Last week former high street staple Debenhams announced that they would be closing 22 stores after falling into administration following an annual loss of almost £500 million, in what are proving to be turbulent times for traditional high street retailers. Amongst the factors affecting their fortunes, it has been suggested that the collapse was primarily due to the retailer having too many stores – and the size of those stores – with high rents, high rates, extensive staffing costs and inflexible leasing arrangements.
Debenhams Chief Executive Sergio Bucher – who joined in 2016 and exited on 18th April – suggested that Debenhams were paying too much rent for the majority of their stores. The firm’s annual rent bill was almost £300 million – about 13% of their annual turnover. With 165 stores across the UK, running costs were rising whilst sales were falling and although Bucher was implementing a plan to get Debenhams back on track. It appears conclusive that it was too little, too late.
High rents and inflexible arrangements
Speaking to the Retail Gazette, Robert Hayton – head of UK business rates at real estate advisory firm Altus Group – said:
“Big rents, high rate liabilities, large staffing needs and leases that were difficult to give up all conspired to create a beast that was unable to adapt in a fast changing retail environment.”
Also speaking about Debenham’s demise, Leigh Moody – managing director of business software firm Soti – concurred:
“The news of Debenhams serves as a stark reminder that bricks and mortar retailers urgently need to adapt in order to survive in today’s competitive retail landscape. A combination of increasing rents and business rates, along with consumers taking their shopping online, has resulted in the demise of a number of established retailers.”
Landlords and retail tenants need to work together
So what can other retailers with large stores, high rents and rigid leases do to avoid a similar catastrophe?
Writing for Property Week, Matthew Reed, head of retail asset management at British Land suggests that retail landlords need to evaluate the way that they serve their tenants. As the retail industry focuses on flexibility, personalisation and customer experience, landlords too should be learning from their tenants and working with them to help their businesses thrive:
“Physical retail still has a bright future but for stores to be successful they need to support online, be convenient, offer a variety of reasons to visit and provide consistently great experiences to customers. These all require brands and owners to work in partnership.”
By sharing information and providing insights – whether positive or negative, retailers and their landlords can build a genuine partnership and rapport, which is vital for the success of their business relationship. Landlords now need to go beyond providing space if they want to attract and retain tenants.
As we have seen the future of the high street is dependent on how well retailers adapt to respond to rapidly evolving consumer expectations and the future of the retail landlord will be determined by the level of service they provide to their tenants in light of this. Landlords should be doing as much as they can to support their tenants if they want their retail spaces to thrive. Do you rent your retail space? What do you think landlords could be doing to support their tenants? Let us know in the comments section below.