South Africa’s biggest JSE-listed clothing retailers and landlords are making headway in their negotiations. It seems both sides are making concessions around rental payments for April, which is virtually a write-off due to retailers not being able to trade during the Covid-19 lockdown.
At the weekend a newly formed forum representing the country’s five biggest clothing retailers – Pepkor, TFG, Truworths, Mr Price and Woolworths – offered to collectively pay landlords around R220 million for April rent, which they say is equivalent to around 20%. This is in addition to utility costs for services such as water and electricity.
The move comes as most of these retailers, together with other players such as KFC and Dis-Chem, originally served landlords with letters stating that no rentals would be paid for April due to the government-imposed lockdown.
Known as simply as the “Retailer Group”, the forum of the big five clothing retailers said in a statement that it is now in discussions with the Property Industry Group (representing JSE-listed retail landlords) in a bid to find “a joint and mutually beneficial response to the significant challenges” brought on by the lockdown.
Last week Moneyweb reported that the Property Industry Group had come up with a package of rental relief measures for various types of landlords, from small businesses to major retailers. The group is a joint initiative of the South African Real Estate Investment Trust Association (SA Reit), the South African Property Owners Association (Sapoa) and the SA Council of Shopping Centres.
The package offered the most extensive relief to smaller players such as independent line shops and restaurants, while major retailers were offered a rental discount of 35%.
This week’s counter offer from the Retailer Group is likely to see even more intense negotiations with retail landlords.
The Property Industry Group represents the country’s major listed Reits, which means small independent landlords will have to have tougher direct negotiations with retailers threatening not to pay rentals due to the lockdown.
“The adoption of an empathetic and constructive approach is vital to finding a workable solution benefiting all stakeholders,” the Retailer Group said in its statement. “The retailers commend the government for instituting regulations to allow collective negotiations in the retail property sector in order to mitigate some of the negative economic impacts of the lockdown.”
The forum noted that it had “reviewed the scope of the relief package” offered to retail tenants by the Property Industry Group, however, it had now constructed its own counter proposals. The group said it believes that its proposals are “more balanced” as the offer deals “more equitably with the permanent loss faced by retail tenants” countrywide.
“The devastating economic effects of Covid-19 should be shared by both landlords and tenants … In constructing our proposals, and due to the divergent nature of our operations, we had to find a guideline that we all agreed on, to help shape the most appropriate response in these unprecedented circumstances,” the group added.
“Despite earning no revenue during lockdown, and in the interests of collaboration and reaching agreement with [the] Property Industry Group, [we] have provisionally put aside the opinions of [our] legal advisors during the negotiation, which state that rentals are not due during lockdown,” it pointed out.
The Retailer Group has proposed, in the form of a general guideline to the industry, the payment of all utilities consumed by retailers during lockdown, and 20% of normal rental and operating costs.
“This equates to support by the five retailers in excess of R220 million to support landlords during the lockdown,” it noted.
“Landlords are expected to significantly reduce operating costs to take into account declining economic activity,” it added.
Meanwhile, the retail forum said it “wholeheartedly supported” the “prompt and firm action” by President Cyril Ramaphosa in the face of the Covid-19 pandemic.
However, it pointed out: “The undisputed fact is that the lockdown period has resulted in the retailers being barred from using their rental premises for their intended purpose.
‘Cascading devastating effect’
“This has a potentially disastrous effect on our ability to meet our employment and other commitments, which may in turn have a cascading devastating effect on millions of South African households,” it added.
“The current lockdown affects the entire retail ecosystem, as well as the interests of government, in deploying the taxes we pay, and other important stakeholders in our broader national context.
“Hundreds of thousands of South Africans earn a living from employment by retailers, and millions directly and indirectly live off this income through jobs with our suppliers,” the group stressed.
It acknowledged that landlords also face their own economic pressures.
“It too will inevitably be negatively affected by the Covid-19 outbreak, just as no sector of the economy will emerge unscathed.”