Retailers seek to reduce length of leases, Creditsafe finds

Despite government moves to boost the high street, Britain’s retailers are under intense pressure and in the last year 75% of property management firms have witnessed retailers attempting to renegotiate the terms of their leases with landlords.

That’s according to new research from Creditsafe, the business intelligence experts. It found the majority of these renegotiations focused on reducing the length of leases, which indicates retailers may be planning to reduce their physical presence on the high street in the next few years. 

Despite Communities Secretary Eric Pickles setting aside a £1bn package of support, experts fear the high street is in terminal decline, with more bankruptcies imminent. Six in 10 (61%) companies leasing and managing retail property lost money as a result of retailers entering insolvency, or going bankrupt, in the last 12 months. Liquidity in the sector is also a pressing issue as 59% of property management firms saw an increase in late and defaulted payments by retail clients. 

Chris Robertson, UK managing director Creditsafe, said:  “It is inevitable we will see high profile retail casualties in 2014, unless firms can find a compelling reason to drive shoppers away from their keyboards and smartphones and back to the high street. With retailers seeking to reduce the length of their leases, we may see a dramatic increase in empty stores in 2014 and beyond. The financial problems affecting the likes of Albemarle & Bond are being felt by thousands of other retailers.”  

Property firms are failing to help themselves by taking practical steps to mitigate the risks of late payments or tenants entering insolvency, said Creditsafe. Almost half (49%) of firms surveyed that are involved in the leasing and management of retail properties conduct no credit checks to establish the financial health of prospective clients, researchers found. Only a quarter (25%) of these firms always run credit checks on prospective clients, with a further 31% doing it some of the time. By not taking advantage of the business intelligence solutions available companies are effectively ‘trading blind,’ exposing them to serious risk, said Creditsafe.   

Robertson said: “While the government is making a concerted effort to help Britain’s high streets grow, the retail sector faces serious structural challenges. Recognising this, firms involved in the leasing of commercial retail units really need to take proactive steps to protect their cash flow. This means not only credit checking companies when initial contracts are signed, but regularly conducting follow up checks throughout the year to assess the financial health of an enterprise and if necessary adjust the terms of contracts to limit liabilities.”