Prominent Australian retailer Solomon Lew has slammed retail landlords for offering significantly cheaper rents to international brands, after his retail group Premier Investments revealed it will exit flagship retail sites in Melbourne’s Bourke Street Mall because of the high rents.
Retail groups say the decision highlights the need for more retailers to speak out about the unreasonable request of retail landlords.
On Monday, Lew and Premier Investments’ chief executive Mark McInnes spoke out about the tough rental conditions presented to local incumbents in shopping strips like the mall. McInnes explained a decision to close the Portmans and Just Jeans flagships in the Melbourne shopping strip came down to “unrealistic rent”.
The retail juggernaut, which operates a range of fashion and lifestyle imprints including Portmans, Just Jeans, Peter Alexander and Smiggle, reported on Monday that it had booked $1.09 billion in sales, with a net profit after tax of $105 million.
In the question portion of the results presentation yesterday, McInnes explained that the company would be closing the two flagship retail sites next month because retail landlords have not come to the table to discuss better deals. This is despite the fact it would cost landlords more in the long run to replace them as tenants in the spaces that they have leased for decades.
The company pointed to the incentives offered by landlords to international retailers to take up space in strips like the mall, suggesting that Premier Investments could exit more retail sites if things aren’t adjusted.
“Today, we announced that unless landlords cut us the same rental, and incentive deals they’re offering international competitors in the young fashion market, we may need to close many more Dotti stores. The cost to landlords of replacing us is far higher than if they solve for us,” McInnes said.
Saying the situation was “the landlords’ fault”, McInnes observed, “if they cut us rents in line with their overall centre performances, then obviously, we want to stay, but if they don’t, we won’t”.
Meanwhile, Lew observed global retailers were being offered rents up to “two thirds cheaper than specialty retailers”, reports Fairfax.
“They are doing this because they want to drive traffic … the discount department stores are not driving traffic so they are looking for other tenants.”
Russell Zimmerman, executive director of the Australian Retailers Association, tells SmartCompany local retailers have been charged rents that are “quite astronomical” for some time. However little is likely to change until others start following the lead of Lew and McInnes by walking away from sites.
“Obviously we’re seeing landlords want to put in the latest innovators – but what we’re now seeing is retailers turn around and being charged rents that are quiet astronomical compared with what they’re offering to others. [The local retailers] are feeling a bit jaded about that,” Zimmerman says.
Ultimately retail landlords of strips like Bourke Street Mall will have to make a decision about the diversity they want to see in the shopping mix, and consider treating players more fairly, Zimmerman says.
“What landlords have got to decide is do they want a good spread of retailers, and if they want to be fair and unfair. At the moment, they’re not really negotiating.”
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Council of Small Business Australia chief executive Peter Strong says the fight for fairer rental deals is one smaller operators have been fighting against the big players for decades.
He says smaller retailers are worried about “people coming in and being given free kicks” when overseas brands enter the market.
The result is that smaller businesses are looking well beyond big shopping centres, and even banding together to create their own spaces away from bigger businesses, Strong says.
“I’m starting to hear of businesses coming together and asking, ‘what can we do to form a little shopping strip to look after ourselves?’,” he says.
To Zimmerman’s mind, however, there will be little movement until others take the lead of Lew and McInnes.
If there’s more movement from other brands, “then landlords will realise they can’t keep charging these astronomical rents”, he says.