JD Sports chairman Peter Cowgill has redoubled calls for changes to the landlord-tenant relationship as he warned that the high street chain’s new store opening programme would be curtailed unless there is “rental realism”.
Mr Cowgill, who has run JD Sports for more than 15 years, has been a vocal proponent of reform to lease arrangements. During the Covid-19 pandemic, the group has withheld some rental payments and resorted to a prepack administration to reduce rents at the company’s Go Outdoors chain of outdoor pursuits stores.
“The issue is: do I want to sit in a particular location until the next lease break paying twice the rent my neighbour is paying?” he said, referring to the growing numbers of retailers that have reduced rents using insolvency procedures.
Mr Cowgill said Covid-19 had “turbocharged” the shift towards ecommerce while social distancing rules had reduced footfall in many retail locations.
“One factor might be temporary but the other is permanent,” he said. “Pre-Covid, the typical lease break was yielding a reduction of 30 per cent. That’s probably closer to 50 per cent now.
“At the end of the day we are buying footfall. That is what retailers do. Increasingly landlords recognise that reality, but they are still reluctant to take action.”
He added that while turnover-linked leases offered an equitable solution, landlords had to recognise that different types of retail had different margin levels.
JD Sports, which has enjoyed tremendous success over the past decade as athleisure grew in popularity, said that while it still believed stores had a crucial role to play, it had “decided to delay a number of projects that were planned for this year.”
It was “entirely feasible that some projects may not proceed under the current lease terms” and store openings will be “significantly reduced” from last year’s 84, although flagship stores on the Rue de Rivoli in Paris and New York’s Times Square will still open in the coming months.
Mr Cowgill said that sportswear giants Nike and Adidas, with which it has close relationships, had also significantly increased their investment in direct-to-consumer channels, posing a further challenge to third-party stores.
He defended the use of a prepack administration to restructure Go Outdoors, however, saying that its onerous lease terms and low ecommerce penetration were far more significant factors in the decision than operational problems associated with closing its head office and centralising distribution.
He said that “north of 50” of its 67 stores, which tend to be large outlets located on retail parks, could remain open if the right terms were secured.
Mr Cowgill made his comments as JD Sports reported sales for the year to February 1 that were 29 per cent higher at £6.11bn, helped by a full year of revenue from its Finish Line operation in the US.
Pre-tax profit was £349m, up from £340m last year, although the most recent figure was impacted by £90m of exceptional charges and the introduction of new accounting rules.
Kate Calvert, analyst at Investec, described the full-year results as “fabulous” and upgraded her forecast for the current year by 75 per cent to £176m, though that would still be just over half last year’s figure.
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