Looking at the current state of retail in Australia the on-going battle between landlords and tenants is not serving anyone. The current retail climate has seen retailers go belly up and large pockets of empty retail space give off a grim dystopian feeling to passers-by.
We’re all too aware of the an alarming number of retailers who have gone bust over the last 12 months - Top Shop, MARCS, David Lawrence, American Apparel, Payless Shoes, Pumpkin Patch, Howards Storage World, Herringbone, Rhodes & Beckett, iconic Dick Smith stores…
Plus bubbling heat from Amazon’s looming arrival has seen bricks and mortar tenants reduce their store count, and The Commonwealth Bank release research that predicts one third of all purchases at multi-channel retailers will be made online by the beginning of 2018.
Callam Pickering, APAC economist for Indeed envisions, “… lack of wage growth and high household debt have created a difficult retail environment and that will continue to contain retail sector growth over the next few years.”
These doom and gloom reports increase stress for landlords and retailers alike, and yet the common relationship trend between landlords and retailers see party’s work against each other for their own interests. Business owners face rent as their most costly outgoing, and landlords are struggling to maximise the value of their investment as income and are hassled by the latest Retail Leases Act amendments.
As “retail leasing is fraught with conflict”, Kate Warwick from FTI Consulting says landlords need to start considering, “sustainable and relevant rental structures in an effort to attract and secure new tenants and to ensure existing tenants remain viable at their centres”.
The solution? A modernized approach that replaces tense, often toxic exchanges, with negotiated agreements that benefit both tenant and landlord.
It’s not a utopian hipster pitch - it’s actually just clever business.
By reducing the number of battlefields, we clear the path for both party’s to achieve longer-term profit goals and avoid messy and costly exiting negotiations.
OUR SUGGESTED APPROACH FOR LANDLORDS CAN BE SUMMED UP USING 3 SIMPLE TOOLS:
1. IMPROVE RELATIONSHIPS AND COMMUNICATIONS WITH YOUR RETAILERS
Improved lines of communication can mitigate angst between landlords and tenants. Build a partnership model rather than fostering traditional and unprofitable overlord and tenant relationships. WARNING: Don’t just talk about building a relationships, let’s actually build a true partnership. We’re going to coin the term “Partner in Profit”.
2. HAVE A CLEAR FINANCIAL PICTURE AND FORECAST OF YOUR RETAILERS MARGINS
Once you have improved relationships and communication with your retailer/s, use this as an opportunity to grow sales together. What retail consultant programs do you offer your retailer/s? Setup a consultant program to include confidentiality agreements allowing trust and the sharing of information. Transparency can lead to opportunities like expanding retailer businesses, or controlled exit assistance if a tenant’s financial position is dire. NOTE: No trust with retailers means this will never work.
3. LOOK AT DIFFERENT WAYS TO STRUCTURE LEASE DEALS
Consider percentage rent agreements rather than heavy base rents. Work with retailers on strategies and cost-effective measures to improve and secure longer-term occupancy and retail success. Consider lower rental costs in the short-term at the start of a lease agreement. This can both ease financial pressure on the retailer, and has great potential to prevent landlords from a high turnover of retailers and further financial insecurity.
Yes, it is very well-known Landlords make all their billions of dollars leveraging from property valuations, heavily tied to their long-term leasing spreads. But let’s wait and see what happens over the next 2-3 years when Landlords don’t take the initiative to go one step back to ultimately take 2 steps forward.
There are some brilliant Retail Landlords out there, but far too many think they’re better than they are. https://www.youtube.com/deadmallsmedia