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Retail Vs Landlords Fight, Online Sales Now A Big Issue

Consumer electronics & appliance retailers are tipped to do battle with landlords as shopping habits change with landlords now wanting a cut of online sales.

During COVID-19 retailers have demanded cuts to rents while at the same time online sales have boomed.

Retailers such as Solomon Lew’s Premier Investments have called for rents to be restructured and based on a percentage of sales rather than shopping centre foot traffic or fixed rents with annual increments for inflation according to the Australian Financial Review.

Retailers’ calls for more flexible rents are being met with landlord demands for rents to reflect online sales.

Landlords are arguing that retailers’ bricks and mortar presence helps drive online shoppers to their e-commerce sites, and a growing portion of online sales are fulfilled or collected from stores or returned to stores.

Many retailers have moved to establish have in-store kiosks where customers can order goods online when they cannot find the right size or shade in stores.

This has created a major problem with negotiations as retailers are reluctant to share their online spoils, saying most online orders are fulfilled from warehouses and online sales are less profitable than bricks and mortar sales.

It’s a rich claim from landlords to be claiming those sales when they haven’t been made from a physical store claims Paul Zahra, of the Australian Retailers Association

The argument over the inclusion of online sales in a rent formula was kicked off when Vicinity Centres chief executive Grant Kelley told The Australian Financial Review Retail Summit in June that rental agreements should include a base rent plus a variable component based on a proportion of a tenant’s online sales.

“I think we need to no longer regard [retail] space as a physical construct but as a virtual construct,” Mr Kelley said, claiming that two-thirds of online fulfilment actually happens through click-and-collect within stores in shopping centres.

His argument was rejected by Australian Retailers Association chief executive Paul Zahra and Rob Scott, chief executive of Wesfarmers, which owns Bunnings, Target, Kmart, Officeworks, and online retailer Catch.

“Often online sales are less profitable for retailers than in-store sales. So, I don’t think it’s as simple as simply adding online sales to the calculation of rents,” Mr Scott said.

Mr Zahra said the push for a share of digital sales had picked up pace – led by major shopping centre landlords such as Westfield owner Scentre Group and Vicinity Centres – as online sales growth remained high even as stores reopened in recent months.

“What we’ve seen is that in any new leases an [online sales] clause is being presented to most retailers,” Mr Zahra told The Australian Financial Review.

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