Retailers vs landlords, 2.0: retailers dig in for rental fight

A group of most of the country’s biggest clothing retailers have put forward a "guideline" to landlords, offering to pay 20% of rental obligations during lockdown.

It’s hardly a negotiation, though: the retailers say it’s a final offer and if the terms aren’t accepted, they’ll revert to a nonrental payment stance.

The group includes TFG, Truworths, Woolworths, Mr Price Group and Pepkor under the banner of the National Clothing Retail Federation of SA.

Deemed nonessential services, apparel retailers have been hard hit by the national shutdown.

Despite legal advice that rentals aren’t, in fact, owed during this period, they say they’ve undertaken these discussions "in the interest of ubuntu".

The plan is to pay for all utilities — like water and lights consumed during lockdown, as well as a further 20% of normal rental and operating costs — until the end of April to cover rentals and rates and taxes.

The retailers had asked the Property Industry Group to consider making rental concessions after lockdown, linked to turnover, but this request was denied.

Says Edcon CEO Grant Pattison: "Why not apply principles rather than standoff negotiations, which is just one party trying to strong-arm the other? Turnover rental with some fixed costs would be the way the problem could be solved."

The issue is that many, if not most, Property Industry Group members are also suffering acute cash shortages of their own.

Estienne de Klerk, spokesperson for the Property Industry Group and CEO of Growthpoint SA, says: "You’ve got everybody coming at you for discounts or relief … there’s a view that everyone has infinite liquidity; it’s not so. We pay most of the rates and taxes for most cities and none of the cities have rushed over to assist the real estate industry in our time of need other than Stellenbosch municipality."

Worse, he says, "over the past 10 years the industry has absorbed an average increase of 559% in rates and taxes, in the context where inflation was 220% over the same period".

De Klerk says they don’t agree with the retailers’ legal opinion but want to avoid a legal dispute.

He believes there’s scope for "a very constructive discussion and I don’t think the parties are particularly far apart".

Dis-Chem, meanwhile, has come out to defend its request for a rental reduction during lockdown, despite the fact that it and rival Clicks have the rarefied status of being essential-service providers.

To a large extent, that is reflected in the share prices of both companies: neither was subject to the same degree of sell-off in last month’s market rout. Clicks has, in fact, added to its gains this year and while 5.7% sounds hardly stellar, it’s an astonishing outperformance against the 36% decline experienced by the general retail index.

"It’s a negotiation, not a refusal to pay rent," says Dis-Chem CEO Ivan Saltzman.

In a note to landlords sent on Thursday, Saltzman said the pharmaceutical group had paid all the utilities, rates and extra charges for April, as well as 50% of the basic rental.

But it suggested that April rental "be the higher of 50% of basic rental or turnover rental of 1.75% across all trade, including our dispensaries".

Saltzman says this offer "does not deprive any landlord of the annual figure for top-up rental".

"In fairness, I have asked for the same consideration as other traders of nonessential goods."

Speaking to the FM, Saltzman says Dis-Chem stores are not completely open.

While essential goods contribute a significant portion of group turnover, nonessential goods carry much higher margins and therefore contribute substantially to the bottom line.

"We think it’s a fair request because we know landlords are granting other retailers of nonessential items complete discounts, partial discounts, and not only for this month but the next three months."

Saltzman says he’s had mixed feedback to the letter. "I’ve had acceptances, rude and aggressive letters and polite no’s, but not everybody has got back to me yet. All I’m asking for is a fair deal."

Rachel Wrigglesworth, chief commercial officer of Clicks, says the company is continuing to pay rent on stores and pharmacies, which continue to trade as they have been classified as providing essential services.

Pattison argues that the same principles retailers and landlords are juggling with could apply to general financial conduct.

"If you received your full salary or normal income, you should pay all your accounts in full. If you earned nothing, it’s fair not to pay."

That, ideally, would extend to the government on taxes and tax collection.