By a staff reporter
Volatile consumer spending and competition from online rivals is prompting commercial landlords to reprioritise tenants that focus on non-discretionary offerings while giving them leverage in lease negotiations, according to Federation Centres chief executive Steven Sewell.
Retailers, most recently Myer's Bernie Brookes, have suggested that the challenging sales environment is allowing them to pressure landlords to reduce rents on their retail spaces.
But in an interview with Business Spectator's KGB, Mr Sewell said landlords have just as much leverage in lease negotiations, as Federation looks to prioritise tenants who sell non-discretionary products that have fared better against weak consumer confidence and online competition.
“You have to divide it between what we call discretionary and non-discretionary retail,” he said.
“And in the case of department stores which very much fall into the discretionary category — so with principal categories of cosmetics and fashion and high-end fashion — very much what we're seeing is the businesses are needing to sort out their product mix, their pricing point and their service offer.”
Federation — which recently rebranded itself from its old name of Centro Retail Australia — has in some cases been forcibly switching retailers so that properties are anchored as much as possible by tenants that focus on non-discretionary offerings.
“Supermarkets and national brand supermarkets are the lifeblood of our portfolio,” Mr Sewell said. “Anything that we see can generate traffic, increase sales productivity for our retailers, we see will have a flow-on benefit to the rest of the retailers within the shopping centre.”
He said larger department chains have been narrowing their product offerings and consequently reducing their store sizes, allowing property owners to repurpose existing retail space while reducing the rental price tag for tenants without hurting the rent-per-square-metre rate.
“It's very much a case-by-case discussion,” he said.
“What is the catchment? What's their plan and what's their spread and their offer within that catchment? Does the demographic need or want a department store-type tenancy and therefore can we make the deal work?”
Mr Sewell added that Federation's decision to rebrand was related to a desire to distance the company from past events.
“When we looked at the transformation of the business from a balance sheet perspective and from a corporate objective perspective, when we got to the second half of last year we realised we were a different organisation and we were also keen to obviously put the past behind us and present a different face to the market.”