Retail woes hit landlords

A large Scottish retail chain has been hit with cashflow problems in the latest sign that the retail sector is struggling against the consumer downturn.

Ossian Retail Group, which owns fashion chain Internacionale and homeware chain Au Naturale, did not meet its full rent and service charge obligations for its 150-strong store portfolio, due on the quarter day last week.

It has now approached landlords to ask to pay rent, which was due on 25 March, monthly instead of quarterly in advance.

Several other retailers have also approached landlords asking to pay monthly, among them fashion chain East and footwear chain Faith.

The March quarter day is a tough date for retailers. They must pay three months in advance, following a usually quieter January-to-March period of sales, compared with the peak trading times of September to December.

This week bed retailer Sleep Depot and toy shop Toyzone became the latest high street victims of the downturn. Administrators from Kroll have been appointed to Sleep Depot’s 100 in-store concessions, which are mainly in Land of Leather stores. Youngsters, which owns 20 Toyzone stores, has also gone into administration. KPMG is advising.

Ossian Retail was bought by a management buyout backed by private equity firm Penta Capital in 2005. A number of the management buyout team’s original members left earlier this year, and its proposed rapid expansion drive from its Scottish heartland into the Midlands and south of the UK is under review.

A spokeswoman for Ossian Retail declined to comment. Penta Capital could not be reached.

It is thought that Ossian Retail has come to arrangements with some landlords to pay rent monthly in advance. However, other landlords have refused to accept and have demanded this quarter’s rent by today, and some have threatened the group with bailiffs.

Experts suggest that mid-market retailers and those backed by heavily leveraged private equity firms will suffer.

Stuart La Frenais, director of shopping centre agency at Jones Lang LaSalle, said: ‘What we are seeing is that it is the mid-market operators who are generally the more susceptible to the downturn, as shoppers are moving towards either the value end or towards a more expensive spend for longer-lasting quality.’

A recent report from Nottingham University Business School and Barclays Private Equity said the number of private equity-owned companies falling into receivership rose by almost half last year to 106.