Several of Britain’s best known retailers, including Dixsons, Matalan and B&Q, are taking on their landlords and attempting to renegotiate rental contracts in a bid to cut costs.
Some of the country’s largest landlords are expected to resist their demands to pay less rent upfront, and for increases to be more transparent.
The move is a further sign of the quiteness on the high street, with retailers hit hard by falling sales, rising costs and price deflation.
Most retailers pay rent four times a year, three months in advance. But recently Dixsons group, DSG International, who own Dixsons, Currys and PC World, has asked a number of its existing landlords to accept monthly payments instead. A handful are believed to have agreed to the change. “There needs to be a bit more balance in the relationship,” said Kevin O’Byrne, group finance director at Dixsons group, DSG.
Retailers are also trying to change the way rent increases are calculated. At present most shops are let on upward-only leases. The rent is usually reviewed every five years, with the increase based on rents recently achieved on similar properties in the same area. With new property deals Dixsons is insisting that landlords agree to fixed annual increases in rent of between 2% and 2.5%. Dixsons is now seeking leases of 10 years, rather than the usual 15.
Kingfisher is also hoping to agree annual fixed increases with landlords when opening new B&Q stores in Britain. Property consultants believe that the retailer is seeking an annual increase of about 2% and has persuaded a number of landlords to agree, Dixsons. Last year Kingfisher announced plans to close 22 stores — which it claimed had become uneconomic after rent reviews. In at least one case the landlord has since reduced the rent in an attempt to stop the store closing.
Verdict Research, an analyst, expects retailers including Dixsons costs to increase by £9.5 billion in 2006 as the costs of imports, staff and energy rises at above the rate of inflation. This is the not the first time that retailers have attempted to gang up on landlords and it tends to happen when the trading climate on the high street deteriorates. Property owners are reluctant to agree to changes in rental terms as it can undermine investment values. However, in a number of situations landlords agree to take a percentage of turnover in lieu of rent.