The Wall Street Journal over the weekend had a story suggesting that, while the growth of e-commerce continues to put pressure on bricks-and-mortar retailers, there’s another factor with some culpability - continuing high rents being charged by developers and landlords.
While rents have come down from the highs of just a few years ago, the Journal writes, “they haven’t fallen as fast as sales at struggling chains. The rents remain higher than prerecession levels in many prime shopping areas such as Manhattan, Los Angeles and Dallas.”
The story goes on: “Landlords say it isn’t that simple. They argue retailers fueled demand with a flood of store openings coming out of the 2008 recession. And even when the landlords dangle lower rents, it is hard to tempt retailers to open stores when they are retrenching … In other cases, though, landlords have an incentive to leave space vacant because slashing rents would violate their loan agreements, industry executives said. Moreover, any devaluation of the property would make it harder for them to borrow in the future.”
While rents have come down from the highs of just a few years ago, the Journal writes, “they haven’t fallen as fast as sales at struggling chains. The rents remain higher than prerecession levels in many prime shopping areas such as Manhattan, Los Angeles and Dallas.”
The story goes on: “Landlords say it isn’t that simple. They argue retailers fueled demand with a flood of store openings coming out of the 2008 recession. And even when the landlords dangle lower rents, it is hard to tempt retailers to open stores when they are retrenching … In other cases, though, landlords have an incentive to leave space vacant because slashing rents would violate their loan agreements, industry executives said. Moreover, any devaluation of the property would make it harder for them to borrow in the future.”
- KC's View:
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It strikes me that this is yet another example of how certain traditional ways of thinking about things has to be adjusted, with buy-in from everybody involved. Retailers and landlords, faced with economic realities that affect both their interests, may need to find new ways to work together that will give both the flexibility they need and the profitability they require. And then, of course, financial institutions will have to get on-board, too … never the easiest of propositions.
Having said all this, I must confess that I have no idea how to do this. It is a little above my pay grade. Actually, a lot. But it doesn’t seem all that much of a leap to suggest that new circumstances require new thinking.
