Retail is not served when landlords and tenants are adversaries
Peter Rachman, a bit player in the Profumo scandal back in the 60s, and Eastbourne property tycoon, Nicholas van Hoogstraten shared a similar view of their tenants. Scum was one of the politer words they used.
Today, agents and government regulation keep the two sides at bay in a permanent state of passive aggression, although things still go horribly wrong for tenants when agents act aggressively for the landlord or themselves by charging booking fees, or ignoring tenants’ reasonable claims for return of deposits or boiler maintenance.
In the commercial world, detailed contracts kept everything civilised until the last 10 years when retailers began to turn up the volume on how unresponsive they felt landlords were to the fact that retail needed shorter and more flexible tenancies.
The landlords are now fighting back. While the pension funds have kept schtumm, odd given that most of our pensions will have a significant commitment to commercial property, the landlords’ agents are prepared to speak.
Knight Frank has said in a new report, entitled Price of Change, that the “traditional private equity” model has no place in the retail sector. Whilst it did acknowledge other factors — inflation, business rates and minimum wage rises — Knight Frank talked about “deeper structural flaws undermining” the industry.
The property consultancy supported its case by pointing out that, “it is no coincidence that the vast majority of operators that have launched a company voluntary arrangement or gone into administration are private-equity backed”.
So, it takes care to criticise a certain type of PE company, so we need to remind ourselves that there are plenty who care about retail and are prepared to invest for the longer term.
However, Knight Frank has a point. With so much retail dependent on private equity, can the sector ever rebuild for the next decade and beyond without investors snatching the golden eggs and killing the goose?
I want to say yes, but exactly where will the enlightened investment come from? Some retailers’ problems are so great that the banks will not be prepared to lend large for long enough to get them through.
We are moving to an age of fewer but better stores, fewer but different employees, deeper store-to-online integration, more enabling tech, more retail operations driven by data, and ruthless execution that will break down the current departmental silos.
This in summary is what all retailers need to do; if they can articulate their plans more clearly and work more imaginatively with landlords, then surely they can dictate better terms with investors, wherever they come from.