Bricks-and-mortar retailers are under pressure to evolve quickly to meet changing consumer behaviours and landlords must adapt to changing retailer requirements.
Sports Direct boss Mike Ashley has adopted a characteristic ”take it or leave it” approach in his dealings with landlords since acquiring House of Fraser.
The four House of Fraser stores in Intu-owned shopping centres will close after the two sides failed to agree new rental terms. Now, it seems Ashley has decided to close all Sports Direct group stores in Intu-owned centres as well.
The high street titan is taking a particularly hard-nosed approach. However, he is not the only one arguing for a change in rental agreements: Marks & Spencer is among those seeking a better deal, and CEO Steve Rowe recently declared that the “days of rents only going up are gone”.
Similarly, Next CEO Lord Wolfson has praised landlords for being “very reasonable” in negotiations, but emphasised that the number of stores it closes in the future “depends on rents”.
Onerous leases are not sustainable, and landlords must find a way to work with retailers to avoid unnecessary store closures.
However, landlords are already facing a drop in rental income as M&S, Debenhams, Jack Wills, New Look, Next and others streamline their store estates.
On top of this, many landlords have had to take the hit of lower rents and store closures agreed through company voluntary arrangements (CVAs). This year alone New Look, Mothercare and Select among others have availed themselves of the process.
The system has to change. Rents are often too high and leases too long, many agreed in a pre-digital era, but closing profitable (or potentially profitable) stores is throwing the baby out with the bathwater.
Retailers require more flexibility and shorter leases, particularly as the appetite for pop-up stores increases and consumer habits change.
Landlords must adapt to new ways of working and embrace innovative initiatives to ensure they maintain their relationships with retailers. Equally, retailers must be willing to work with landlords to agree long-term, sustainable solutions. Compromise is the only way forward.