M&S joins the battle against rising high street rents
Marks & Spencer’s top team yesterday joined calls for landlords to give retailers fairer rents, as it revealed a massive drop in profits.
The company reported that pre-tax profits were down 62 per cent in 2017, mostly as a result of its store closure programme.
Chief executive Steve Rowe said in a presentation he had a “great deal of sympathy” with Next boss Lord Wolfson, who is thought to be unhappy about the recent spate of company voluntary arrangements (CVAs).
It was reported over the weekend that Next is now asking landlords to grant its stores rent cuts if a neighbour gains a reduction through a CVA.
Rowe said yesterday that the retail rental market was “not particularly healthy”, and that the practice of upward-only rent reviews was unsustainable.
“We are aiming for a third of our business to come from online and, unless the market corrects its pricing of rents, that will move faster,” he added.
New chairman Archie Norman chimed in, saying that M&S would have “some very realistic conversations with landlords”.
Read more: Next demands rent cuts on par with its struggling neighbours
Earlier this week M&S confirmed that it would accelerate plans to close selected “full-line” stores, which sell both clothing and food.
Many of the company’s stores have been in the same place for decades, with some of the worst-performers now over 75 years old. M&S has already incurred more than £300m in costs related to shaving its legacy portfolio, and hopes to transfer shoppers to its newer, more profitable stores.
The company said yesterday that transfer rates had been “higher than expected” so far.
But Neil Wilson of Markets.com said it was “far from certain” that sales could transfer on the large scale detailed in the closure plans.
Analysts at Liberum took a similar view, saying: “We expect that some of the sales from store closures will be picked up in outer town stores (as has happened in Warrington, for example), although it remains unclear how successful this can be across the whole portfolio.”
The plans could also affect other retailers. Speaking to City A.M., Diane Wehrle, director of insights at Springboard, warned that the closures may set off a domino effect on local high streets. She said the loss of large anchor tenants such as M&S can cause a footfall drop of as much as 25 per cent.
“That reduces demand and impacts on neighbouring retail operations and there could potentially be a number of closures of other stores,” she said.
Read more: M&S confirms over 100 stores will close by 2022