A gap in the marketing
The sensitive issue of service charges is back on the agenda with the launch last week of a Good Practice Guide to the promotion of shopping centres.
Around £80m a year is spent on marketing campaigns by landlords and tenants to get shoppers into their local centres, and these promotion costs become a significant item on service charge bills.
However, many retailers say such costs and service charges have risen to unacceptable levels and that landlords put a bald figure for promotion into the overall service charge bill instead of explaining how the money is spent.
The guide has been produced by the Property Managers Association (PMA) and seeks to lay down golden rules on how promotions should be organised. It is endorsed by the British Council for Shopping Centres, the British Retail Consortium and the RICS.
'A number of landlords are spending large amounts on marketing and not really demonstrating the benefits to the tenants,' declares Richard White, president of the PMA and property director at Thomas Cook. 'A lot of the time it's very difficult to quantify whether it's had any effect or not.'
White even claims that landlords have promoted shopping centres heavily when looking to sell them and retailers have footed much of the bill without seeing any benefit. He urges retailers to use tenant associations to discuss and agree marketing expenditure with landlords.
Research into shopping centre service charges by Jones Lang LaSalle partly bears out the complaints of retailers. JLL's latest Retail OSCAR report, published this month, shows that promotional costs have risen from an average of 26p/sq ft in 1998 to 35p/sq ft in 2003.
But despite the long-term increase, Richard Davies, head of JLL's shopping centre management team, points out that promotional and total service charge costs have fallen markedly in the last year. In 2002 promotional costs reached 41p/sq ft, compared with 35p now, while the total service charge has fallen from £3.46 in 2002 to £3.22.
Davies adds: 'The latest report shows we have worked with retailers to check service charge costs, and there have been a number of reductions, including cleaning costs and promotional spend.'
According to JLL, the long-term rise in shopping centre service charges since 1998 reflects longer opening hours and the introduction of the minimum wage, with corresponding increases in the cost of security, cleaning and administration. The long-term rise in promotional costs is said to reflect the increasing importance of marketing the centres in the face of growing competition.
But the PMA is going further. At its annual conference on 22 April, the association will discuss ways for members to work together to monitor increases in total service charges across the UK.
'Our intention is not to be like a "hunting pack", but to act as a sounding board, to identify shopping centres where service charges seem to be increasingly unreasonably,' says White.
Landlords are spending large amounts on marketing and not really demonstrating the benefits
Richard White, Thomas Cook
'Service charges have increased significantly in some locations over the last couple of years and again, this happens without an awful lot of explanation.' The PMA has already published a guide to service charges, which it says should be read in conjunction with the guide on promotional costs.
Landlords are remarkably calm in their response to the retailers' complaints. Legal & General Investments, which owns the Grosvenor Centre in Northampton and Golden Square in Warrington, is one of several that took part in drawing up the code, alongside British Land, Land Securities, Hammerson and Capital Shopping Centres.
Doing the best
Susan Roche, L&G's director of property management services, notes mildly that: 'We would all like to be able to say that an advertising campaign will be one hundred per cent effective … Obviously, you do the best that you can.'
Roche argues that because L&G splits promotional costs equally with its tenants, in common with other landlords, it has a strong incentive to spend marketing cash carefully.
She adds: 'We try to work closely with tenants … I would argue that L&G and a number of other institutions probably try harder than most to give our tenants the information and evaluation that they need on marketing campaigns.'
And she agrees that some landlords do better than others: 'Some people haven't quite got there, which is one reason for putting out a guide to best practice.'
Roche also points out that for a marketing campaign to be evaluated properly, retailers must give the centre's management detailed information about its impact on sales. Yet some are reluctant to do this, fearing that the information will be used to put up rents: 'Some are extremely reluctant to divulge anything at all,' she says.
Meanwhile Capital Shopping Centres, owner of Lakeside in Thurrock and the Harlequin in Watford, claims to have taken the sting out of the issue by keeping promotional budgets entirely separate from service charges. Each of its centres has its own merchants' association with voting rights for every retailer. The retailers must vote for a marketing budget drawn up by the centre's marketing manager before any money is spent.
One retailer who seems able to see both sides of the argument is Patrick Turnbull, property director at TK Maxx, the clothing chain with 150 stores across Britain. Both landlords and retailers are at fault, Turnbull says. He estimates that in around 50% of cases, he has to press landlords to provide detailed breakdowns of service charges, including promotional expenditure, which often don't arrive until six months after the end of a financial year.
On the other hand, he believes that 'retailers are bad at having conversations with landlords about promotions. They tend to let the landlord get on with it, and then they say that they are disappointed.'