Retailers at risk as rent quarter day arrives

Retailers at risk as rent quarter day arrives
Several major retailers, such as Arcadia, have suggested recently that when many of their lease aggreements expire they may not be renewed (image © Keating)

By Jon Whiteaker - 12:49PM - Fri 23rd March 2012

Several imperilled retail businesses could be about to fail according to industry experts, as the latest quarterly rental payment day approaches.

Sunday March 25th 2012 marks the latest due date for all retail businesses which pay their rent on the traditional quarterly schedule, and with a spate of retail administrations occurring over the last few months, many predict the impending property bill could spell disaster for yet more traders.

With inflation falling but still high, unemployment continuing to rise and average salaries remaining stagnant, consumer confidence, and as a consequence consumer spending, is currently worryingly low.

Many of the retail businesses that have entered administration in recent months have been dragged down by trying to keep up with rental payments on their large store portfolios, and Nick Hood, Head of External Affairs for financial health monitor Company Watch, argues that more retail failures look likely.

“Embattled retailers are now facing their first big challenge of 2012 as their next quarterly rent payments fall due”, Hood said.

“With most also facing VAT payments at the end of April, this is a time when banks and other credit providers to the sector will be looking hard at the cash requirements and deciding which retailers they are prepared to support through the long fallow trading period up to next Christmas, as consumers’ disposable income continues to be squeezed and shoppers demand ever deeper discounts.”

Company Watch estimates that as a consequence of the 11 national retail chains which have either entered insolvency or administration since the start of the year, 1,565 stores have been closed at a cost of 22,955 jobs.

Since December retailers Barrats Priceless, D2 Jeans, Hawkin’s Bazaar, Blacks Leisure, Past Times, La Senza, Peacocks, Pumkin Patch, Shoon, Fenn Wright Mason and Azendi have all failed, and just in the past week Game Group has announced its intention to call in administrators.

Hood anticipates that the majority of the retail failures which will occur following quarter day will involve small or independent businesses, but he also warns that a number of major retailers look vulnerable.

Neil Smyth, a partner of Restructuring & Corporate Recovery at Taylor Wessing, agrees and says that heavy and prolonged discounting on the high street has left lots of traders on a knife edge.

“Fashion, household goods and electronics retailers in particular, are likely to be feeling the squeeze given their slim margins and significant fixed costs associated with their property needs,” Smyth explained.

“I expect further retail insolvencies to occur over the next few days and weeks ahead – timely action will be crucial for retailers who want to preserve the legacy of their business in these troubled economic times.”

His colleague Saleem Fazal, who heads up the Real Estate Disputes team at Taylor Wessing, advises those retailers which are feeling vulnerable to consider switching to monthly rental payments.

If a company enters administration, reasons Fazal, the threaten business will have more protection from property costs.

“In recent months, administrators have argued for instance in the cases of TJ Hughes and Focus DIY last year, that if the administrator is not in occupation on the rental due date, then no rent is payable for that period as an administration expense,” Fazal said.

“If landlords agree for rent to be paid on a monthly basis, they have the additional comfort of knowing that it is more likely that rent will fall due and will be paid as an administration expense.”

Retailers will of course be hoping to avoid administration all together, but for many 2012 is shaping up to be another challenging year with plenty of potential pitfalls.

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