When Philip Green announced last week that his wife’s Arcadia Group, which includes Topshop and Miss Selfridge, is planning a restructure, many members of the public will have experienced a feeling of schadenfreude. But those who are in the front line of deals with Mr Green, particularly the landlords who own the stores which he leases throughout the land, will have sighed resignedly as yet another retailer threatens to ‘go under’ unless they play ball and reduce his rents.
Arcadia are not the first to be in this position, and they won’t be the last. Debenhams appears to be teetering. House of Fraser have already teetered into the grasp of Mike Ashley. Kingfisher, who own Staples and Office World, have looming problems and are signaling store closures. And there will be more.
The two big property agencies CBRE and JLL have already declared that they will not play ball with Arcadia. Perhaps this is a negotiating strategic stance (start off by saying No to everything), but in truth, there are major issues for the owners of town center property which must weaken their negotiating position, just as there are major issues facing retailers. Landlords and retailers see each other as the conflictual party in their negotiations over rent, but they are wrong. Actually, they are partners with a common enemy – online shopping.
Shopping habits have been dramatically reformed by the internet. We can all see this in the creeping dereliction of our shopping centers and malls, barring one or two beacons of success, and in our own increased preference for online shopping. The online giants now have lots of advantages over the high street, for example in terms of the amount of business rates and corporation tax they pay, and in the range of merchandise they stock.
The effect of this is reduced footfall, reduced turnover and reduced profitability in the high street, which means that retailers can no longer afford rents set on the basis of previously higher numbers. Squabbles between retailers and landlords miss the point. They need to take a joint stance and work together against discriminatory taxes and for more user-friendly physical shopping – better public transport, cheaper and easier car parking, more variety of town center usage, and so on.
I make the point, not about shopping and rents, but to showcase how easy it is to be misguided about one’s enemies, and how as a result, inappropriate negotiating strategies can evolve. Sun Tzu sums it up best: If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.