As another week rolls by, the queue of retailers and restaurant operators lining up for CVAs or seeking to reduce store portfolios gets ever longer, leading to greater uncertainty and probable long-term deterioration of some of our high streets and shopping centres.
The names of many operators seeking CVAs are unsurprising but the almost daily announcements of another occupier seeking financial assistance from landlords have been unexpected. With most of the CVA proposals including extensive store closures, the outlook for many high streets and shopping centres is gloomy.
At a time when landlords’ and tenants’ active support of the high street is critical, the gulf of mistrust that now exists between them has never been greater. Landlords view the CVA process as brutal and unfair, especially the apparent ease with which occupiers can obtain approval to break legally binding lease commitments.
The CVA process was originally conceived as a self-help mechanism to ensure companies’ survival and save jobs. However, many of the landlords are institutions acting for pension holders and as they bear the brunt of these CVAs, it prompts the question: are we saving jobs at the expense of our pensioners? Surely this was never their intention.
Retailers have been hit by a raft of hefty increases: rising occupational costs, stepped uplifts to the minimum wage, the apprenticeship levy, new staff pension benefits and business rate increases, as well as a weakening pound under the cloud of Brexit. At the same time, online sales have risen and home deliveries have become so consistent that they often outperform retail stores with all their ‘on costs’.
Find out more - Is better regulation needed to prevent misuse of CVAs?
The principal online beneficiaries are Amazon and eBay. But almost all retailers are investing heavily in their online platforms as they move away from bricks and mortar. This shift in strategy will mean the end for many high streets if action isn’t taken to reverse the retreat from town-centre shopping areas in favour of regional centres and online delivery. We need urgent government intervention, collective council action and better co-operation between landlords and retailers if the high street is to survive.
I believe the following measures are imperative:
- Close the CVA ‘loophole’ – it is open to potential abuse from unscrupulous retailer owners;
- Impose an ‘Amazon’ or online tax to level the playing field – a VAT-style tax at the point of sale to lure shoppers back in store because it represents better value;
- Overhaul the rates system to rebase the rates payable to current-day values to avoid some retailers paying higher rates than rents;
- Change the planning process to put high streets and shopping centres first, rather than regional centres/out-of-town retail parks, to protect them and their social fabric from further erosion;
- Make all town-centre car parking free;
- Promote greater transparency between retailers and landlords – tenants should be open with landlords about turnover/profits for each store, leading to a higher level of trust when problems arise;
- Introduce more turnover leases to engender a real partnership approach between landlord and tenant – ensuring that an affordable rent is achieved and both parties are incentivised to improve a store’s performance, and encouraging retailers to take stores owing to the lower risk profile; and
- Overhaul the service charge regime to ensure that all tenants are contributing a fair proportion and receiving value for money.
In all my 30 years in the retail property sector, I have not witnessed such a meteoric change in retailer sentiment and demand for shop property. The key stakeholders – government, councils, retailers and landlords – must be aligned in their quest to save the high street, which, it’s clear to everyone, cannot wait. To coin a retail adage: ‘When it is gone, it will be gone.’