High Street Blues: online growth is bad news for landlords

It was recently reported in the FT that the recent trend of browsing the high street and then making purchases online (using the benefit of the numerous voucher code discounts on offer) is a cause of concern to institutional landlords, who operate our many shopping centres.

One of Fashionista's friends (who knows about all things property) has explained that many landlords have granted 'turnover rent' leases to retailers in recent years when trading conditions have been challenging. A 'turnover rent' lease operates differently from a market rent lease in that the basic rent is at a reduced rate (commonly 80% of the market rent) with the retailer paying an additional sum each year based on an agreed percentage of its gross turnover from the store in question.

This means that landlords who have let premises to multi-channel retailers are potentially losing out on rent where this is calculated only on basis of revenue taken in-store (and reduced by online returns). Savvy landlords are taking steps to ensure that their turnover leases are drafted to expressly include income from in-store internet terminals where orders are made online and to exclude any returned product which has been purchased online. However, even with improved drafting, landlords cannot capture all internet sales made several days or weeks after a visit instore. Plus it makes it harder for landlords to monitor the tenant's gross turnover used to calculate the rent.

Fashionista hopes that this trend will not lead to the high street withering to become a showroom for internet consumers, but given the continuing growth of e-commerce, who is to say?

Business rates to increase

Give the current economic climate, many retailers were hoping that the government could be persuaded to postpone the planned increase in business rates scheduled for next month. Despite Retail Week's "Rate Rage" campaign and Sir Philip Green's meeting with the Chancellor last week, it seems that the planned rate rises will go ahead.

In a letter sent to Retail Week (dated before Sir Philip Green's meeting), Alastair Darling makes it clear that "there are no plans to amend this system for 2009-10 and freezing rates for 2009-10 would cost almost £1billion in business rates foregone". The Chancellor goes on to say that "the Government recognises the difficulties being experienced across the economy. In response, at the Pre-Budget Report the Governement announced a decisive package of measures to provide an immediate benefit to business, including the cut in the main rate of VAT to 15 per cent, and measures that particularly help small and medium enterprises."

Many retailers believe that the VAT cut has done little to drive sales and criticise the government's decision to increase rates in the current climate. Quoted in the Sunday Times, Phil Wrigley, chairmain of New Look said "We have to make clear the damage [the government] is doing to the economy and to jobs. At best it is opportunistic- at worst it feels like a squeeze which is close to theft".

Fashionista notes that for once, retailers and landlords can be united in their opposition to the Government's tax policy (landlords have long been complaining about the requirement on them to pay rates on empty property), but whether such combined pressure on the goverment can force a review remains to be seen.