After months of warnings about the serious threats facing the retail sector, the pressure has now reached boiling point - with many high-profile names running into trouble over the past fortnight.
Contact us if you are interested in a Rent Review carried out.
The shutters are down on the shops in the Hughes & Hughes book chain, while the Bestseller group last week said a number of outlets were closing, including several Vero Moda and Jack & Jones shops. Retail sources say many more well-known companies are close to failure, and international names are considering quitting the Irish market as the business model no longer makes sense.
Rent is being singled out as the single biggest problem faced by shops, with local authority rates and bank lending restrictions also squeezing the sector.
Shops which have been struggling for over a year, and surviving in anticipation of a consumer uplift, have now run out of steam. Some retailers are optimistic that this year will be manageable, but companies, which expanded rapidly in recent years and took on large bank loans, or have expensive leases in locations which are not delivering, are finding it difficult to survive.
David Fitzsimons of Retail Excellence Ireland, which has been vocal about the problems facing members, was in no doubt that more companies would go to the wall.
‘‘We’re going to see unprecedented failure, and I’m talking above and beyond what we would expect in a recession," he said. ‘‘We are talking about fundamentally sound businesses going.
‘‘Most of the guys who are under exceptional stress are those whose rent has now exceeded 15 per cent of their volumes (revenue).We are in phase two of failure. In phase one, a lot of the weaker guys would go. In phase two, the shops with a sustainable business which haven’t been supported with rent reductions are on the way out."
Fitzsimons said that for the big international brands rent should be 4.5-5.5 per cent of revenue, as a general rule. For a smaller retailer, it would be expected to be up to 10 per cent of volumes. But many are paying well in excess of that, with some paying as much as 70 per cent.
‘‘Those paying in their late teens and 20s of volumes are gone," said Fitzsimons.
A ban on upward-only rent reviews that came into effect last Monday does not apply to existing tenants, and pressure is mounting on politicians to do something for those locked into this controversial clause.
Marie Hunt of agent CBRE said that the retail sector was now in crisis, and all parties needed to work on a solution. She said that private landlords were often willing to give temporary reductions if a retailer proved income had dropped. But, in some cases, banks would not agree to a request from landlords to reduce rental income.
Meanwhile, institutional landlords have invested in many retail properties because of the certainty offered by upward only rent review. This gave pension funds a certainty of return, and such landlords are hiking up rents at a time when turnover is down.
Grafton Street has seen the most high-profile failures in the capital.
Shops to close on the street in recent years include Pia Bang, FX Kelly and Monica John. Outlets which want to leave the street include Wallis and jewellers Ernest Jones, which is leaving Ireland. Tenant Garrett McCabe, who owns Health Matters on the Dublin thoroughfare - as well as outlets in Bray and Dublin’s Ashleaf Centre - has been asked for a 50 per cent increase in rent at a time when revenue is down by over 10 per cent.
McCabe said that consumer spending was down, and that staff levels were ‘‘cut to their finest’’. For him, rent is the biggest issue. ‘‘It is the biggest factor we have in a declining market.
Exorbitant rents just don’t make sense for us," he said. The shop is located in a subdivided unit, so has an immediate landlord and a superior landlord who owns the property. McCabe said that no flexibility was being shown on rent.
‘‘An upwards-only rent review would be fine if it was only an increase of 1 per cent you were dealing with; that might be okay. But it is the mad money that people are looking for that’s just not sustainable," said McCabe.
If tenants go out of business due to high costs, they will be replaced by others paying lower rents, as new deals are reflecting the changed environment. ‘‘If you are an institution and are looking at the bottom line, at your pension fund and what investors are saying, you’re maybe not that concerned about people on the ground. It doesn’t make any sense to accept a new tenant at a lower rent, but it just seems they’re not of a mind to negotiate," said McCabe.
The Grafton Street Tenants’ Association (GSTA) has said that rent is killing business on the street. Retailer John Corcoran, owner of shoe shop Korkys, said rent levels were absurd in the current environment. He has been offering a reverse premium for over a year, which would mean that a new tenant would be paid to take over the lease.
But he said that there hadn’t even been a phone call to enquire about the lease.
‘‘People are aware that Grafton Street is so mad on rent that they wouldn’t even pick up the phone. We started with a reverse premium of €100,000 and we went to €30 0,0 00, and now we’re at €350,000. If we had somebody who would ring us, we could start negotiating.
‘‘The biggest single issue is that the rent can’t fall. If the rent could fall, we’d sell it at the next review, because the rent would probably be halved," said Corcoran.
While chains such as Hughes & Hughes hit the headlines last week, smaller shops closed with less noise.
‘‘If you go into South Anne Street, shops are going one by one," said Corcoran. ‘‘There are a lot of other people in the pipeline who will probably go within the next year to 18 months. You stop paying your rent, hold back on your Vat, hoping things can turn around. You’re into the bank, you’re trying to put something together that might save you. Eventually, you run out of road," he said.
Outside Dublin, the problem is the same. Anthony Ryan of clothing store Ryan’s in Galway said he believed that recovery was on the way, but only if there was a manageable cost base.
‘‘I think there is hope, but it depends on each business’s individual circumstances. The high-profile failures are largely due to exorbitant rent costs. If your business model is based on low rent costs or no rent, it is possible to tear the rest of your costs to get through this recession. But if you have that huge fixed cost, that’s when you’re in trouble.
‘‘I know of individual cases where landlords are not institutional - there is a lot of wheeling and dealing, and breaks and preferential treatment being given in the short term."
Declan Ronayne, of DSG, which owns Currys and PC World, said that money was going to institutional landlords out of the wallets of retail employees who were losing their jobs. ‘‘Rent is a problem - a long-term problem. Because leases are long term, they were set up in completely different times and they can’t flex downwards," he said.
‘‘Your rental cost is fixed and, therefore, any business looks at variable cost and that variable cost is labour.
So the consequence of these high rents are thousands of lost jobs. That is a government policy issue and needs to be addressed," he said.
‘‘No business would set itself in a long-term lease if it thought it was going to be faced with 30, 40, 100 per cent rental increases," he added.
‘‘Nobody ever envisioned that happening. In one very large store I have, I found out that the rent is about to go up 22 per cent. What madness is this?"