MENU

Major retailers put the pressure on

Due to falling customer numbers, an ever-growing trend towards online shopping and subdued discretionary spending, rivals Myer Holdings Limited (ASX: MYR) and David Jones Limited (ASX: DJS) are stepping up the pressure on shopping centres to reduce rents, The Australian Financial Review reports.

Despite reporting its third consecutive quarter of same-store sales growth, Myer will review the future of each of its existing 70 and 12 planned stores. With online sales growing strongly (over 8 million online visits in the last six months), Myer may reconsider resigning leases should shopping centre groups not compromise on rent prices. In 2012, Myer reported that its ‘minimum lease payments’ were in excess of $193 million – an amount which was around 2% higher than what was paid in 2011. Myer will be closing its store in Elizabeth, South Australia, which will add to the three already closed within the last 12 months.

Meanwhile, a number of David Jones’ leases are also expected to expire within the next few years. Following its adopted omni-channel strategy, the company will decide whether to renew these contracts, having already closed three stores in the past five years.

Corporations such as Westfield Group (ASX: WDC), Stockland (ASX: SGP), and GBT Group (ASX: GBT) rely heavily upon Myer and David Jones to attract customers to their shopping centres. The two retailers are often strategically positioned at opposing ends of a shopping centre to create a large volume of customer traffic. It is therefore vital that these leases be retained, to maintain a good flow of customers to other stores that lay in between.

Westfield revealed that leases were being signed for 4-5% below what previous leases were signed for – a benchmark that David Jones and Myer both wish to utilize in further negotiations.

Foolish takeaway

Both Myer and David Jones have recovered strongly since their woes in July last year, defying suggestions that the brick and mortar form of retailing is a thing of the past. For the long-term survival of the companies, both must focus heavily on saving costs and selling high-margin products in order to maximise profits.

Not quite what you’re shopping for? If you’re looking for other great investment ideas, click here now to get The Motley Fool’s special FREE report, “3 Stocks For the Great Dividend Boom”. The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.