Primark seeks rent cuts as weak rivals strike deals with landlords
Primark may be one of the most successful fashion retailers in the UK (and beyond) at the moment, but given that it’s fully dependent on physical shops as it has no online operations, the company is feeling the pain of high rents.
And it's starting to kick back against these in the face of a wave of company voluntary arrangements (CVAs) that have seen many of its underperforming rivals able to negotiate more advantageous rent deals with their landlords.
So the company is seeking discounts of around 30% on dozens of its UK shops in order to level the playing field, according to the Sunday Times.
For some shops where the leases aren't yet due for renewal, the company is asking for rent reductions, but is also offering some inducements to landlords in return. It's offering to extend the leases or spend more money on refurbishing the stores, which would enhance not only their value, but also the value of the overall stopping neighbourhoods in which they're located.
The company has 189 shops in the UK, all of them big and most of them held on leases.
Primark isn't alone in this move. Other large and successful retailers have also been talking about renegotiating their rent deals, Next being the most prominent among them. And smaller businesses Ann Summers and Schuh are also believed to be in talks over the issue. It's an unsurprising reaction given the lower rents that retailers such as Debenhams, House of Fraser, Topshop and its Arcadia stablemates, and Monsoon Accessorize have achieved via CVA/administration filings.
High rents are one of the biggest burdens on physical retailers these days, but it's not only the age of the internet that has created the problem. Some years ago, House of Fraser-owned Dickins & Jones’s closure was largely caused by a radical rent rise and other, less-well-known names have also gone under due to high rents. The problem has continued and is a global one -- over in the US at the moment, Barneys is also at risk due to its rent burden.
While Primark is far from flagging, the rent reductions negotiated by its rival retailers do mean that in many areas, it's paying a disproportionately high rent.
“We have a duty to our shareholders to maintain a competitive cost base, and we seek to maintain good relationships with our landlords,” the company said. The retailer is part of listed giant Associated British Foods.
However, for the property giants that own the spaces and buildings occupied by retailers, the aim is not only to minimise rent reductions but to drive ongoing rent rises as that's where their income comes from. We heard on Monday how Hammerson has been hit by CVAs and is now renting its spaces to fewer fashion retailers in order to maximise value for its shareholders. Rival Intu’s results are due on Wednesday and are likely to paint a similar picture.
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