The retail crisis is becoming landlords’ problem as demands for rent cuts pile up
There are some unpalatable high street trends doing the rounds at the moment, from tie-dye to zebra print and white jeans, but for shop owners the hardest thing to wear this season is the fashion for rent cuts.
On Friday, the stricken department store chain Debenhams launched its long awaited company voluntary arrangement (CVA). It joins a list of retailers that already includes Mothercare, Carpetright and New Look going cap in hand to their landlords, asking them to take back the keys to their worst performing stores and, if they wouldn’t mind, slashing the rent on the ones they actually want to keep.
Debenhams wants to ditch 50 of its 166 stores, dumping a swath of retail space back on the hands of furious landlords – often the stock-market-listed shopping centre owners, such as Hammerson and Intu, who themselves have mouths to feed. They are already struggling to keep up with inboxes bulging with begging letters. Yet more forfeited stores threaten to worsen an already gloomy picture: a recent report looking at the health of Britain’s top 500 high streets showed a net 2,500 store closures in 2018, up 40% on 2017.
The shop workers’ union, has called for an industrial strategy for retail, but it’s hard to imagine that we will get one
But are CVAs the answer to the retail sector’s woes? They are not all created equal, for one thing, despite calls for standard terms and conditions to be introduced. At least Debenhams had the decency to go bust, but billionaire Sir Philip Green is working on one at Arcadia – the group that controls Topshop and Dorothy Perkins and has fallen on hard times. Lest we forget, in 2005 the Greens famously paid themselves a dividend of £1.2bn from Arcadia, which is still the record for the biggest such payout in British corporate history. Landlords could be forgiven for humming Cry Me a River at Green, but there is much more at stake here.
You may despise Green, or not care less about property fatcats who have enjoyed years of upwards-only rent reviews, but it is worth considering the plight of a high street workforce that is under attack and where job losses are having a disproportionate impact on women.
The retail trade accounts for 3.2 million jobs, in which women outnumber men by more than 500,000. Yet lost shop jobs are not romanticised in the same way as lost (male) work in shipyards and steelworks, even though many retail bosses seem ill-equipped to cope with the dramatic consequences of the internet retail revolution.
Usdaw, the shop workers’ union, has called for an industrial strategy for retail, but it’s hard to imagine that we will get one from this government. So until someone comes up with a better plan, CVAs seem to be the default strategy of bricks-and-mortar high street chains.
Revo, the trade body which represents the £360bn retail property sector, describes them as “the sticking plaster, not the cure”. Last week Revo’s chief executive, Ed Cooke, pointed out: “Many retail businesses are blaming all their woes on rent, but in fact high levels of debt, a lack of investment and a failure to adapt quickly enough to changing consumer preferences are often far bigger issues.”
This is not a bad summation of Debenhams’s predicament: the retailer still has a Herculean task to prove its relevance to shoppers even without the baggage of a third of its store chain.
Landlords have pushed back against several CVAs but their backs are against the wall as the number of retailers looking for new space dwindles. About the only thing we can be sure of is that there is more high street pain to come.
Daimler’s difficult road ahead
Daimler’s falling sales speak volumes about the current state of the global economy. The Stuttgart-based carmaker, the parent company of Mercedes-Benz, sold 7% fewer cars in the first quarter of 2019 than it did in the same period of 2018.
In part, this is a China story. Along with Finland and Ireland, Germany is one of only three EU countries to run a trade surplus with China and is particularly sensitive to the ups and downs in the world’s second biggest economy. When China slows, Germany slows.
That has been the case over the past 12 months, a period in which Beijing’s attempts to make the economy less debt-dependent have resulted in slower growth and a drop in demand for luxury goods. Mercedes-Benz is a luxury carmaker, and sales have dropped by 3% in the past year.
The flip side, though, is that Germany has more to gain now that it appears China – thanks to a fresh stimulus package – is coming out of its soft patch.
But it’s not all good news. The short-term prospects for China are rosier, but its approach to economic management is starting to resemble the stop-go policies that the UK favoured in the 1960s. Eventually there will be a reckoning for the debt mountain China is piling up.
What’s more, Beijing’s stimulus packages are subject to the law of diminishing returns. Eye-catching they may be, but ever-bigger dollops of easy credit and investment in infrastructure projects are required in each cycle to get the same growth boost.
But it should also be a concern for Daimler that sales to its other core markets – Europe and the US – were also down on a year ago. That points to a generalised, and worrying, slowdown in the global economy rather than merely a China-specific problem.
Gambling giant in each-way bet
Big gambling companies have grown fat on their ability to calculate the probability of future events. It’s a skill based largely on detailed analysis, with a dash of rune-reading thrown in.
Now, having been stripped of £100-a-spin fixed-odds betting terminals (FOBTs), they spy the regulatory bandwagon careering headlong towards their lucrative, high-growth online businesses.
GVC – owner of Ladbrokes Coral and a host of online casino and bingo brands – isn’t about to wait and see how it all shakes out. Instead, it broke ranks with the industry last week, with a number of proposals intended to position itself as the face of responsible gambling.
The Isle of Man-based firm will end both its football shirt sponsorship deals and TV advertising – except alongside horse racing programmes. It will also donate 1% of its revenue (10 times the 0.1% firms voluntarily contribute) for research, education and treatment – and says rivals should follow suit.
Though welcome, these measures are not entirely altruistic. For a start, GVC sponsors the shirts of just two football clubs, third-tier Sunderland and Charlton Athletic. Smaller rivals such as 32 Red rely on several, larger deals to increase brand visibility.
A general end to football sponsorship and TV ads could mean a net gain for GVC if it stifles the growth of rivals to its own brands, some of which already enjoy household name status. GVC did not offer to cancel Ladbrokes’s sponsorship of the Scottish Premiership, or other deals such as Bwin’s darts tie-up.
Gambling campaigners are likely to welcome any acceptance within the industry of the dangers of advertising, particularly if GVC’s move heralds broader consensus. But other regulatory battles, such as a possible ban on credit card betting and the imposition of affordability checks, are just as important.
With the FOBT defeat fresh in their minds, gambling firms may be offering sacrificial lambs now to escape fresh regulatory pain later.
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