2020 Retailers in trouble thread
Discussion
sim72 said:
Most bricks and mortar retailers (apart from essential ones like supermarkets) are struggling unless they have a good online presence.
The reason for that is many people still don't want to mix with crowds of others.
And yet the previousl version of this thread that I started ran all 2019 without Covid being known aboutThe reason for that is many people still don't want to mix with crowds of others.
And on this one that I started in December 2019 it ran to 9 pages before March this year
But don't let that get in the way of your opinion
Sports direct withholding rents for a bit. Quite a bit
https://www.egi.co.uk/news/mike-ashleys-frasers-pl...
https://www.egi.co.uk/news/mike-ashleys-frasers-pl...
JPJPJP said:
Sports direct withholding rents for a bit. Quite a bit
https://www.egi.co.uk/news/mike-ashleys-frasers-pl...
Landlords can't evict at present but I wonder if landlords will go to the courts once restrictions are lifted and not seek eviction but payment or seizure of stock in lieu of payment.https://www.egi.co.uk/news/mike-ashleys-frasers-pl...
Just trying to picture balifs going through sports direct.....300 ill fitting t shirts £100 etc (I joke and have bought stuff from sports direct its all fine).
JPJPJP said:
Sports direct withholding rents for a bit. Quite a bit
https://www.egi.co.uk/news/mike-ashleys-frasers-pl...
How much cash has sports direct got I wonder. Ashley has borrowed loads for acquisitions, can he pay his debts for an extended period?https://www.egi.co.uk/news/mike-ashleys-frasers-pl...
Edited by hyphen on Wednesday 8th July 21:08
skwdenyer said:
The retailers were in trouble before Covid; they're just in more trouble. After all these years of Conservative governments, it is hard to come up with an answer as to why that does not predominantly feature "The Torys" 
There's no such thing as a free market in Europe; there are regulated markets. When regulated markets fail (as the UK retail environment has assuredly failed), it is as much a failure of regulation as of anything else.
The "magic of property" is the underlying problem across the board; it has been "the gift that kept on giving" as far as the UK economy is concerned, almost entirely disconnected from reality. Just see all the bleating about pensions being impacted if we dare to imagine retail rents dropping down to sensible levels (sensible being defined as a level sufficient to allow a retailer to make a decent profit). The entire thing is broken; successive administrations just keep on trying to come up with new "elastoplast" fixes.
</rant> sorry
Completely agree. There's no such thing as a free market in Europe; there are regulated markets. When regulated markets fail (as the UK retail environment has assuredly failed), it is as much a failure of regulation as of anything else.The "magic of property" is the underlying problem across the board; it has been "the gift that kept on giving" as far as the UK economy is concerned, almost entirely disconnected from reality. Just see all the bleating about pensions being impacted if we dare to imagine retail rents dropping down to sensible levels (sensible being defined as a level sufficient to allow a retailer to make a decent profit). The entire thing is broken; successive administrations just keep on trying to come up with new "elastoplast" fixes.
</rant> sorry
skwdenyer said:
sim72 said:
jakesmith said:
Well said. Now, which retailers would you say are in trouble, and, apart from 'The Torys', what is the cause etc
Most bricks and mortar retailers (apart from essential ones like supermarkets) are struggling unless they have a good online presence.The reason for that is many people still don't want to mix with crowds of others.
The reason for that is that 100-odd people a day are still dying from COVID.
The reason for that is ... ah damn,
There's no such thing as a free market in Europe; there are regulated markets. When regulated markets fail (as the UK retail environment has assuredly failed), it is as much a failure of regulation as of anything else.The "magic of property" is the underlying problem across the board; it has been "the gift that kept on giving" as far as the UK economy is concerned, almost entirely disconnected from reality. Just see all the bleating about pensions being impacted if we dare to imagine retail rents dropping down to sensible levels (sensible being defined as a level sufficient to allow a retailer to make a decent profit). The entire thing is broken; successive administrations just keep on trying to come up with new "elastoplast" fixes.
</rant> sorry
Not sure why you think regulation should have been used to change the shift to online / omnichannel / grocery delivery / klarna type credit platforms etc.
Not sure why you think that regulation to prevent technological / consumer driven changes might make the market more 'free'
Rents are high as you point out but I don't think it's the role of government to deflate asset classes in one sector to benefit another sector, especially ones so closely linked to retirement planning & pensions
jakesmith said:
Rents are high as you point out but I don't think it's the role of government to deflate asset classes in one sector to benefit another sector, especially ones so closely linked to retirement planning & pensions
Is there a structural problem with retail rents?The retailers renting the properties can no longer afford the rent. The landlord cannot afford to drop the rent because doing so risks writing down the value of the asset on the balance sheet.
For at least some period, the landlord would rather have the property left empty than filled at a cheaper rent.
Is it a downward spiral, in that retail landlords are sitting on assets whose true value is below that on their balance sheet, and in trying to avoid that from crystallising by holding high rents, it's only harming the retail environment further, putting more downward pressure on values?
RonaldMcDonaldAteMyCat said:
jakesmith said:
Rents are high as you point out but I don't think it's the role of government to deflate asset classes in one sector to benefit another sector, especially ones so closely linked to retirement planning & pensions
Is there a structural problem with retail rents?The retailers renting the properties can no longer afford the rent. The landlord cannot afford to drop the rent because doing so risks writing down the value of the asset on the balance sheet.
For at least some period, the landlord would rather have the property left empty than filled at a cheaper rent.
Is it a downward spiral, in that retail landlords are sitting on assets whose true value is below that on their balance sheet, and in trying to avoid that from crystallising by holding high rents, it's only harming the retail environment further, putting more downward pressure on values?
jakesmith said:
I don’t think the solution to this, which is ‘rent controls’ sits well in a post decrying the lack of a free market.
Who said rent controls is the solution?A source of the issue appears to be landlords who are over leveraged being motivated to misrepresent the true value of assets on their balance sheet to avoid breaching covenants. Reducing rents may have the effect of reducing balance sheet value, hence the landlord refuses to reduce rent and would rather even have the property lay empty.
If anything is 'rent control' via a perversion of capitalism and free market behaviour, it is rents being held at unsustainable levels or even empty rental properties, specifically to prevent their true value being realised in the landlord's accounts, as may show the landlord is in reality balance sheet insolvent.
The solution is control over how companies are allowed to account for those assets, not direct rent controls (the rents are a symptom of the problem rather than the cause).
RonaldMcDonaldAteMyCat said:
jakesmith said:
I don’t think the solution to this, which is ‘rent controls’ sits well in a post decrying the lack of a free market.
Who said rent controls is the solution?A source of the issue appears to be landlords who are over leveraged being motivated to misrepresent the true value of assets on their balance sheet to avoid breaching covenants. Reducing rents may have the effect of reducing balance sheet value, hence the landlord refuses to reduce rent and would rather even have the property lay empty.
If anything is 'rent control' via a perversion of capitalism and free market behaviour, it is rents being held at unsustainable levels or even empty rental properties, specifically to prevent their true value being realised in the landlord's accounts, as may show the landlord is in reality balance sheet insolvent.
The solution is control over how companies are allowed to account for those assets, not direct rent controls (the rents are a symptom of the problem rather than the cause).
The state could also change tax policy and impose full rates or double rates on units that were vaccant for more that 3 months?
jakesmith said:
skwdenyer said:
sim72 said:
jakesmith said:
Well said. Now, which retailers would you say are in trouble, and, apart from 'The Torys', what is the cause etc
Most bricks and mortar retailers (apart from essential ones like supermarkets) are struggling unless they have a good online presence.The reason for that is many people still don't want to mix with crowds of others.
The reason for that is that 100-odd people a day are still dying from COVID.
The reason for that is ... ah damn,
There's no such thing as a free market in Europe; there are regulated markets. When regulated markets fail (as the UK retail environment has assuredly failed), it is as much a failure of regulation as of anything else.The "magic of property" is the underlying problem across the board; it has been "the gift that kept on giving" as far as the UK economy is concerned, almost entirely disconnected from reality. Just see all the bleating about pensions being impacted if we dare to imagine retail rents dropping down to sensible levels (sensible being defined as a level sufficient to allow a retailer to make a decent profit). The entire thing is broken; successive administrations just keep on trying to come up with new "elastoplast" fixes.
</rant> sorry
Not sure why you think regulation should have been used to change the shift to online / omnichannel / grocery delivery / klarna type credit platforms etc.
Not sure why you think that regulation to prevent technological / consumer driven changes might make the market more 'free'
Rents are high as you point out but I don't think it's the role of government to deflate asset classes in one sector to benefit another sector, especially ones so closely linked to retirement planning & pensions
It has nothing to do with “The Tories” or any other political party
People are reacting very quickly to a changing world .. and indeed driving that change
Governments and many businesses have been caught out by the speed of change
We are caught in a moment of massive change
Rent is only one function of the property market.
Yields are rarely discussed in the mainstream.
Any valuer worth their letters will recognise an over rented property and or a high rent in a falling market. Over renting = higher risk of tenant default. Over renting also means little or no rental growth for a considerable time thereafter, so eventually, the rent is eroded by inflation, there's no organic growth and it is is less attractive to an investor.
So, you move the yield out, and consequently, there is a correction in value. Of course this correction can impact on borrowings, balance sheet etc. Intu being an example (in part, lots of other issues with that outfit - classic being caught by yield compression, which when corrected, left a large hole into which they and their banks peered).
So, rents may remain high (in some markets) but when taken in the longer term, and when looking at the equated yield (the yield over the lifetime of the investment), the market is correcting.
Yields are rarely discussed in the mainstream.
Any valuer worth their letters will recognise an over rented property and or a high rent in a falling market. Over renting = higher risk of tenant default. Over renting also means little or no rental growth for a considerable time thereafter, so eventually, the rent is eroded by inflation, there's no organic growth and it is is less attractive to an investor.
So, you move the yield out, and consequently, there is a correction in value. Of course this correction can impact on borrowings, balance sheet etc. Intu being an example (in part, lots of other issues with that outfit - classic being caught by yield compression, which when corrected, left a large hole into which they and their banks peered).
So, rents may remain high (in some markets) but when taken in the longer term, and when looking at the equated yield (the yield over the lifetime of the investment), the market is correcting.
The issue in the meantime is that rents don't reflect true value, retailers can't afford to pay them and the move to online is accelerated by poor practice of behalf of landlords. They are kicking themselves in the balls by accelerating the change that reduces the value of their assets...
I do wonder how many people have pensions where significant value is attributed to retail property that is likely to continue falling in value?
I do wonder how many people have pensions where significant value is attributed to retail property that is likely to continue falling in value?
The reality is was have an enormous amount of choice nowadays, and all the retailers offering the same tat but from a shop can't compete with the online retailers. That and supermarkets now sell a massive variety as well, it's not hard to see why there is less demand from the smaller high street retailers.
Amazon's dominance and prices certainly won't be helping either.
Property, either commercial or domestic has always been a pretty reliable form of investment for people playing the long-term game, and there is too much of an interest in maintaining ever increasing rents or values.
All these massive shopping centres have probably been financed based on a certain level of income from the rents, but the reality is, the market can't/won't pay that anymore, and that was becoming clear even before coronavirus.
Case in point, but I'm sure if you look around your own local areas you'll find more examples:
https://www.realla.co.uk/details/12783073
Cabot circus opened around 2008, so looks like the original lease was £265k PA for 15 years. Now asking £180k, and I suspect will take a while to let, regardless of Coronavirus.
Then the rates - its Rateable Value has never been more than £170,000 and is currently £136,000, so if that is reflection of the actual open market rental value, the rents are massively optimistic.
jammy-git said:
I don't think Corbyn and his government would be managing the economy that much better, though I do think they'd be doing a much better job at handling the pandemic as a whole.
I don't know what that's based on. Corbyn couldn't even manage wearing glasses. Still, he "won the argument".
Argleton said:
jammy-git said:
I don't think Corbyn and his government would be managing the economy that much better, though I do think they'd be doing a much better job at handling the pandemic as a whole.
I don't know what that's based on. Corbyn couldn't even manage wearing glasses. Still, he "won the argument".
What we do know is that Boris won. And compared to a lot of countries, his (read: Cummings) handling of the pandemic has been appalling.
ant1973 said:
The market is already fixing the problem. Some units are empty and will stay empty. Eventually those who cannot extract sufficient rent to service their debt will fold. It might not happen quickly but it appears to be happening. On the other hand, some units keep turning round. There is always another idiot who has a dream of opening a shop and if that's how they elect to spend their cash, is it really for the rest of us to save them?
The state could also change tax policy and impose full rates or double rates on units that were vaccant for more that 3 months?
Agreed, there is always someone who dreams of opening a shop and will take it with no long term thought. Ironically it is often the small shopkeepers who keep rents high, either through not doing their research when taking a unit or just agreeing to what the landlord asks for on review or renewal. Many don't see the value in appointing a surveyor to fight their corner and potentially get a rent reduction on renewal, whereas larger retailers will fight and get a reduction as they have employed someone to act on their behalf. The state could also change tax policy and impose full rates or double rates on units that were vaccant for more that 3 months?
With the increase in the threshold for nil empty rates to £12,000, some landlords have used this as an opportunity to increase asking rents for smaller units as new occupiers just want a unit at less than the threshold.
Rents have fallen for most retail units since the peak of 2008, with some locations having seen falls of up to 50%. Furthermore, the length of leases is shortening (average length of new leases in 2011 was 4.8 years in 2011 compared with 8.7 years in 1999). Although there are upward only rent reviews on longer leases, there are fewer and fewer reviews as leases get shorter, with possibility of rents being agreed at market level on renewal.
The Rateable Values of most retail properties also fell at the 2017 revaluation, however the treasury has ensured their income doesn't fall by having transitional relief and by annually increasing the multiplier.
If larger retailers were to be truthful and tell the public the biggest increase in costs foisted upon them they would say the increase in minimum wage, however that would be a PR disaster so they focus blame on rent and rates from those 'nasty big landlords' and government/ councils.
jammy-git said:
Argleton said:
jammy-git said:
I don't think Corbyn and his government would be managing the economy that much better, though I do think they'd be doing a much better job at handling the pandemic as a whole.
I don't know what that's based on. Corbyn couldn't even manage wearing glasses. Still, he "won the argument".
What we do know is that Boris won. And compared to a lot of countries, his (read: Cummings) handling of the pandemic has been appalling.
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