What Are the Demands Of British High Street Retailers On Rent And Leasing?

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What Are the Demands Of British High Street Retailers On Rent And Leasing?

 What Are the Demands Of British High Street Retailers On Rent And Leasing?

With the UK government’s latest announcements around supporting its businesses in the month of March, the already fragile retail sector of the country, is expected to come under an even extra financial strain, as most of the companies that are still operating, will be subjected to immense debts, which could prove to be the final nail in the coffin of the ailing industry.

An interesting fact to consider here is that not all retail firms will feel the pressure in similar quantum. This is primarily due to the fact that a number of firms have moved their businesses online, and as of March 2020, it was reported that around 20 per cent of all retail sales were happening online, while 40 per cent were being operated through the food retail companies, which have not been impacted by the Covid-19 Pandemic, as some of the other high street retail companies have been. In fact, if some reports are to be believed, food retail companies have done even better due to the over-reliance of the British citizens on stocking food items with them. This means that the rest 40 per cent of the retail fashion and high street industry has suffered massive losses, as they have remained under the brick and mortar business model, and the rent and leasing costs of their stores and showrooms have taken a massive toll on their expense sheets. It has been reported that the lockdown that has been imposed on the businesses in the UK, and the new funding schemes, might cost these companies around £1.5 billion every week.

This has led to a crisis-like situation, where a large number of stores and companies have either closed down or gone under administration, as reported ea. The following table gives a brief overview of the grim situation of the entire sector.

Note - Data as per media reports
All data Up to – 31st March 2020

What are the UK High Street businesses demanding?

A large number of British High Street retail firms have requested their landlords, as well as authorities that they would not be able to pay their quarterly rent payments in the current period. This came after some of these companies also updated their shareholders on the downturn in their business activities because of the Covid-19 Pandemic, as well as the lockdown in the country, which has hampered the supply chain of these businesses as well as revenues.

This development follows the government’s ruling in the month of March, allowing a three month moratorium period for companies, allowing them to defer their payments by three months, rather than asking them to leave the property for the non-payment of their rents/lease payments. Some of the companies that had made this decision included Primark, the large fashion retail chain, Burger King, as restaurants have been closed down and are now struggling with a cash crunch, and hence the company won’t be able to pay the quarterly rent and has requested the landlords to act on the moratorium advisory of the government. Other companies that have faced similar issues include Tonkotsu and Yo! Certain executives from all the above-mentioned companies have come out and stated that the rent moratorium is not just a necessity during the current period, but in fact, it should be called an economic reality, as even the bigger companies do not have the cash capability to pay out their rents and lease payments, with High Street businesses taking a major hit. Primark, which is one of the worst-hit companies during this period, has a total of 189 stores in the United Kingdom, most of which are either rented or leased, but some are self-owned as well. It has been reported that due to the lockdown measures taken worldwide, its estimated total loss of sales from global operations are likely to be around £650 million (as per some media estimates in the country).

From the perspective of the landlords, the story is a little different. Reports have suggested that landlords are unwilling to budge on these demands and on any government advisories, and they will stand firm on demanding the quarterly rent payments. This is because landlords believe that tenants like Primark are fundamentally and financially strong companies and are large players on the High Street, which means that they can afford to pay rents even during this tough phase, while they also have the option of either restructuring their existing debt agreements or apply for new financing facilities of the government to pay rent, which might not prove to be as costly, as a delayed rent payment would prove to them.

Other issues being faced by Retailers

Rent and Lease costs is one of the most significant issues for high street retailers, but it is not the only one. The retail sector has been going downhill, as consumer uncertainty just prior to Brexit and extremely poor performance during 2019 because of that, has led to the worst time in terms of sales growth for these companies. A failure of moving businesses towards online and delivery business models, from the traditional business models has also been a gruesome factor that has undone the high street retail in the United Kingdom. This has also led to a number of supply chain issues as well, as supply chain contracts for a lot of these companies are still under negotiations, with most of the contractors asking for higher contract fee.

During this Covid-19 driven lockdown, Asda, which is a UK based supermarket retailer, has declined to make payments to its Clothing Suppliers, and has cancelled orders as well. The reason being stated by the company is the reduction in sales of its clothing and fashion products, and the fact that they are still trying to recover from the previous revenue losses. As per media reports, the company has told its suppliers that it will only pay around 30 per cent if the total cost of “stock under production” and only 50 per cent for the “finished stock” or “inventory due to be shipped’. The company’s executives also came out and stated that they would make these payments within a week’s time, while also allowing them to take out the Asda labels from its products so that they could sell to other retailers during this period. Even though, reports have also suggested that pulling out a label that has already been put on to a product is even more expensive and hence it might not be sold to other retailers and might call for some high street brands to come together in order to get past these issues.

The discussions suggest that, in order to survive, UK High Street brands might have to consolidate and pool in their resources, to fight this invisible enemy of Covid-19 that has caused havoc within the industry.


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