LONDON-Dixons has become the latest retailer to warn about rising rents and property-tax rates. Spokespeople for the national retailer say soaring property rates would almost wipe out a planned euro 45.10-million ($54.80-million) cost-cutting drive. The firm says that its property bill would increase by euro 40.58 million ($49.33 million) this year because of a 17% rise in rates and a 7% rise in rents. John Clare, chief executive, states that rises in property costs came amid one of the toughest trading environments for many years. "There has been no real change for the last three or four months, and we don't see any glimmer of light," he says.
In an attempt to control costs, Dixons had struck a deal with one of its property owners, Morley Fund Management, to exchange 11 store leases, which contain clauses to increase rent to market levels every five years, in favor of leases with fixed annual uplifts. It is seeking to relocate from out-of-town retail parks that have planning consent to house fashion retailers to less expensive parks. Dixons has already relocated from 12 stores and has 48 outlets left to go.
Last week it emerged that Laura Ashley and Dickens & Jones were pulling out of Regent Street because of huge rent increases. The announcements came as new research was published by property consultants Donaldsons. The study reveals that high street rental growth is currently running at 2.3% a year, with total returns for property investors for the past three years now standing at 16%. That level of return has not been seen since 1988, when it touched 26%.
The survey coincides with research by Ernst & Young confirming what many retailers have long been complaining of--weak consumer spending. "Discretionary household spending has stagnated over the past two years, and that the trend will continue into 2006," explains Tim Sleep, who heads retail for E&Y.
A third piece of research out at the same time finds that the number of retailers seeking new space has dropped 10%. According to Perfect Information Property, which tracks retailer requirements in Britain, the number of retailers seeking new premises had dropped to 2,642 in the fiscal year ending May 30, from 2,955 during the previous year. That demand had dropped for both in-town and out-of-town stores, but for the first time demand for the latter category was greater than in-town locations. Pip's research indicates that this was because retailers were looking to sell from larger, cheaper locations and trade more profitably.
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