Question: Does anybody know why the UK operates an odd system of collecting rentals on stores on a quarterly up-front basis?
Answer: It dates from a time when property owners were typically many miles away from their assets and relied on horse drawn wagons to collect the rents.
The answer surprised us too. The last few years have seen a shake-up of the British high street as well-known brands have disappeared and the high street vacancy rate has risen to an average 14% with a shocking 25% in the North in towns such as Nottingham and Blackpool.
There are many factors at play here around customer service, customer offer, and the rise of convenient and price sensitive online shopping. Much has already been said on these topics. In fact, last year we spoke at the Retail Week conference on the future of the high street discussing exactly these topics.
However, there is also something simpler at play here, tipping the balance for retailers struggling with cash flow: the UK’s outdated mode of rent collection. This century old mode of rent collection is the nail in the coffin for the old timers and a potential barrier to entry for newcomers to the High Street.
A new retailer’s cash flow scenario is simply too severe when you have to take into account the three-monthly rental cycle. It is ultimately fuelling a cycle of potentially terminal decline.
Thankfully, there is something of a fight-back taking place with certain merchants including Monsoon, Sports Direct, Clinton Cards and Arcadia arguing with their landlords for a much-needed shake-up of the existing model, demanding the right to pay on a monthly basis.
The UK is part of a select group of European retailers including France, Italy and Ireland whose retailers still pay rent on a quarterly basis. It seems that the rest of Europe has moved on from horse drawn rent wagons, though this probably won’t be comforting news to the likes of Game Group that has gone into administration and Mothercare that is struggling to maintain its store estate.
Horses are not the only problem. Historically leases have been on a 15, 20 and 25 year standard lease and although there will be review points built into them they will be upward only rental reviews. There is a growing trend now towards six year leases which is a step in the right direction but still seems at odds with the pace of change around us.
How many other things in our lives are fixed at six years? The world was a different place six years ago: just think we had no iPhones, and no apps and no mobile commerce.
Fortunately, there is one chink of light: some landlords are waiving business rates on empty high street stores. It helps but it’s a sticking plaster, not a solution.
In her report on the future of the high street Mary Portas had many criticisms and many recommendations but there has been a failure to hone-in on the key things that would make a real difference to town centres. One focus should be on overhauling the rental system.
The problem is that there is no holistic approach being taken to reviewing the current model and a lack of a single body fighting for retailers on this tough issue. At present there is no organisation with any teeth that could potentially initiate a systematic plan to sort out this mess that amazingly has been causing problems since before cars had petrol engines!
This is a spondored column from Sarah Wilson, a retail specialist at consultancy Egremont Group