[co-author: Jack Pepper]

Summary

This week the BCLP Retail Team discuss the future of turnover rents following the COVID-19 crisis, reflect on the Government’s Eat Out to Help Out scheme, and consider the future footprint of department stores. 

Alternative Retail Leasing Models

Lockdown brought into sharp focus an issue which has been simmering for a while – whether the traditional leasing model of fixed rents with upwards only reviews “work” for an already beleaguered bricks and mortar retail industry. Closed shops and reduced footfall, the calling card of COVID-19, has arguably sped up discussions which were already starting to build momentum. Turnover leases, with a base rent and performance related top up is by no means a new phenomenon, but there does now appear to be a general shift towards a more flexible approach, with landlords offering turnover deals with increased break options. Meanwhile, retail stores are now more than just a location for customers to make a purchase: they are the collection point for click & collect services and a driver of online sales with customers increasingly using time in store as a precursor to shopping online. However, calculating the impact of a store on the tenant’s overall turnover is complex and determining a store’s contribution to online sales requires the sharing of data between landlord and tenant. It remains to be seen whether tenants are comfortable sharing data (if, in fact, the real effect of a bricks and mortar store on online sales can be accurately captured and interpreted). If not, then it has been suggested that an intermediary party could play a role in analysing data received from both the landlord and tenant and calculating the turnover rent. If turnover rents are more widely adopted, the impact on the valuation of retail assets will also need to be considered.

Eat Out to Help Out: Has the Scheme been a Success?

As the UK continues its gradual easing from lockdown, August 2020 will be remembered as the month in which customers returned to restaurants and pubs in their numbers. We are three weeks into the Government’s Eat Out to Help Out scheme, which offers diners a 50% discount (capped at £10 per head) when eating in the premises, and so far it appears to have been successful in encouraging diners back to their favourite eateries. Bookings on Mondays to Wednesdays have been higher than in the same period in 2019 and many popular restaurants have been fully booked as customers look to take advantage of the discount. Nevertheless, critics have questioned whether the increase in sales at the beginning of the week are in fact simply replacing those that would have ordinarily been made at the weekend, and whether customers are spending less overall per person as they look to make savings in uncertain times. This may be the case, however the overall success of the scheme will not just be judged by sales stimulated in August, but by whether it creates lasting consumer habits that continue to support the restaurant industry once the scheme ends.   

Re-Thinking Department Stores Post-Pandemic

In recent weeks, headlines in the retail industry have included store closures and redundancies as retailers continue to struggle in unprecedented trading conditions. With footfall depleted during the COVID-19 crisis and customer preferences changing, are the days of the department store numbered? Whilst customers previously enjoyed browsing through the huge range of stock that some of the largest stores offered, many customers are now hesitant to return as they have become accustomed to keeping their distance and staying at home. As footfall remains low, department stores will now be left wondering whether casual browsing of stock will increasingly be confined to the web-browser rather than in store. This poses the question of whether stores should therefore begin to downsize and retain only their best-selling stock on the premises. The opportunity to redevelop the space for other uses has already proved tempting for some department store owners.