The most popular station in the world is: WIIFM – almost every human being is permanently tuned in to ‘What’s In It for Me’.
By extension, companies and brands are comprised of people – so they too are tuned to that very same station. (Even charities and the volunteers who work there to some extent do so because it makes people feel good about themselves for doing good.)
This is not a bad thing; quite the opposite. It makes things predictable and we all know where we stand with each other. (Even if we say otherwise.)
When it comes to running a retail business in a shopping centre, the ‘tenant’ often approaches the landlord for a rental abatement.
The times when an abatement is appropriate is rare – and only if the alternative is a vacancy. But simply because a retailer cannot afford the rent is not a good reason to award a rental abatement.
Obviously the leasing cycle (say five years for specialties) and the general economic cycle cannot be completely in sync and on average will lag 2.5 years. This means that specialty tenants will suffer for that period of the economic downturn.
When the lease is renewed or negotiated in a down cycle– currently market reports are 5% to 10% below previous rents – then the retailer will enjoy 2.5 years of advantage whilst the landlord experiences below average returns.
In addition to reducing rents, retailers are also closing stores, shrinking formats and adopting eCommerce solutions. ALL of these are to the disadvantage of the landlord.
Sometimes you win and sometimes you lose.
When a retailer approaches a landlord for an abatement, they are typically poorly prepared and lack a realistic business case. What they EXPECT is for the landlord to wear some of their business risk. Times are tough = Rent is too high; that is the extent of their argument.
They will never come to the landlord and say Times are Good = Here is some extra rent. (Landlords know that of course, hence ‘turnover rent’.)
And good on the retailer for NOT doing it. When it is your turn to win and benefit from unexpected gain, you should profit. But when the opposite applies, you should also (be prepared to) wear the pain.
The retailers and the landlord should each wear their own business risks. Abatements are viable options when both parties will benefit. Retailers should understand that simply offering less rent is of no benefit to the landlord. Retailers should understand that landlords are tuned in to WIIFM – and prepare accordingly when things do turn sour.
I suspect retailers who are scanning this may think I am insensitive or worse, ‘don’t understand’ the challenges they face. I encourage you read the article again – slowly: I am not suggesting that you don’t or can’t approach your landlord. (In my personal experience, most of the major landlords will give you a fair hearing.)
I am suggesting though that retailers must appreciate that simply passing on their business risk to the landlord (who has their own risks) is not a smart thing to do and won’t get you the result you need.
To complete the headline:
No one care when your business fails, especially not the landlord – if all you do is wanting pass on your business risk to them with no benefit to them.