Learn to live under water

The global financial crisis was superimposed today on the retail real estate crisis, which, according to experts, was inevitable. The relationship between retailers and developers has already heated up to the limit. The bone of contention is still rental rates, which retail in the context of the crisis considers unreasonably high, and developers, in turn, assure that not everyone can make concessions. The opportunity to come to an agreement was provided by the Association of Fashion Industry Enterprises (APRIM) together with the Russian Council of Shopping Centers (RSTC), which organized within the framework of the conference “Fashion Retail in the context of the economic downturn. Indicators. Strategies. Technologies ”session of the round table“ Relationship between the tenant and the landlord. New conditions ".

However, despite all their efforts, the parties failed to agree.

“What will happen to the market will only be clear in March,” said Roman Skorokhodov, CEO of WatCom. “Whether we will be able to level off, return to the usual March positions, it’s difficult to say so far.”

Nevertheless, today, albeit with a reservation on the uncertainty of the situation, the first timid studies of consumer behavior during the crisis and forecasts of what the market will be like after it appear. So, according to the director general of APRIM Maria Smorchkova, about 30% of goods sold today in Russia are redundant. One of the pessimistic forecasts: in the winter of 2010, the fashion industry will face a shortage of goods. This will happen because in today's conditions of decreasing demand for clothes and shoes, manufacturers will cut the assortment line. The reduction will affect primarily fashion lines.

These changes will affect development companies. Some experts believe that a smaller assortment will require less space. First of all, warehouses located in close proximity to outlets.

“In crisis situations, some people, having learned that a flood will begin tomorrow, decide to live the last day in fun and joy,” said Roman Skorokhodov. - Others use this time to learn how to live under water. So today we need to learn how to live under water. ”

“Dear our money”

Andrey Kupriyanov, a member of the board of directors of Legprommarket (a Glance retail chain), began his speech with precisely this "appeal." He believes that money has become especially precious for the vast majority of Russian retailers today. Therefore, under current conditions, retailers cannot afford to pay 30% of their revenue for rent. Doing so would simply not generate the profit they are entitled to and would effectively be operating at break-even. Kupriyanov demonstrated this with figures: with revenue per square meter of 10 rubles per month, a retailer pays 5000 rubles for the cost of goods, 1000 rubles for discounts, 1000 rubles for employee salaries, 1000 rubles for advertising, 500 rubles for inventory balances, and 1500 rubles for rent. Profits are slightly higher in Moscow, but the proportional breakdown of expenses is similar.

In this case, you can minimize your expenses and agree on a review of rental rates.

However, developers are reluctant to do this, explaining their reluctance by the fact that the payback periods of the shopping center and marketing policy are already included in the existing rental rates.

“Review payback periods, give up marketing,” retailers say.

“To refuse marketing payments in the current conditions is stupid,” developers retort. - On the contrary, marketing needs to be strengthened to provide the necessary traffic.

“Then review the payback periods of the center,” the retail continues. - However, development assures that this is not a question for him. To whom is an open question.

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“You offer to pay rent based on a percentage of turnover. But what percentage do you offer? - turning to retailers, asks the commercial director of the development company ROSS GROUP Alexander Bakhteev. - The first digit I hear is 8%. And we don’t understand where it suddenly came from. This time. Not all of you are ready to honestly work at a percentage of turnover - these are two. Only a few admit that they are able to pay 20-30%. Most prefer to overstate their expenses. ”

The developers are also worried about the possible loss of motivation to sell at the retail. They believe that, having switched to a percentage of turnover, tenants will prefer to wait out the crisis, having break-even stores, rather than trying to attract new customers to them. And in this way they will transfer all the risks for specific shops to the lessor, which is not at all interesting for the latter.

In response, tenants said that opening even a small store requires from $ 50 to 100 thousand, so they are ready to do anything to recoup it. Accordingly, the loss of incentive to sell is impossible, since each retailer is more than anyone interested in increasing the store’s turnover.

Visitors ≠ buyers

In the course of the discussion, a detail emerged that became yet another stumbling block on the path of a ceasefire. The debate was raised by the question of who is responsible for converting visitors into buyers: a developer or a retailer. The latter noticed that, despite all their efforts to attract customers to the store, the number of purchases decreased. Landlords countered this fact by the fact that they are still engaged in providing decent traffic to their properties, however, tenants must turn visitors into buyers.

And if you focus on traffic, then retailers, as developers say, are not as bad as they say. In turn, tenants agree that the number of visitors to shopping centers has not, in principle, changed, but the number of customers has decreased significantly.

The bickering lasted a long time. It seemed that neither side wanted to hear the other. Although, to be honest, the developers at the round table were represented by only two companies and could not be responsible for the entire market.

Where is the way out?

An example of cooperation and understanding of retail problems at a meeting was clearly demonstrated by representatives of the new Penza shopping center Retail-Park. The shopping center plans to start work in June of 2009 and at this stage it is the only shopping center in the city that has not frozen the facility. However, the shopping center was faced with a situation where it could not get the right number of tenants, and today it is trying to fill this gap. In this regard, the developer offers the retailer to enter the pool on favorable terms. The company has reduced the deposit required when opening a store in a shopping center. Now it is 50% of the rent. Moreover, the shopping center took over the minimum decoration of the store premises: floor, ceiling, painted walls, front glass wall. The marketing policy is also on the conscience of the shopping center: the company has already signed a contract with the local television channel for the release of the reality show Retail-Park behind glass. ” For three months, 12 people will live in the shopping center. The townspeople will follow their lives. According to the contract on TV, two hour programs plus 10 of live broadcasts from the project will be broadcast daily.

As for rental rates, here too the landlord is ready to make concessions. So, the developer promises to consider options for switching to paying interest on turnover plus a small fixed rate - 300-400 rubles per sq m. True, such sweet conditions can last only a year, during which the developer does not plan to make a profit from the project.

Nevertheless, this is an isolated case, which does not guarantee that other landlords will agree to at least part of the proposed concessions. They agree to change the lease agreement only on an individual basis, and, in their opinion, such meetings cannot solve all the problems, since "it is impossible to bring everyone under one comb." In fact, developers compromise, but do not want to advertise it. By the way, if the tenant cannot agree with the landlord on his own, he can resort to the help of a consulting company. So, according to Anton Vikharev, a consultant on retail real estate, all major retailers have already found a compromise with developers and continue to work on changed conditions.

Nevertheless, experts recommend that if a particular retailer is already in a critical situation today, think about closing the business, without waiting for March, when everything will become even more difficult. As they say, there is no one pill for all diseases ...