If you want to see a couple of industry sectors that are scared, threatened, and desperately trying to secure their own futures, check out the current stoush between shopping centre landlords and their retail tenants.
As the Financial Review captioned its story:
"Base rates for new leases have fallen by up to 20 per cent but big chains are pushing for turnover-based rents and resisting landlords' claims for online sales."
Now, I'm not going to pretend that either side is a homogenous group, or that there aren't a decent number of ambit claims trying to take advantage of uncertainty and economic weakness…
… but let's just say there's a heck of a land-grab going on.
Retailers, according to the article, want to link rents to turnover.
Now, I've gotta say, that feels pretty strange if you expect your business to grow.
I mean, why would you lock in a higher rental charge if you're successful?
Instead, it feels like companies are happily giving away some upside, just in case the worst happens again.
Landlords, also fighting the last war, are imagining their rents ebbing away next time there's a downturn, and want to make sure they don't get left holding the baby.
Again, a little strange, if you think your retail emporium is set for growth, no?
You can take your pick on motivations:
Generals fighting the last war: Businesses suddenly realising their downsides are not as protected as they'd like?
Retailers and retail landlords worried that, despite the bravado, the online threat is a clear and present danger?
Both sides trying to shift risk to the other guy?
It's probably some of all of the above.
But it doesn't sound like either party is particularly confident, does it?
I mean, who voluntarily locks in a stepped increase in costs as sales grow?
And who argues against getting more money if more people visit their establishment?
Very strange.
At the same time, retail landlords are also trying to get those retailers to hand over a share of online sales.
Which… is also curious.
I mean, hey, if retailers want to hand out free money, I'll take some, too.
But can you imagine Woolies demanding that Heinz pay it a share of baked beans sales in Coles?
Or the Bunnings landlord in Geelong asking for a cut of sales made by the Bunnings in Wollongong?
I'll admit I already have a view, here.
I think online is the future.
I think retail landlords – particularly those that own B-grade and C-grade shopping centres – are on a hiding to nothing.
I think retailers who can't effectively compete online are in more trouble than Speed Gordon.
So it's no wonder that retailers want rent relief if – when – they start to suffer in the face of online competition.
And it's no wonder that landlords are trying the Hail Mary pass of trying to get a cut of online sales.
But if I'm right?
If I'm right, both are a case of trying to manage a decline.
And that's a tough ask.
Meanwhile?
Meanwhile, I'd be taking my investing cues from these companies' tactics.
Now, to be clear, I'm not predicting the end of physical retail.
But I am predicting the end of many B- and C-grade shopping centres.
I am predicting the end of many marginal retailers, who simply can't absorb the lost revenue, as more of us continue to shop online.
It is, in no small part, analogous to Australia's carmakers, swamped by competition with better products, better scale and more desirable brands.
For a while, they managed to prop themselves up… to pretend it wasn't happening (and with their hands well and truly out for government support).
But it was always an exercise in delaying the inevitable.
Yes, there are some retailers who are doing a wonderful job of combining online and offline sales.
They're better placed than most.
But even those guys are going to face a future in which they simply don't need as many stores.
As JB Hi-Fi Limited (ASX: JBH) sells more and more online, do you really reckon they really need the 300-plus stores they have today?
More to the point, do you think their future sales will mean each of those 300 stores pay their own way?
I doubt it.
At least JB can pivot.
(And it's not just JB, of course. I'm using them here as an example, but there are many, many more.)
The bad retailers? The shopping centres?
Not so much.
Westfield centres are calling themselves 'living centres', now, as they desperately prepare for a different future.
I admire the effort. They might even succeed, if they can become true 'destinations' for people to meet, eat and be entertained (plus, sometimes, to shop).
But the others?
I doubt it.
I don't know how long it takes to play out.
It might even be decades.
But I doubt that, too.
Either way, as I wrote earlier this week, it's incumbent on the investor to put their money to work in places it'll thrive, not just battle to keep its head above water.
The current skirmish might be giving us a sense of what those retail tenants and landlords are thinking.
Invest (or not) accordingly…
Fool on!
