Retail landlords must focus less on the bottom line and more on their tenants' needs or risk being lumbered with a portfolio of empty stores, say leading retailers.
High interest rates, a sluggish housing market, unprecedented fuel costs and inflated food prices have hit consumers hard, leaving all "but a lucky few" retailers juggling high rents and low sales. But with the gloom showing no sign of lifting soon, pressure is mounting on landlords to adapt to market conditions and work with retailers to see out the tough times.
Speaking at the Property Council's annual retail conference in Auckland, Stephen Alach, the general manager of surf retailer Amazon, said too few landlords appreciated how hard retailers were being hit by a downturn that extended from before Christmas. "All bar a few [landlords] don't look at anything except the dollars. They won't last if they continue with this ducking and diving attitude to tenants," he said. "Rent demands stay the same while some retailers are dealing with the reality of sales being up to 60 per cent down [on last year]. If the landlords don't react soon they are going to lose a lot of tenants."
Though retail giants like The Warehouse Group and Briscoe Group could survive the harsh times, independent retailers are more likely to "take their losses and walk away" rather than risk parting with more and more cash, Mr Alach says.
"It will be the landlords who feel the squeeze when tenants pull the plug and walk away. There needs to be a better understanding if we are going to get through this."
Landlords needed to spend more and think outside the box to draw consumers away from their comfy couches and plasma screens into the shopping environment, he said. This meant generating new store concepts with tenants, being more realistic about rental returns, and looking 10 years ahead instead of just one or two years.
"When you're caught in a wave, you can't breathe - you feel like you're choking. That's how it is for retailers at the moment, and that's how it will be for landlords if they don't react."
According to Statistics New Zealand, 15 of the 24 retail sectors had lower sales in the March quarter than in the last quarter of 2007. Those who are highly reliant on discretionary spending had a particularly tough year. Appliance stores experienced a 15 per cent fall in sales, furniture and flooring took an 11 per cent hit, and clothing lost 6 per cent.
New Zealand Council of Shopping Centres president Evan Harris said landlords needed to take a more "constructive" approach and "realise some of the pain" that retailers were suffering. However, John Bougen, director of national retail property developer Prime Retail, said the answer lay in fostering new tenants. "There will be demands for rent reductions. It's a call we will all be forced to consider over the next few months. The question is, `How long will it last?' Longer than a bank guarantee," he said. "[Landlords] need to consider fostering new tenants. They may not be the tenants you want in the good times. In the 1990s [recession], we had them on short-term leases so [that when things improved] they could be moved with dignity."
