COMMENT: Horror on the High Street
If you really want to understand the problems afflicting the Irish high street, HMV is probably the wrong place to start.
The British-owned retailer has been flagging for years now; its business model essentially undone by changing consumer dynamics and the rise of digital music.
Instead, you should look to Pamela Scott, the Irish-owned fashion retailer.
On Friday, the company’s directors quietly asked the High Court to appoint an examiner to 12 of its outlets.
The company’s director Scott Barron told my colleague Samantha McCaughren at the weekend that the decision had been taken due to the high rental costs weighing down on the business.
There are 24 clothes outlets within the wider Pamela Scott group. Half of those opened in 2009 and 2010, where the company secured market rents, based on turnover.
These are all unaffected by the examinership.
However, the 12 that sought bankruptcy protection last week are all tied into long terms, upward-only leases, signed at the height of the boom.
The move by Pamela Scott makes sense. If the landlords don’t cut a deal and reduce rents, the examiner will have the power to repudiate or surrender the leases.
Inevitably, more companies will follow the route taken by Pamela Scott.
But it begs a question: should a struggling business really be forced to put their business into examinership to try and free itself of crippling boom time rents and leases.
Once again, it highlights the need for the government to tackle the issue of upward-only rent reviews once and for all.
The government had made the abolition of upward-only rent clauses a key part of its election campaign. However, the government subsequently ruled out at the idea of retrospectively undoing upward-only rent reviews.
The government cited legal advice that such a scheme would be unconstitutional, but it was also worried about the effect it would have on the value of commercial property.
Investment Property Databank (IPD), which monitors trends in the property industry, said it would result in a 20 per cent drop in the value of commercial property in Ireland.
Much of Ireland's commercial property, of course, is banked by the state through Nama. However, Nama has been willing to cut deals on rent reductions.
Nama approved 212 requests for rent abatements by the end of 2012, while a further 56 requests are under review. Just eight requests have been turned down, meaning that 97 per cent of requests have been successful.
To qualify for the reduction, the business has to prove that its rents are out of kilter with the market and threatening the future of the business.
But it merely places further pressure on businesses which are not leasing property from Nama or a Nama-controlled developer. There is no formal escape route for these businesses, with non-Nama landlords under no compulsion to reduce rents in line with market rates.
For eight years, John Corcoran waged his own personal war against “upward-only rent reviews”.
His shoe shop, Korky’s on Grafton Street in Dublin, became the front line of the campaign, with Corcoran constantly pointed out the flaws in the system.
Earlier this month, he was forced to concede defeat, shutting down the shop.
More will follow. New reports from accountancy firms KPMG and RSM Farrell Grant Sparks both predict that a glut of retail chains and high street outlets will fold in the coming weeks and months, with the Christmas sales boom proving to be short lived.
One of the key factors identified by both reports was boom time rents.
The collapse of HMV administration and receivership was sad, but inevitable.
However, the machinations at Pamela Scott are a real sign of the times.
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