New Look wants the owners of its physical stores to agree to rents based on sales © PA

If Sports Direct boss Mike Ashley asks for something, it is not usually wise to agree. Just ask the warehouse staff who consented to timed loo breaks. Or the managers who signed up to run his Newcastle United Football Club. Or the analyst who accepted his challenge to play “drink ‘til you vomit”. So, last week, when the retail tycoon said he wanted his landlords to accept “turnover based rents across all fascias and territories”, few would have responded positively.

Why, then, does fashion retailer New Look now expect the owners of its physical stores to agree to rents based on sales? Probably because, with a crucial debt-for-equity refinancing dependent on a new rent deal, chief executive Nigel Oddy is offering landlords more than the self-styled King of The High Street ever would.

Under his proposals, up to 12 per cent of a New Look store’s turnover will be handed over as rent in the first year, with 85 per cent of that amount guaranteed as a minimum “base rent” from the second year onwards. 

Landlords will also be given a break option — which New Look will not have — so they can bring in a new tenant offering to pay them more. And even the worst-performing New Look stores will continue to cover service charges and business rates — a valuable pledge to landlords not afforded rates “holidays”.

However for turnover-based leases to be accepted more widely, there arguably needs to be more reassurance for the real estate owners and their long-suffering shareholders.

Law firm White & Case recently noted that sales-based rents remained unpopular with landlords for two reasons: once a base rent is set, the extra turnover element is often not triggered; and tenants typically only sign up to these leases in downturns. It suggested retailers needed to offer more. 

So-called success payments, when turnover exceeds an upper threshold, would make the risk less one-sided. Lookback payments, to correct past overestimates of turnover, would also prevent long-term disadvantage. Redacted leases would prevent commercially sensitive information being disclosed via the Land Registry. And a broader definition of turnover, to include online orders fulfilled via leased premises but exclude returns, would mean landlords benefit from increased click-and-collect footfall. 

But perhaps the biggest of the concessions required would be some form of rent top-up or reserve account to reassure landlords’ nervous lenders and make their debt less expensive.

New Look is not offering any of these, and may not need to, in order to secure its rescue deal. Other retailers might wish to consider them, though, if they want a more favourable response than Mr Ashley tends to receive. 

Provident Financial: long lease but canny credit

Provident Financial has been as improvident as some of its customers in its time, writes Kate Burgess. Not least for taking out a long lease on swanky offices in the City’s Walkie Talkie building which are 200 miles from the Provvy’s Bradford headquarters. The lease, which has almost two decades to run and no break clause, looks particularly shortsighted now amid the pandemic. The London offices are deserted and the group reported a £28m half-year loss on Wednesday. 

However Provident Financial is better provided than most of its subprime lending rivals struggling to secure funding, such as Non-Standard Finance. The Provvy has £215m more capital than the regulator requires as a minimum. That is nearly half the value of its shares.

The Provvy is also beginning to reap the benefits of Vanquis, a credit card supplier set up more than a decade ago, which is now by far the biggest part of the business. Longer-term, Vanquis looks well placed for the inexorable shift towards a cashless society that has been accelerated by Covid-19.

Vanquis has had its hiccups. The financial watchdog took exception to one of its products in 2016. Borrowers stopped using their cards during lockdown and arrears mounted. But spending is beginning to rise again. Now just 2 per cent of Vanquis customers are still on payment holidays. And the Financial Conduct Authority has relaxed its supervisory grip, allowing the Provvy to reduce borrowing costs and talk about reinstating the dividend. 

That does not mean the future is clear. The Provvy may gain from higher rates of unemployment and recession, as mainstream banks grow cautious. Its car loan arm Moneybarn reported record numbers in July as rivals tightened lending criteria and rejected the affluent and indigent alike. But on the minus side, default rates rise during times of economic hardship. Impairments — which reached a high of 19 per cent of cash coming in during the six months to June — will continue to eat into the Provvy’s profitability. Analysts’ forecast a £60m or so loss for the full year and anything from £50m pre-tax profit to £100m in 2021.

Still, the Provvy is well capitalised. And its shares — even after rising sharply on Wednesday — are still half the price they were in March. At close to four times earnings expected by 2022, it might even be provident to pick up a few.

New Look: matthew.vincent@ft.com
Provident Financial:
kate.burgess@ft.com

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