Annual rent hikes 'will kill off retailers' | Stuff.co.nz

NICK KRAUSE

A major retailer has criticised annual rent hikes "as a cancer that will kill off retailers" while an analyst warned the practice could force listed clothing retailer Hallenstein Glassons to close stores.

Hallensteins, which yesterday lifted interim earnings forecast by as much as 25 per cent after strong Australasian sales over Christmas, attacked mall owners over rising rents.

Group sales for the six months to February 1 rose 7.9 per cent to $108.6m compared with the same period previously. Net profit forecast is $8.7m to $9m for the period.

But chief executive officer Graeme Popplewell warned that maintaining earnings momentum for the full year would be difficult, due to rising rents and wages and ongoing industry discounting.

"The embedded practice of annual rent increases in excess of consumer price inflation that major shopping centre owners are enjoying is increasingly making specialty retail in some centres a marginal proposition, and in common with other retailers, we are carefully reviewing our store portfolio," he said.

Buffy Gill, a Goldman Sachs retail analyst, said in a research paper: "We expect Hallenstein Glassons may consider closing a handful of stores over the next 12-24 months and instead sell to those respective customers bases via its online offering."

Meanwhile, Whitcoulls and Farmers owner David Norman, who with wife Anne owns 607 stores with 9000 employees in New Zealand and Australia, said he had warned senior management at Westfield and AMP that CPI-plus annual rent rises had to stop as it was a cancer that will kill off retailers who agreed to pay them.

"Even in good times a retailer cannot live with rental increases that can be as high as 2.5 per cent above the CPI as for most retailers any occupancy cost above 15 per cent of turnover makes that outlet marginal."

Big box retailers such as Farmers or the supermarkets were unaffected, but it did affect all his other brands operating in Westfield and AMP malls on both sides of the ditch, he said. The Normans also own jewellery brands and homeware retailer Stevens.

Criticism over the high rents has been rejected by AMP Capital property portfolio general manager Stephen Costley, who said retailers had signed up to those conditions when the leases were taken out and they had the opportunity to bargain for different conditions to reflect the current trading environment when those leases come up for renewal.

"This is part of the normal business cycle."

Westfield New Zealand director Justin Lynch refused comment on the basis rents were confidential between the two parties.

"The? majority of our leases are index based however, all leasing arrangements are commercially sensitive and remain confidential between the two parties. Therefore, it would be inappropriate for us to make any specific comment with respect to our leasing arrangements with our retailers."

- ? Fairfax NZ News

Source: http://www.stuff.co.nz/business/6386439/Annual-rent-hikes-will-kill-off-retailers

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