More than 150 clothing and accessories stores located in Westfield shopping centres have been closed, after Scentre Group moved to lock-out retail tenants amid escalating rental negotiations between retailers and their landlords.
Mosaic Group, which owns clothing brands such as Noni B, Katies, Rivers and Rockmans, said on Thursday that 129 of its stores in Westfield centres had been temporarily closed by Scentre Group, in a move that will affect about 400 employees who will be redeployed to other parts of the business.
“These actions are extremely disappointing, given the current environment, and difficult to comprehend in the context of a relationship that spans close to 40 years,” said Mosaic Group chairman Richard Facioni in a statement to the ASX.
“Mosaic continues to conduct rental negotiations in good faith with all landlords, including Scentre Group, in the spirit of sharing the burden of the impact of the COVID-19 crisis, consistent with government recommendations.”
Mosiac Group brands are not the only retailers being affected by the sudden closures, with luggage retailer Strandbags also confirming its stores in Westfield shopping centres have been closed because of rent disputes.
According to the Strandbags website, there are 33 Strandbags stores located in Westfield shopping centres across the country.
“We are surprised that they have taken this view given our category and our focus on luggage [and] travel,” said Strandbags managing director Felicity McGahan when confirming the closures to 7 News.
“Notwithstanding this, we remain hopeful we will reach an agreed resolution”.
According to the Sydney Morning Herald, Mosaic Group had been paying a lower percentage of rents to Scentre Group and had been negotiating for a new rental agreement.
When contacted by SmartCompany a spokesperson for Scentre Group said the company does not comment on commercial arrangements with its retail partners.
The Westfield store closures are the latest battleground for increasingly tense negotiations between retail chains and their landlords, with one retail expert telling SmartCompany this is the first time he has seen a landlord go as far as to lock its tenants out.
Premier Investments’ Solomon Lew has also made headlines in recent weeks, following his retail group’s strong financial results that were in part buoyed by a decision in March to immediately stop paying rent to landlords when stores were forced to close as the coronavirus first took hold across the country.
The negotiations are taking place against a backdrop of a federal government code of conduct, which called for tenants and landlords to “share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period”.
The code, outlined in April, applies to businesses with less than $50 million in annual revenue, but the government said at the time larger organisations were encouraged to adopt the “spirit” of the code.
On Thursday, the Victorian government said it would extend a ban on evictions and rent increases until the end of the year, and commercial landlords will now be required to provide rent reductions to tenants “in proportion” to declines in their revenue.
Professor Gary Mortimer from the Queensland University of Technology says the latest moves by Scentre Group demonstrate the “complexity” of the relationship between shopping centre landlords and their tenants.
“Both are dependent on one another for survival,” he says.
“A shopping centre without tenants is like a car without an engine, and without shopping centres, where do tenants go to set up shop?”
Mortimer says retail groups such as Premier Investments and Mosaic Group are arguing that rents should be set as a percentage of sales, rather than a fixed amount, which would mean rents would vary depending on the performance of a given store and current, wider economic factors.
Under that model, Mortimer says, “when things are good, everyone wins”, and “when everything is going bad, everyone shares the pain equally”.
However, the difficulty is the model suggests retail sales are, for the most part, dependent on external factors, and not on the actions of tenants, such as how much they invest in improving their store fit-outs or training staff, says Mortimer.
“If we adopt the argument that says we will pay rent based on a gross percentage of sales, there’s no incentive for retailers to innovate and work hard to grow their business,” he says.
Retail expert and director John Batistich believes it is unlikely that landlords will accept variable rent deals that are based on percentages of turnover.
Rather, he believes retailers and landlords will need to negotiate in good faith on new agreements that will involve lower, fixed rent deals with capped occupancy.
“There are no easy solutions to the landlord and retailer negotiation,” he writes in this article for SmartCompany, “and it is likely to end badly for both parties if they pursue their own self-interest”.
“Protracted negotiation, mediation, one party acting unilaterally in their self-interest and retailer administrations post-stimulus are likely outcomes of self-interest,” he says.