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New Look urges landlords to make a “radical” switch to turnover-based rents
Source: Mintel 04-06-2020

UK 04-06-2020

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Fashion chain New Look is in negotiations with landlords to switch to turnover-based rents across its UK and Ireland store portfolio to help cut back on property bills in the wake of the COVID-19 pandemic. New Look is among a number of retailers, including Frasers Group and H&M Group, pushing for a move to such rental agreements at a time when sales in physical stores have slumped during lockdown.

New Look did not pay its quarterly rent bill in March 2020 after asking landlords for a three-month rent holiday. The next rent bill is due at the end of June.

Mintel comment:

“Even before the COVID-19 outbreak, there were retailers who were pushing for changes in the way they paid their rents and when they were payable. The current lockdown has brought these issues firmly into focus and it is companies who have experienced financial distress in recent years, such as New Look (CVA March 2018), Debenhams (CVA April 2019, administration April 2020) and Frasers Group (whose department store business went into administration in August 2018 before it was bought by Mike Ashley) who have been at the forefront of those calling for change. Turnover-related rents would seem to be, in the current trading environment, an equitable way of sharing the risk between retailer and landlord. For New Look, this would seem to offer the company a reasonable chance of survival as sales slowly build up again after its stores reopen on 15th June and, when or if sales recover to their pre-COVID levels or higher, landlords could find themselves earning more than under previous rental arrangements agreed with the retailer. This is part of a wider conversation that needs to take place between retailers and landlords and we expect that this will eventually lead to more retailers switching from rents paid at the end of each month, rather than quarterly in advance (something New Look’s rival H&M has asked of its landlords recently) in a bid to ease pressures on cash flow.”