Retail Rigsbys losing the plot?

In the face of the stark high street evidence of toughening economic conditions, retail landlords seem to be carrying on regardless with grand plans for new square footage. But, says Eric Musgrave, they could be in for something of a harsh dose of reality in 2008.

You know something is wrong with the world when you begin to feel a little bit sorry for retail landlords. Along with their close cousins, the estate agents, and those completely unrelated nuisances, the traffic wardens, landlords normally are an unlovely, unloved bunch. It’s not only that they usually appear, literally, to embody the phrase “fat cat” (well, have you ever met a thin property person?), but they also seem to be dottily detached from the realities of retail life.
While their fashion tenants are worried about last Saturday’s performance and the takings for tomorrow, the property chaps and chapesses are grandly drawing up schemes that will come on-stream, to use the jargon, many years hence. With what seems to be the directional sense of a herd of lemmings on a cliff top, the developers and their henchmen, the letting agents, proudly announce that what everyone needs is another few hundred thousand feet of prime retail space – and they set about providing it. They are the ultimate cock-eyed optimists.
Their insatiable wish, desire, need or greed for growth (tick the appropriate box) is disguised during periods of prosperity, but then in times such as we have at present, the awfully fragile house of cards and shopping centres they have constructed begins to sway. The amazingly disparate relationship between landlord and tenant is also stripped bare, sometimes with painful consequences. There does seem to be a severe communication breakdown between the two parties.
An almost foolproof way to detect which company will soon be in administration is to note which company is asking its landlords to accept monthly payments rather than the standard three-months-in-advance payments. Despite repeated calls for reform of this archaic quarterly practice, I haven’t noticed much movement on this (although I’d be pleased to learn about lots of enlightened examples of new relationships, so do write in). If you are interested, the traditional Quarter Days in England (all based, as these historical things so often are, around significant dates in the Christian calendar) are March 25, June 24, September 29 and December 25. Needless to say, the Scots have traditionally chosen to recognise slightly different dates, namely February 2, May 15, August 1 and November 11. Yet in a rare example of the property world going modern, contemporary Quarter Days – or Your-3-Months-Rent-Is-Due Days – tend to be January 1, April 1, July 1 and October 1.
The crippling demand for 12 or 13 weeks’ rent upfront is usually enough to tip a shaky business over the edge. This year’s casualty roster or up-for-sale list grows longer every month – Dolcis, Stead and Simpson, Select, Internacionale, Ethel Austin, Elvi, Base Menswear and QS are among the unlucky victims so far.
Meanwhile Morgan, Miss Sixty and Mexx are among the foreigners pulling out of UK retail completely or drastically reducing their retail presence, complaining about the crippling cost of running shops. Independents too like Chessman in Cardiff and the Carnaby Street store for Microzine have been victims of the painful confluence of low sales and high overheads. Chris Lee, founder of Microzine, has declared that London rents make it impossible for independents to survive in the centre of the capital.
But worryingly for the landlords some bigger players also are rationalising their portfolios. Sports chain JJB recently announced that it would be closing 72 of its 409 stores, at a cost of £23 million. While seven stores are to be converted to the group’s Original Shoe Company format, the others will be shuttered because “they will not make any significant contribution” to the company’s performance.
Even more significantly, Sir Philip Green himself recently told Property Week that a reassessment of the Arcadia property portfolio was underway. The eight chains in Sir Philip’s empire operate more than 2,300 stores. Some 300 of those have leases coming up for renewal – don’t be surprised to see a significant number abandoned. “We’ve got too many shops” was Sir Philip’s stark admission to reporter Laura Chesters. “We are not taking on new stores unless we can get out of our old ones.”
With a ridiculous 50m sq ft of new retail space scheduled to be coming on to the market by 2012 – that’s the equivalent of more than 30 Bluewater shopping centres, by the way – what the developers and landlords don’t want to hear is our biggest fashion operator saying he wants fewer shops. As I said, you almost feel sorry for them.