Upward-only rents costing retailers, not the economy

The collapse into examinership last week of the retail outlets of Karen Millen and Warehouse Fashion has roused the industry once more over the issue of boomtime upward-only leases and the Government's failure to legislate for retrospective action.

It won’t happen and the sector should accept it and move on. It is hard not to feel sorry for retailers who signed toppy leases during the glory years only to watch their sales collapse, while rents, a huge proportion of a store’s turnover, remain stubbornly high.

Undoubtedly, this has driven many otherwise viable retailers over the cliff. It is wrong of the industry, however, to suggest that this will cost the economy huge numbers of jobs. It will not.

It will certainly cost the jobs of the staff working in those stores still stuttering into insolvency because of their rents. But retail is a demand-led business, and demand is growing, albeit at a snail’s pace.

If there is demand in the area for retail services, new shops will move in to replace the ones that go bust, creating replacement jobs in companies with more sustainable cost bases and appropriate rents. If the demand isn’t there, then soaking the landlords with State-mandated rent cuts is only delaying the inevitable demise of certain stores anyway. For the economy at large, it is a zero sum game.

Two or three years ago, a retailer may have been able to leverage a rent cut on the basis that if it were to close, the landlord could be left with an empty store and no rent whatsoever. As the recovery ripples out from Dublin to other parts of the State, and new retailers enter the market looking for floorspace, this threat has lost its potency.

The retail industry wanted the Government to step in to retrospectively fiddle with thousands of private rental contracts freely signed during the boom. Ministers balked, they said, on legal advice. Retailers believe the Government’s inertia was more down to a desire to protect the property industry. They could well be correct.

Still, it is a moot point. Retailers have missed their political window to get anything done. The industry should look forwards, not upwards.