Time for a reality check, Mr. Landlord
In the wake of the Covid-19 restrictions that have seen retail shopping traffic decimated, there has been a lot of debate, and argument, about who should bear the brunt of falling sales in shopping malls.
The argument from the centre operators (landlords) is that rents should be fixed, regardless of fluctuations in retailer’s sales. The retailers, on the other hand, say that rents should be proportional to reflect changing conditions. Proportional rents are those tied to sales, so that in good times retailers pay more, in dollar terms, and in tough times they pay less. Paying less when there are few, if any, in-store customers means that at least they can stay open and ride out the lack of patronage. A shuttered retail store benefits no-one.
The counter argument that fixed rents are essential because investors in shopping malls need certainty of returns on their capital is reality-denial at its most desperate. This practice of demanding only fixed rents is born out of a ‘take everything, give nothing’ approach to business and investment and is ultimately self-defeating.
This 2020 pandemic is changing everything – the way we work, earn and spend our money; the way we communicate and socialize; and the way we go shopping for necessities and non-essentials alike. It’s time shopping centre landlords, and their investors, started to realise that the consumer’s experience of shopping is changing and will inevitably move substantially on-line and into other yet-to-be-formulated methods of consumption.
One thing is for certain, the old argument that shopping malls represent a magnet that attracts consumers to brands is just not true. If anything, it is the other way around. Brands gain their profile and their appeal through the endlessly evolving media and marketing channels that so captivate consumers who then have the choice of either seeking out their favourite brands on-line or in-store. Increasingly, they are going on-line.
So, wake up, shopping centre operators and landlords. Your business model is becoming a dinosaur. If you want to retain an acceptable return on capital into the future, stop punishing your tenants and start investing in new ideas that will support, for once, the people who provide you with your cashflow.
Instead of pretending that fixed rents are an unchangeable, non-negotiable fact of retail life, try instead to bring some fresh ideas and a less confrontationist attitude to the negotiating table.
Your future, and that of your paying customers (your retail tenants), depends on it.
Robert Toth / Accredited Commercial and Franchise Law Specialist
Robert@mmrb.com.au Ph: 0412 67 37 57
Wollermann Franchise Developments