Oroton now the latest chain to say shopping centres are screwing them and are willing to tell them to jump. RFG have 2500 outlets many in shopping centres which increase rent regardless of the loss in revenue felt across retail sector. Large chains should unite and demand concessions from these landlords otherwise empty shops in malls will become even more common.
from today's Oz:
Oroton to play hardball with mall landlords
Oroton is the latest retailer to complain about excessive rents.
The new owners of failed fashion chain Oroton, led by fund manager Will Vicars, will target a steep reduction in rents charged by shopping centre landlords.
The strategy in what will be prickly negotiations will include the threat to walk away from stores if rents are not reduced.
Although Oroton made some missteps over the past few years, such as disastrous investments in bringing Brooks Brothers and Gap to Australia, there is a belief at the retailer that onerous rents at many of its 59 stores around the country handicapped it and brought it to the brink of ruin.
Mr Vicars, the chief investment officer at Caledonia Investments and an adviser to Gretel Packer on her recent $1.25 billion asset deal with her brother James, yesterday sealed an implementation deed with Deloitte in a proposed rescue of Oroton from voluntary administration.
Mr Vicars is no stranger to Oroton. He is a former director and its second-biggest shareholder with a stake of just under 19 per cent.
He faces a major challenge in turning the retailer around as its flagship fashion brand suffers from heavy discounting in the market, combined with the general malaise across the retail sector and high input costs such as utilities and rent.
But for once the tenant might have the whip hand over the landlord. Oroton lurched into voluntary administration last month and this allows the business to renegotiate contracts with creditors, including landlords, and even break leases.
Oroton will now do just that, once it has finalised its deal with Deloitte and ownership passes to Mr Vicars. It will drag landlords to the negotiating table to demand a reduction in rent, with the threat that a number of its 59 stores could close unless a more reasonable deal can be reached.
It marks Oroton as the latest retailer to complain about excessive rents and demand changes to the way rents are being charged, which has helped shift profits from tenants to landlords.
Specialty Fashion Group, which owns brands such as Millers and Katies, announced in November it would shut as many as 300 of its 1019 stores, while veteran retailer and billionaire Solomon Lew lashed out at “unrealistic” landlords in September, blaming them for the closure of his flagship Just Jeans and Portmans stores in Melbourne’s Bourke Street mall.
“If landlords do not adjust their rent expectations in line with the performance with their centres, and the major shift in consumer behaviour, we will be forced to close stores in these locations,’’ Mr Lew said at the time.
The deal signed this month by the Lowy family to sell its offshore shopping centre empire to French property giant Unibail-Rodamco for $32bn was a red rag to irate retail tenants who see the value of shopping centres grounded in the high rents they pay. These chains, including Oroton, view it as a shift of profits away from tenants into the pockets of shopping centre owners.
Meanwhile, it is thought Mr Vicars will focus on Oroton’s key brand in the short term as he goes about rebuilding the company rather than bolting on brands like Oroton did in the past with Brooks Brothers and Gap.
Deloitte, acting as voluntary administrators, announced that entities controlled by Mr Vicars had entered into a binding implementation deed. It should, for now, safeguard Oroton’s business and its 500 staff. “Importantly the proposal would allow Oroton Group to remain trading and avoid a break-up of the business to the detriment of employees, creditors and other stakeholders, and seeks to ensure a strong and stable future for the company and its stakeholders,’’ Deloitte said in a statement to the ASX.
The administrators did not give full details of the proposed scheme or how much creditors could expect to receive, but said the returns would be disclosed in the deed of company arrangement.
Administrator Vaughan Strawbridge said that despite some interest there was no other offer that would have resulted in a better outcome for the business or its employees.
“Our objective has been to avoid a break-up or closure of Oroton, preserve employment and as much of the Oroton business as is viable, while achieving a value maximising result for stakeholders,” Mr Strawbridge said.
“Entering into this agreement is an important first step in implementing a recapitalisation of Oroton and we will work hard to complete the proposal.”
The deal marks the end of the Lane family’s association with the handbags and fashion accessories company that stretches back to 1938, when the business was founded in Sydney by Boyd Lane.
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