National cabinet is considering ways to free businesses of overheads such as rents, mortgage repayments and some employment obligations while shut down, as some of Australia’s richest landlords and retailers face off over a shopping centre rent strike.
Major retailers are refusing to pay rent while stores are closed due to the COVID-19 crisis, stepping up pressure on shopping centre landlords to grant relief and share some of the pain caused by the pandemic.
Retail magnate Solomon Lew’s Premier Investments, footwear retailer Accent Group and jewellery chain Lovisa say they won’t pay rent after closing their stories for at least four weeks and standing down 12,300.
Led by Premier, the rent strike pitches Australia’s most successful retailer Mr Lew against one of its wealthiest shopping centre landlords Rich Lister John Gandel in a battle over how the cost of billions in lost revenues caused by the virus crisis should be distributed.
“This is the hardest decision ever made by Premier – our team are our family and we want to do everything we can to keep them employed,” said chief executive Mark McInnes, “but we believe that it is necessary and the right decision for them, their families, our customers, and the country.”
But Mr Gandel, who co-owns with ASX-listed Vicinity the country’s largest mall, Melbourne’s Chadstone, dismissed Lew-led Premier’s unilateral decision as “grandstanding”.
“You need people to work together these days,” he told The Australian Financial Review.
“Haven’t we heard this before from Solly Lew? Somebody who says they are just not going to pay, I don’t know what they expect to happen. There’s no commonsense in it.
“Most of the landlords are trying to help and to accommodate people where necessary. Everybody has their own obligations, it’s not just the tenant. It’s a circular thing.”
The federal government has forced pubs, clubs, beauty parlours, nail salons and gyms to close but has baulked at forcing other discretionary retailers and shopping centres to temporarily shut up shop, prompting retailers to take matters into their own hands to protect staff and customers.
Federal and state governments are close to deciding a solution on rent relief.
Rental policy, which will be discussed by the National Cabinet today, and possibly announced afterwards, involves several measures ranging from the states lifting land tax on commercial rentals to waiving them on buildings they own. The Commonwealth is looking at tax incentives for landlords and for the banks to provide mortgage relief.
The next tranche of economic assistance will focus on ways to free businesses of overheads such as rents, mortgage repayments and some employment obligations while shut down so they stand a better chance of reopening.
Retailers say they can’t afford to keep paying rent when foot traffic in shopping centres is down 20 per cent to 30 per cent and sales are in free-fall.
“‘We’re in a position where we simply can’t pay rent and we’ll hopefully sort it out with landlords down the line,” said Daniel Agostinelli, the chief executive of Accent Group, which is closing all 522 Platypus, Hype and Athletes Foot stores and standing down about 4500 staff.
“To me it’s absolutely irresponsible the shopping centres are still open,” Mr Agostinelli said. “The landlord has the obligation to provide a safe working environment, clearly it’s not, so they’ve breached their responsibility.”
Premier Investments shut about 900 Smiggle, Peter Alexander, Dotti, Just Jeans, Jay Jays, Portmans and Jacqui E stores for four weeks, standing down about 7000 staff, and said it would not pay rent for the duration.
Lovisa chief executive Shane Fallscheer also said the fast-fashion jewellery retailer would not pay rent after closing its 155 Australian stores and standing down about 800 full and part-time staff.
“It isn’t our intention to pay rents due to all stores being closed to ensure the safety and well being of our team,” he said. “We would support a full lockdown of shopping centres.”
“We have no choice but to take a similar approach,” said Richard Facioni, chairman of Noni B, Millers and Katies owner Mosaic Brands, which has closed almost 1400 stores and stood down almost 7000 employees.
“The reality is when you have absolutely no revenue coming in – we’re still trying to look after our team, we’re still allowing them to drawdown on entitlements, that still has a cash impact – we have to try to preserve the business into the long term so things like rent – if you can’t open stores it’s hard to justify paying rent,” Mr Facioni said.
Vicinity and ASX-listed Scentre both have less than 1 per cent exposure across their portfolio to Premier brands. Nevertheless the prospect of broader closures among speciality tenants has hit their stocks hard in recent weeks as analysts predict earnings could fall as much as 40 per cent this year and investors fear distributions will be cut.
Scentre chief executive Peter Allen was adamant that the country’s largest shopping mall owner was turning a sympathetic ear to the plight of retailers through one-on-one discussions on rent relief.
“As the Prime Minister said we all want to get to the other side of this. We are dependent on each other. There is a legal obligation but there will also be a commercial discussion which will be very different for each retailer,” he said.
“I think Premier are potentially trying to negotiate through the media which is not the best way in terms of continuing the discussion we are already having with that organisation.”
The Shopping Centre Council of Australia, which Mr Allen chairs, has asked its members to ensure there are no lease terminations for non-payment of rent for small to medium sized businesses.
The Shop Distributive and Allied Employees Association said Premier’s decision to shut stores for a month was a sign of things to come if the government did not step up with further measures to support the retail sector.
“The fact that Premier Group will not be paying rent underscores the importance of the government underwriting credit for the retail sector,” said SDA national secretary Gerard Dwyer.
The SDA and the Australian Retailers Association have called on the government to support a multibillion-dollar retail sector rescue package which includes wage subsidies for retail workers, underwriting lines of credit to enable retailers to continue to trade without being insolvent, guaranteeing rent payments or identifying rent reduction measures, with all consequent rent savings to be used by retailers to help pay for employees wages.
“Act now and thousands of retail workers will be able to put food on the table as well as paying their rent or mortgages, retail businesses will be able to be in some shape to resume business and the economy will be in a position to bounce back more strongly once the emergency passes,”Mr Dwyer said.
“Do nothing and the welfare bill will be bigger for longer, some retailers will never open their doors again and the downturn will be longer.”
How the coronavirus is changing markets, business and politics.
Coronavirus: Need to know. Our daily reporting, in your inbox.