Unreasonable landlords offering global retailers better deal, says Solomon Lew

Leading retailer Solomon Lew has said landlords were offering cheaper rents to his rival international brands, while charging local brands unreasonable rents, as the company decided to exit from Melbourne's Bourke Street Mall because of what it said were high rents.

Retail groups say the decision highlights the pressing need for more retailers to speak out about the unreasonable request of retail landlords.

A few months back, fast-food chain SumoSalad too accused landlord Westfield of high rents and put two of its 20 companies into voluntary administration.

Earlier in the week, Lew and Premier Investments’ chief executive Mark McInnes spoke out about the tough rental conditions for local incumbents in shopping strips like the mall during its results presentation.

McInnes said the decision to close the Portmans and Just Jeans flagships in the Melbourne shopping strip came down to “unrealistic rent”, the SmartCompany quoted him as saying.

McInnes said the company would be closing the two flagship retail sites next month because retail landlords have not come to the table to discuss better deals. This is despite the fact it would cost landlords more in the long run to replace them as tenants in the spaces that they have leased for decades.

The lifestyle and fashion retailer, which operates Portmans, Just Jeans, Peter Alexander and Smiggle, clocked sales of $1.09 billion with net profit after tax of $105 million.

The company pointed to the incentives offered by landlords to international retailers to take up space in strips like the mall, suggesting that Premier Investments could exit more retail sites if things aren’t adjusted.

“Today, we announced that unless landlords cut us the same rental, and incentive deals they’re offering international competitors in the young fashion market, we may need to close many more Dotti stores. The cost to landlords of replacing us is far higher than if they solve for us,” McInnes said.

Separately, Lew and McInnes also spoke against unreasonable landlords on Ross Greenwood's show on 2GB.

“If they’re raising the rent to a level where it’s no longer viable, we are going to move on,” said Lew.

When Greenwood said if this meant that if "the landlords can’t come to the party with some sort of a deal… if there’s no deal, they’re gone,” Lew referred to landlords' unfair rental practices.

"You’d be offended if your competitors were offered rents that were two-thirds lower than your rent and you would be offended if they received a capital contribution for refurbishment and for building a new store,” he said.

“And that’s exactly what’s going on in the industry and so we’re taking a stance and unless it’s in the interests of our shareholders and the brand, we’re going to move on.”

But he said that it didn’t mean that the retailing giant will not open stores at other places.

McInnes echoed Lew on the show, saying the decision to close the Bourke St stores means that the company isn’t going to stand for that (landlords wooing international brands with lower rents).

“We’re walking away from $5 million of sales, but ultimately they’d be unprofitable sales because the landlord would not charge us a realistic rent,” he said.

McInnes pointed to the strength of the company's brands and said that some landlords did understand that “with a portfolio of 1,100 stores, we are one of the largest rent payers, if not the largest rent payer in Australia and they don’t want mass vacancies in their centres”.

He said some landlords were not being honest with their rents and turnover and Lew and Premier Investments was targeting these landlords.

McInnes went further, saying the company did not want to close stores but were forced to because landlords were unrealistic about rents.

“I guarantee that that landlord in Bourke Street, it will cost them millions of dollars in capital incentives to remake those stores and they will get far less rent than what we were paying.”

Meanwhile, he added that online sales had picked up in the past few months and “the customer is choosing that channel as a place to shop... and landlords have to accept that this is a change in their sales structure based on what customers want.”

Lew said that several retail businesses were running behind on their rents and landlords were not raising the rents for these.

On Myer’s performance, the former deputy chairman of Coles Myer said that in spite of the public float and two rounds of capital raising since 2015, the company’s value had eroded by almost $2 billion and it was now worth $600 million, so clearly its strategy was not working.

In terms of the business itself, he said Myer's moving to a concession model mean margins were down and it was also having problems with their own purchases.

"They look very poor… they look like opportunity shops and not like a Myer department store," said Lew.