David Abramson, managing director of Rent Reform, talks about how rent rises put through by absentee landlords can have a negative effect on your business, and how you can beat them…
Death and taxes are said to be unavoidable and, I’m sure, many retailers would add upwards-only rent reviews to the damning list.
Whenever the cycle comes round for renewal, the only constant seems to be the rising trajectory of rents. No matter the economic climate, it always arrives with an Arctic blast. For many it is difficult; for some ruinous.
British business has got shaving margins and rationalising costs down to an Olympic discipline but a rent review can derail a hard-worked strategy and jeopardise future profitability.
It matters not if you are a single-store trader in a promising niche, an expanding business challenging market models or an established concern with collective buying and bargaining power. The review will hit you.
But a radical change needs to sweep down our High Streets to free businesses from the dead-weight of crippling rents.
Many retailers are separated from their landlords by screens of bureaucracy or intermediaries. Six degrees of separation can only be bad.
Landlords, who often own a diverse property portfolio and therefore have little connection with their multiple tenants, need to develop a greater awareness of the impact of rising reviews.
It is now time for landlords to start listening to their tenants.
Failure to do so will only lead to more stores closing and, unlike better trade times, there will not be another client along in a minute. That empty shop will likely remain abandoned and then they will be feeling the pain.
Research has shown that 50 per cent of rents are over-priced because they are long-term deals that have not allowed for the changing economic climate.
The answer is for retailers is to look closely at their fixed property costs and open a dialogue with their landlords and the best route to do that is via third party help.
No-one likes extra costs but a small investment in opening channels will pay great dividends. They will move.
The evidence is clear from recent negotiations that have allowed companies to continue trading when they would have gone bust if nailed with anticipated rent increases. One businessman got a £2 million reduction on his rent roll covering 27 food outlets; another saved three restaurants and 60 jobs via a re-geared contract. A smaller firm got a year rent- free to help it ride the economic waves. It can be done at all points on the business scale.
GAME’s problems came with a £21 million rent liability for its 200 stores. Its store closures may have been inevitable because of its trading make- up but softening that huge rent bill could have given a glimmer of hope.
My advice is to resist running up the white flag when the rent review lands from a distant landlord. Engage with them. Make them understand your business and use someone to negotiate a better deal.
Smart businesses are switching onto this and giving themselves a chance to survive and prosper.