Sadly, yesterday another retailer went into administration, this time Jessops, the high street camera chain. For the time being it continues to trade but the jobs of its 2000 employees in 200 stores are under threat. Surprisingly, Christmas can be a bad time for retailers – rents are due on Christmas Day and if the expected bumper sales don’t materialise, the money may not be there to pay them.
Obviously it’s not going to get any easier for ‘bricks and mortar’ store chains with the continuing increase in online sales, but there’s a more fundamental problem – apart from the massive supermarket and department store groups, all the power lies with the Landlords. Did you know that each retailer has to pay a quarter’s rent in advance? (So those December rents are paying for the quiet times of late January and February, when there are few shoppers around filling the tills.) Or that most shops are still on institutional 25 year leases? There’s a dangerous inflexibility in the system when changing retail and behavioural patterns actually demand more flexibility.
Retailers need to have meaningful discussions with their landlords before insolvency, but with institutional landlords often being the largest UK pension funds, they’re loath to negotiate any sort of rent reduction with their tenant and have to write down the book value of their portfolio, regardless of the circumstances and the seemingly commonsense approach that something is better than nothing. Rent reviews even in this day and age still tend to be ‘upward only’ for the whole duration of the lease – no matter if you’re in a local high street and suddenly there’s an enormous new retail park on the outskirts of the town. That’s why you see so many empty shops on the high street – often a landlord would rather keep them empty than let in someone on a lesser rent and thereby lower the ‘market’ rent for an area or high street. And don’t be fooled that the situation for the high street is improving – much as I like what Mary Portas says and does, her work isn’t addressing these fundamental economic concerns. If anything, town centres are even more endangered – in the second half of 2012 there was more out-of-town development going on than at any other time in history, and we all know the attitude of our Coalition partners towards planning control.
Administration should be an absolute last resort, as the only winners from the process are usually the big accountancy firms who make large sums from their fees in running the businesses during the administration period. The staff lose their jobs, the shareholders lose money and it costs the government in terms of unpaid tax revenues and benefit payments. The process should genuinely be an opportunity for a business to restructure itself, as with the US Chapter 11, so it can come back leaner and meaner with fewer outlets but the majority of its employees still in work. However, this seldom happens – after several months, the accountants cash in, the stores quietly close and the employees join the dole queue.
After the last big administration, that of Comet in the run-up to Christmas, our own Vince Cable suggested we need to review the whole insolvency process. He’s totally right, but we need to go a whole lot further and look at the landlord/tenant relationship and its failures, and the implications of those failures on our withering high streets. There is no point in hanging on for unrealistic ‘market’ rents if all we have left are supermarkets, charity stores and coffee shops. The already under-pressure pension funds could become another house of cards. I seriously hope for the best for everyone at Jessops, but I fear for the worst.
* Mark Blackburn worked in retail for over twenty years and is currently a member of the Social Liberal Forum Council.