Retailers, landlords trade barbs in ‘frank’ conversation about rent

stockland_merrylands-mix-use-apartments-and-retail-precinct_artist-impression_may-2016The tension between shopping centre landlords and retail tenants has reached boiling point, with a heated exchange about rising rents threatening to derail a panel on the broader topic of retail expansion last week at Inside Retail Live, a three-day retail festival hosted by IRWs parent company Octomedia. 

After a member of the audience asked panellist John Schroder, CEO of Stockland Group, how he could justify rent increases when retail conditions are so challenging, Schroder pointed to population growth and inflation, which he said balance out annual rent hikes.   

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The comment raised the eyebrows of fellow panellists Hilton Seskin, CEO of Next Athleisure, and Martin Matthews, CEO of Brand Collective, who recognised the need for shopping centres to recoup their investment, but said the burden put on retailers is out of balance. 

If you were to say to a consumer [] it cost us $20 to make a $100 dress, and thats all we could afford to invest, because $30 went to the landlord [] I think they would be absolutely flabbergasted, Matthews said. 

But Schroder pointed the finger of blame right back, saying the cost of labour would surely shock consumers just as much. Panel moderator Peter Wilkinson, chairman of Forever New, stepped in and reminded the audience he was a moderator not a referee”. 

The discussion ended with little common ground found between the two parties, but speaking to IRW later, Matthews said it was helpful to have a frank conversation about rents. This was certainly aided by the fact Brand Collective is not a Stockland tenant. 

Normally these conversations are had in the context of negotiating on a specific site when everyones out to protect their own interests, he said.

 Its an emotive issue, but weve got to find a way to work together to make it work for everybody. Its also no good if they [shopping centres] shut up shop we need to create a sustainable relationship.

Turnover rents the way forward?

Matthews suggested that rent contracts based on turnover rather than occupancy would spread the risks and rewards more evenly between the two parties.

Landlords need to share the risk. If theyre saying they need to invest money to build great shopping centres and thats why rents are so high, I think we [retailers] should say, Put your money where your mouth is. The risk equation doesnt work. Theyre guaranteed their rent, and we dont have the support, Matthews explained.

If that equation stops adding up, Matthews said the company would simply stop expanding its physical footprint and go online. 

That kind of ultimatum may be the only option left for retailers, according to Wilkinson. 

Speaking to IRW after the panel, he said: I dont think theres any recognition [from landlords] that occupancy costs are putting retailers in a place where they cant develop long-term sustainable businesses.

I think the key for retailers is to start applying sanctions and walking away when rents are pushed into the high 20 per cents [of what the store is taking in].

He said conversations like the one last week have put rents back on the agenda in a public forum, adding that retailers need to understand the issues developers face too.

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