Intu The New Normal

You’d put your change from a contactless tenner (should such a thing exist) from buying a crayfish salad and a soy mocha latte in Pret A Manger that the seemingly bullet-proof sandwich et al retailer would be good for the money, but it is reported they have either cut or not paid the rent on many of their prime locations in the past couple of months. Boots, too, that stalwart of the high street, have stopped some direct debit payments to myriad landlords, despite remaining open during the pandemic.

So, what chance THEIR landlords? The big players at the top of the shopping centre league. Just ten years ago Intu was a proud member of the FTSE 100 club (when trading as Capital Shopping Centres). It owned its prime sites, like one of the gleaming jewels in its crown at Lakeside, Essex, and between 2010 and 2016 the retail and property sectors, was living off the glories of ‘Shopping Past’, defining ‘Shopping Present’ and believing they could shape ‘Shopping Future’. Pesky and slightly annoying internet sales grew 50% in the two years from 2010, but remained an only slightly aggravating 6.7% of a huge market.

The answer was surely to make shopping a more glamorous experience, creating cathedrals of marbled wonder in Manchester and Norwich, whilst seducing customers to ‘try before you buy’ and to eat exotic Mexican and Vietnamese food in packed halls on the top levels of one-stop-shop neon temples. Debt increased for the owners of these retail palaces, but that was a necessary evil in the re-arming against online hacks who were (surely) creating a temporary at-home alternative. People love the drama and society of malls, the shared shopping experience and the raging battles between John Lewis at one end of a brightly lit mezzanine and Marks & Spencer at the other. Don’t they?

Landlords asserted their position at the top of the food chain. They created must-have destinations, but often failed to invest in their properties. The number of people who had visited high streets, shopping centres and retail parks to buy their Christmasses reduced by nearly 9% on Christmas Eve 2019, compared to the year before and the next day, a time when shopping centres closed down exhausted after the pre-Christmas rush, preparing themselves for the next day’s post-Christmas mayhem, the British shopping public spent a staggering £1bn online on Christmas Day. On CHRISTMAS DAY! In February 2020, just before we were all banned from worshipping in that age-old glitzy retail space, such as the staggering 207,000 square feet at Intu’s Trafford Park, online retail sales stood at 18.9% of the total and the trend was on the up.

During lockdown the Government has, in effect, encouraged tenants not to pay rent by temporarily banning landlords from serving them with statutory demands and winding-up petitions. It has been argued that this measure, extended to September, has stopped nature taking its course and caused mayhem for property owners and banks. For the first time landlords and tenants are not scrapping on an equal basis. Many landlords are standing on the third floor balustrades of their retail properties staring down into the abyss. Only 14% of retailers paid their rent due on the June quarter day last week and it has become socially acceptable to withhold rent.

Retail leases are going to be reshaped fundamentally when the dust settles. At the moment, most retailers pay a fixed amount, with staggered uplifts over time. In the future they are likely to pay a proportion of turnover, giving landlords a far less predictable income stream against which they will be able to borrow less. Demand for space is going to slump; in secondary locations there may be none at all. The lockdown has accelerated the shift online; it is now 32.8% of all sales. It is in this market that KPMG has to Administrate the monolithic Intu. Who is buying? Who will take the risk in a post-modern retail world that is taking baby steps in the much-vaunted ‘new-normal’.