I work for a landlord, and I care deeply about retail, and it is very hard for us always being pinned as the bad guy... This article is great and I am relieved to hear someone point out both sides of this argument.. It is a huge and complicated issue and there is no side to take- what needs to happen in an ideal world is retailers and landlords need to work together instead of against each other.

I have had retailers who have gone under, which we have approached over 1 year prior with our concerns for their trading- we work so hard to try and lift their trade and assist them where we can, but they are not willing to work with us or take our advice- they cannot provide any financials or tell us accurately where they want to go with their business. They dont take offers of assistance when we clearly point out the risk of continuing at the poor occupancy they are on, and we are not going to lower rentals if they do not work with us to prove they are operating to the best possible standards in todays market.

In our case we can prove to them that the sales around them and the centre wide sales are considerably high, we can prove to them that the traffic flow is higher in the centre than it has ever been- and we suggest that in these cases, there is often operator issues at hand- and until they adress or open up to us to assist with those issues, a rental rebate is not always the answer.

we have had other retailers who work with us, and it has made all the difference.We have managed to assess that they are doing all the right things and are an integral part of the mix, as they provide all relevant data and knowledge. We have identified issues with them securing growth within the centre, be it circulation due to location, or competition, public awareness etc, and invested with them in marketing directly tailored to their product and brand. We closely track the trading after that point and if they do not find improvements we are then in a position to offer things such as early lease renewals at lower rentals, or short term rent rebates to assist with cash flow, or we seek replacements to offer early surrenders.

I feel that yes, there are 'bad guy' lanldlords out there, but there are also good repitable ones, and large companys who are experts in the feild and know what they are talking about- if you are an independant looking for a rental reduction, do what dennis says and do your research, and let your landlord know you are willing to work together for a solution and accept their advice, you might be surprised.

Not at more than 18-25% occ costs they won't. Retail 101.

@Stephen - valid comments, but I should add that business anywhere/everywhere is risky. There are many, many retailers who have done, are doing and will do very well in shopping centres. And the opposite.

What’s happening is structural. Many shopping centres have priced themselves out of the market and many retailers are simply not interested in the business games some landlords can play.

The internet and direct to consumer has made the property risk too high and in some sectors an unnecessary and irrelevant risk.

Shopping centres rely on a steady stream of people living the dream of “owning your own businesses”-ship and they are drying up because many people know someone who has gone broke in shopping centre and are not so gullible anymore.

Banks are reluctant to lend to small business, especially because they know what the risk is. After all, many banks own shopping centres.

There’s many arguments both sides, bully boy landlords, willingness to accept silly terms, naivety, lack of business acumen, unrealistic rent expectations of fund managers, lack of leasing law with teeth, centre managers who blame the tenant and think they know more than retailers and retailers should be improving margins to release that extra profit and give it to landlords, etc etc etc.

Bottom line.

Shopping centres can be dangerous places to do business in. Be careful before you enter into that world or you may live to regret it. Manage your risk with help from people who know or stay away. Look after your own self interest, after all, that’s what the shopping centre industry put front, left and centre. It’s not a charity.

@Ian - interesting point.
@Peter - you are right that 'there is more than problem; and yes they are all connected. The examples I refer to about not having information available typically relates to independents not the multiples.

But you are wrong about most independents wanting to invest in people and innovation. Not in my experience at least

When we talk about retail we seem to only have a model for nationals mebium size chains etc all with their own accounting/HR/Legal/Marketing/IT/ and so on.The real reasons have been evolving since GST when Federal/State/Local GOVERNMENTS eg Beaurats have contiually cost shifted and labour shifted numerous other compliances to save their own budgets.It has become a night mare just trying to keep up with continual changes and additional costs. INDEPENDENT RETAILERS need to given the opportuity to being creative and productive spending more time making profits and ivesting in change and people instead of profits being squeezed by decisions made by people with little common sense or instict. High rents /rates/water/power etc have not helped and Online is a challenge going forward but it is a collection of all of these things that need to be adressed.I would be interseted if someone could tell me the available retail space in Australia is as i have been told it is double our current population if so it presents some challenges.I am also concerned with the amount of experts that have come out reguarly in the media over the last couple of years with a lot of spin on what to do,the trouble is i dont think they really know any more than you and I. My question is globalisation as we no it is unprecadented in history,yet I find reference to the past in comments made by some of these experts.By being given the opportunity to comment in forums such as this can only be healthy for some positive outcomes. My version as an independent thanks.

Great article and obviously is creating interest across the board. The area left out I believe is the artificial yields that have existed for years by hiding the real yields behind "contributions". These will impact asset returns and cap rates. With banks and financial institutions starting to get across these as well as the inevitable rental correction, the impact on these types of investments could be significant

Thanks for the the contributions @RetailPrincess, @Emma, @Paul - all valid points.
@Mike, point taken, but I doubt that too many landlords/managers believe the turnover figures provided. Whilst there is a provision to audit these; that is very time-consuming an expensive. The answer is probably much simpler: put out the offer at what you think the market can bear and see what comes back...

Very well thought out and written article. Ultimately, and thinking Strategically, Retailers in Malls have been attracted due to high customer numbers, and then converting those customers into clients. The ultimate challenge, is for the operators of the Malls to keep their businesses relevant in light of the changing consumer habits. If most retailers told the Mall operators, we only want 50% of our space at next renewal, the mall operators would get a very short sharp message. Longer term, this could have a snowball effect. Smaller and in turn stores with compromised ranges of merchandise, leaves the choice for customers wanting, and in turn, the Online experience looks better. It's not so much time for Retailers to wake up, its high time for Mall and retail store owners to wake up to the challenges, partner with retailers, and bring back the traffic to retail. Consumers need solid reasons as to why personal shopping is far better than a few clicks at midnight. Or is it ??

Emma - to my mind it comes back to the growing disconnect between retailing and lease structure. The best retailers are able to react quickly to change (economic, consumer, etc)- how can this model fit within a 5 year contract?
I guess this is why we are beginning to see a trend towards smaller/fewer stores as well as a shift in the focus or use of each outlet.

What an excellent article.

The only thing that I would add is that it is the Landlords who have preyed on those same 'unprofessional' retailers who do not know how to negotiate a lease on 'just terms', but just accept the offer with ignoraqnce and inexperience, which then sets the 'market' for the rest of us.

Additionally, it is the smaller independent retailer who has had to suffer a 20-30% lease renewal at the end of their first and second term, simply because the Landlord has had access to their turnover figures and extorts a rental which they know the retailer cannot afford to pass up. Again, this sets the market benchmark for all of the rest of the tenants regardless of whether they are professionals or not.

Hence over the last 40 years or so, the profit from the retail sector has morphed from the 'retailer' to the 'landlord', with occupancy costs higher in Australia than most places in the developed world. This is not an opinion, it is just fact.

The result is that when there is a structural change of the size and significance of the current one we are experiencing, there is not any 'fat left on the bone' and the retailers begin to fall over like flies and the Landlords are set to see a significant correction to their over capitalised, over zealous rental ratios and capital book values.

Who is at fault?? Not the Landlords and not the Retailers!!

It is the successive governments that didnt have enough balls to ensure that the retail property market was a fully informed, highly professional, totally transparent and accountable market place. Where all leases need to be recorded and put on publicly accessable databases. Where all incentives and 'sweetheart' deals on fitouts, rent free periods, promotion subsides etc were public knowledge. And where the abuse of tenants turnover figures was not permited, and countered by a mechanism which always returned the lease rental back to the true market value.

Where from here? Why are the stockbrokers all nervous? Why are they consulting with retail specialists to only now find out about the true value of leases on their books. Is it that the assets of major property holdings may not really be representative of their true market value? What does that mean for the property speculators and what about all of our super funds?

I hope that Gillards' mining tax is the revenue solution to all of our problems, as we may yet hit a pothole in the economic road which is too deep to climb out of!

Cheers

Excellent article Dennis. Point 4 (the story) is a great one and I believe it applies equally to retailers and landlords.

I can't remember the last time I walked into a shopping centre and thought "wow" - which, by chance, I happened to think this past Friday night whilst walking around the laneways of Perth (yes, Perth!).

If I'm going to open my wallet I need to be "wowed". Entertain me!

Is it really this complicated? Or is it simply a matter of supply and demand and at the moment the landlords hold the upper hand because demand currently exceeds supply for retail rental space?
Should things change and supply exceeds demand, would retailers be any more "reasonable" than landlords are at the moment?

The front page of Inside Retail weekly headlines Retail's dirtly little secret. I wonder how long it will be before the latest phenomenon spreads on the tom tom drums amongst the natives and I receive a reqeust for rental abatement. There are many good and valid points you make Dennis, and generally those that cry poor, look at me blankly when I start talking to them about their business and marketing plans and budgets - why do I need them, is a resounding theme - would you go on holidays for 6 months with a fixed sum and not plan how and when you were going to spend it, so you didn't run out? they nod in agreement but still look horrified at the idea of mapping out a basic set of financials. I had one applicant come to me, when looking at buying an existing business and ask me "where does my cashflow come from" - needless to say that question in itself was sufficient to instantly disqualify their application. Retailers need to accept accountability for the way their business is going - most reasonable landlords are, as you say, open to discussions and focussed on trying to help the retailer improve their cashflow. Rent abatement is a short term solution for instant ease of cashflow, it does nothing to improve or address the performance of the business or look at ways and means to increase margins. Times are tough - and when the going gets tough, the weak get going.

@Justin, @Stuart - thanks :-)Hope the retailers & managers feel the same.

GREAT ARTICLE DENNIS!!!

LOOK FOWARD TO SEEING HOW IT ALL PANS OUT - INTERESTING TIMES!

Brilliant Dennis !!! I think you have put this extremely well.