Shopping centres must cut retail rents or stores will close, warns Solomon Lew

Shopping centre landlords have been placed on notice by retail king Solomon Lew that his Premier Investments group will close more stores in 2013 unless rents are adjusted in line with shopping centre performance.

His warning came as the group, which leases hundreds of stores for brands like Just Jeans, Smiggle and Portmans, announced a defiant 20% rise in net profit to $46.5 million for the six months to January 26.

Premier Investments CEO Mark McInness said this result had been achieved in “challenging” retail conditions and that there remained “severe pressure facing all retailers”.

Premier closed 14 loss-making stores over the reporting period made up of six Jay Jays stores, one Smiggle store, two Portmans stores, three Just Jeans stores and one Jacquie E store.

“Further store closures will occur if the rents expected by the landlords are not in line with the performance of the centre and the market generally,” said McInnes.

He added that store rental negotiations continue to be a focus for improved profitability.

Premier opened six new Peter Alexander stores and 14 Smiggle stores in Australia and New Zealand over the reporting period. It has plans to open between two and five Smiggle stores over 2013 with two confirmed for second half of the year. There are also plans for six new Peter Alexander stores in the second half of 2013.

McInnes’s comments come as shopping centre anchor tenants continue to agitate for lower rents while shopping centre landlords suggests anchor tenants should be doing more to bring in customers.

Department store giant Myer reporting better than expected interim profits last week and that it had successfully renegotiated new leases for a number of stores.

Fellow department store group David Jones, which reported a 13.5% drop in interim profits earlier this week, said it would examine its store portfolio with six store leases in “less robust demographic locations” set to expire in the next five years.

In response to suggestions that shopping centre landlords would come under pressure from department stores to renegotiate leases, Shopping Centre Council of Australia executive director Milton Cockburn hit back, saying department stores aren’t holding up their end of the bargain as anchor tenants.

“It’s fair to say that over the last few years the department stores haven’t been pulling their weight in attracting foot traffic to shopping centres in the way anchor tenants are supposed to do,” he told Property Observer.

The six month results for Premier Investments suggest Lew and McInnes did a good job keeping rents in check, with just a 1.3% rise in the cost of renting shop space.

The results show that operating lease rental expenses increased from $87.7 million in the first half of 2012 to $88.9 million in the first half of 2013.

Lease costs as a percentage of sales fell marginally from 20.2% to 20%.

Premier also reported a 51% growth in internet sales.

In its investor presentation, Premier highlighted an upgrade program for 50 stores including selected Portman, Jay Jay and Jacqui E.

Its Australian store portfolio has 110 Smiggle stores, 89 Dotti stores, 91 Portmans, 200 Just Jeans stores, 82 Jacqui E stores and 188 Jay Jays stores.

It will pay shareholders a dividend of 19 cents on May 17.

This article first appeared on Property Observer.