Standoff at the mall

Source : Business Times - 28 Feb 2009

IT is an old-fashioned stalemate in the retail industry. Retailers are saying that rent cuts of at least 20-30 per cent are an ‘absolute necessity’ for them to survive, while landlords - who have given no indications that they are looking at granting significant rent cuts - insist that they are doing all they can to help tenants.

On Thursday, the Singapore Retailers Association (SRA) said that 20,000 retail employees - or some 20 per cent of the workforce - could be retrenched unless store rents are slashed. Members’ income has dived 20-30 per cent in the past few months, said SRA, which represents close to 300 retailers. But occupancy costs, on the other hand, have climbed 50-80 per cent over the past three years.

A rent cut is needed for retailers to survive, said the industry body, adding that retail landlords don’t seem to understand the current plight retailers are facing.

But when contacted on Thursday and yesterday, landlords here said that they are doing what they can to help their tenants. Many of them have passed on the 40 per cent property tax rebates granted to them by the government to their tenants in full - although this works out to a less than 5 per cent drop in rents for most retailers.

Most of them also reiterated that they are working with tenants to find customised solutions. ‘A 20-30 per cent across-the-board rate cut isn’t needed for every retailer,’ said one landlord.

‘During this downturn, we recognise that not all retailers are affected equally and in the same way,’ echoed a spokesman for CapitaLand, Singapore’s largest retail landlord. ‘We continue to stay close to our retailers, work with them individually to better understand the specific issues that they are facing, so that we can customise a solution jointly with them.’

Other property landlords agree.

But SRA has said that the initiatives offered to date are inadequate as they do not address the main concern of the retailers - that of cost containment in these difficult times. Likewise, a retailer said that only a sharp cut in retail rents can immediately reduce cost and improve cash flow, which are the two main problems that retailers are facing. ‘Other forms of support by landlords to generate more traffic and sales will not be effective,’ he said.

Another issue is the rent increases that landlords are proposing when negotiations for renewal of leases begin. As one retailer put it: ‘Is now really the time for it?’

Retailers told BT that landlords are asking for as much as 20-30 per cent more when negotiations begin. When talks for lease renewal for the Mothercare store at VivoCity began, the mall asked for 22 per cent more, said Pang Kim Hin, chairman of the baby goods retailer. The landlord did say that rent is ‘negotiable’, but even then, a 22 per cent starting point is ‘too high’, Mr Pang said. ‘Even if it is just posturing, you have to be reasonable with the posturing.’

VivoCity is owned by Mapletree Investments (which is fully owned by Temasek Holdings) and managed by CapitaLand.

Sales at his VivoCity outlet have fallen by about 30 per cent since Chinese New Year, Mr Pang said.