Shopping Centre Council tells department stores to “pull their weight” as anchor tenants

Shopping centres are reportedly coming under increasing pressure from department store giants Myer and David Jones to renegotiate new lease arrangements in light of falling sales in bricks-and-mortar stores.

But the executive director of the Shopping Centre Council of Australia, Milton Cockburn, has hit back, saying department stores aren’t holding up their end of the bargain as anchor tenants.

Myer and David Jones are reassessing their position in some marginal markets with both looking at closing some stores or renegotiating new leases, according to analyst comments published in The Australian Financial Review.

Myer has closed three stores in the past year, while David Jones has closed three stores in the past five years.

In its half-year results released today, Myer confirmed it has successfully renegotiated a number of leases.

“Our focus is on maximising returns per square metre by improving productivity through enhanced store layouts, new stores, improved efficiency of floor space through refurbishments and the closure of a handful of stores. In this context, we continue to review the merits of all existing and planned stores in our portfolio, including proactive lease negotiations yielding results,” its report said.

David Jones also has several stores in its portfolio with leases due to expire soon and will be looking at doing the same.

The company has also installed foot traffic counters in a number of stores which will reportedly be used to help argue the case for rent reductions on new leases.

But there is increasing dissatisfaction among shopping centre operators as anchor tenants fail to attract the customer numbers that they should, according to Mr Cockburn.

“The limited number of department store chains in Australia gives them significant clout in lease negotiations and renegotiations,” Mr Cockburn told Property Observer.

“It’s fair to say that over the last few years the department stores haven’t been pulling their weight in attracting foot traffic to shopping centres in the way anchor tenants are supposed to do.

“I guess in any such negotiations, centre owners will be asking the department stores for details of the steps they are taking in again making themselves more attractive to customers.”

And it seems things might not be as bad for department stores as they claim.

The latest Jones Lang LaSalle shopping centre manager survey carried out in February found that department stores were among those categories now starting to record consistently positive growth, compared with the declines evident through 2010 and 2011.

Consumer sentiment rose again in March according to a Westpac survey, it’s now at its highest level since December 2010.

Meanwhile, Myer posted a better-than-expected profit of $88 million in for the first half of the financial year while analysts had been expecting about $85 million.

This article first appeared on Property Observer.