The relationship between retailers and landlords is at a critical point.
Historically, landlords have always held the upper hand, growing their businesses on the back of long leases and upward-only rent reviews. Scarcity of supply in the major locations meant they held most of the cards.
In recent years, the growth of online has shaken them out of this comfortable stupor, and then the arrival of Covid-19 gave them a very loud alarm call.
The changes that were likely to have happened over the next three to five years will be accelerated over the next few months. Landlords will really need to respond to the new environment and a new way of working and react quickly.
I do have some sympathy for landlords. There are some retailers with a perfectly healthy financial position that are taking advantage of the current situation to arbitrarily withhold all their rent. Sensible landlords have had to work out which retailers are in genuine distress and need support, and which ones are just chancing their luck.
In the short term, landlords have to share the pain through this crisis – not simply say, “All the rent will need to be paid and we are helping by deferring it for you.” Our stores haven’t taken a penny for three months and so they have to understand the impact that has on our ability to pay them our full rent.
While stores start reopening next week, it won’t be a sales bonanza and it’ll be even harder to make a profit, whatever images of queues outside stores might suggest.
This isn’t just a short-term issue, though. Ultimately, landlords have to recognise the world has changed and, even as things start to return to some sort of normality as lockdown restrictions are eased, if they think retail is going to go back to how it was before, they are in cloud cuckoo land.
“Because it has been so comfortable for them for years, landlords are not sophisticated enough when it comes to these discussions”
Online is not going away and many new customers have discovered just how convenient it is during lockdown. I am certain that landlords have no idea just how many retail businesses face solvency issues. We are having to change our business models, and they will have no choice but to change theirs.
Because it has been so comfortable for them for years, landlords are not sophisticated enough when it comes to these discussions. It is no coincidence that in the one type of retail destination that has outperformed in recent years – outlet centres – rents are entirely on a turnover basis, with a minimum floor level of rent. There is no reason this shouldn’t become the norm in shopping centres and high streets.
That’s not to say we don’t need to work together. The business rates system is not fit for purpose, and outdated rates valuations increase the total cost of occupancy and make stores unviable, even where lower rents have been agreed.
We need a system that fairly taxes online delivery and addresses an unfair system that favours pureplay etailers, and especially Amazon.
The current situation is painful for everyone involved. But I’m afraid retail isn’t going to just bounce back.
Landlords need to get real and work together with us to find a way that enables both us and them to first make sure we can survive through this period, and then operate profitably in the future.
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