Jeremy Collins, John Lewis property director and ex-British Council of Shopping Centres president, on retail rents and flexible formats.
With 50% of high street and shopping centre leases set to expire by 2015, do you think we’re about to see a significant sea change on the high street?
It certainly increases the commercial tensions between landlords and tenants, and it heightens the risk for the less well-performing centres and destinations. We’ve been seeing for some while now a polarisation of demand both from retailers and customers towards larger dominant regional shopping centres and city centres, and to really good high-quality local convenience centres, where there’s ease of access, good car parking, and a good range of shops and services.
Do landlords need to become more flexible in terms of lease lengths or by offering monthly rents?
Or is it about tackling total occupancy costs? With the Bank of England saying the economy is going to be at best flat for the next year or so, that’s not a great position to start from. Landlords want to get the return on capital, [and] retailers equally need to trade profitably for the whole model to be sustainable. So I think there inevitably has to be a discussion around how to contain operating costs. Over the past 10 to 15 years a lot of costs over and above rent have escalated dramatically; service charges and particularly rates. So the total cost of property is now very high, and in a lot of cases not sustainable.
Does the Government need to do more to support retail?
The Government has inherited a vast pile of debt that it has to service and substantial liabilities. But it can’t continue to take more and more tax out of businesses and expect those businesses to thrive. So there is a clear conflict between the level of tax they are trying to extract and the ability of those businesses to pay that tax in a flat/recessionary economy. The Government has to listen and be more realistic in this future financial planning, to allow it to create some space in its budgetsto support business.
You’re planning to open a John Lewis pop-up in Exeter, ahead of the launch of your first flexible-format store there this autumn. Are you planning to open more pop-ups or flexible-format stores?
Pre-recession, cities of the size of Exeter were finding it hard to support the level of capital expenditure required to deliver a full 250,000 sq ft department store. The flexible format allows us to substantially reduce the cost of providing that shop. So we’ve been able to find a way of having a strong compelling presence in those smaller but affluent towns and cities that is economically efficient and sustainable, both for us and for landlords. On the face of it everybody wins, which is the important thing in all of this.
Our expectation is that Exeter will be very successful, and we have confidence in the flexible format because we have one or two smaller shops already in our portfolio, notably Watford and Aberdeen, which trade very satisfactorily.
How do you see the face of the UK high street changing?
The retail industry is going through a massive sea change, and traction on the internet and mobile will speed the rate of change up exponentially. I don’t think there is any traditional industry that is going through quite the amount of change that we’re going through. Consumer behaviour and consumer expectation is changing out of all recognition. We’re very fortunate that we have a very strong, well-established brand with real integrity, and we’ve benefited from being an early entrant into online retail. Our challenge is to stay ahead of the game.
How much of an impact are large foreign retailers entering the UK having on rental growth?
It clearly is driving some remarkable property deals in places like Bond Street. I think the extent to which it filters out into the rest of the UK depends on how successful those businesses are at establishing themselves in London. It will be interesting to see how many spread their wings beyond London and move out into the regions.