John Lewis seeks landlord discounts
John Lewis has a ‘never knowingly undersold’ tagline that means it will price-match competitors and now it seems that the company wants its landlords to think that way too as its rivals negotiate more favourable rent deals.
It hasn’t gone as far as asking for rent cuts, but the retailer is seeking landlord discounts with the BBC saying it has told some landlords that it will “withhold 20% of this quarter's service charge”. Around 20 of the company’s department stores are in covered malls and would be affected by such a charge.
The service charge is a hefty cost for many chains as it’s a fee paid on top of rent for services such as security, maintenance and heating. Given that John Lewis stores are so big, the figures can really add up, even though larger stores would already be getting some sort of discount. Yet the presence of John Lewis as an anchor tenant in so many malls means some landlords are likely to fall in line.
However, others could push back with one unnamed landlord telling the BBC that the move came out of the blue and landlords “will be looking at their lease, talking to lawyers who will get revved up to recover this money as a debt.”
When John Lewis reported its results a few weeks ago, it turned in a loss and some commentators at the time said it was long overdue for the retailer to start talking tough to landlords. In an environment in which direct rivals House of Fraser and Debenhams have been able to negotiate many low- or no-rent deals, it seems that John Lewis is starting to agree.
Debenhams' rent bill has come down by around 50% following its recent restructuring and many House of Fraser stores are paying little rent, if any.
John Lewis is looking to remove major costs from its operations and has already launched a restructuring programme. This would see it cutting £100 million a year via a reduction in management roles and running its department stores and supermarkets as one business rather than as separate units.
In a statement, it complained that service charges have been rising to unacceptable levels with some landlords not willing to work with the company to reduce these costs. It also highlighted the investment it has been pumping into its shops to boost footfall.
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