As retail shops close due to business rates Ashley demands new deals

High Street

Nearly 6,000 retail stores have closed so far this year, as new research shows the extent the problematic business rates tax regime is having across town centres in the UK.

According to the Centre for Retail Research retailers with 10 or more stores have closed thus far in 2019 5,834 shops, up 77% from 2018.

Between 1 January and 30 September 30,708 shops have been closed by large retailers falling into administration and 333 shops closed their shutters for the last time through Company Voluntary Arrangements (CVA).

Through “rationalisation” as part of cost cutting, large retailers have closed 4,793 shops, in the same period of 2019 2,531 more shops were closed by large retailers.

Robert Hayton, head of UK business rates at Altus Group said, “Most large chains will have reached the de minimis regulation limit [the cap]this financial year and will effectively be precluded from the enhanced discount, but the commitment to lower the overall burden will be a welcome relief with the standard rate of tax having gone above 50% and at its highest level since 1990, with the rate set to rise further in April.”

Mike Ashley is also reportedly pressuring landlords to agree that all new rent deals across his Sports Direct retail empire are linked to sales.

According to The Sunday Times, Ashley has demanded of landlords to agree to turnover-based rents, where up to 15 per cent of the total charge payable is linked to store sales.

This pertains to both new stores and stores were leases are being renewed. Ashley’s company operates from around 700 stores around the country.

Turnover-based rents help tenants by transferring some of the risk of future falls in sales to landlords, rather than locking the tenant into a lease that can last years.

Turnover-based rents are widely used in the US, and are known to be standard practice fashion retail giants H&M Group and Zara parent company Inditex.

Sports Direct would not be the first UK retailer to seek turnover-based rents.

In February, Paperchase began linking turnover to almost half of its store estate while Clintons has plans to switch 206 of its 332 stores to turnover deals as part of a CVA that is pending approval from landlords.

Given Sports Direct’s vast store estate – which includes brands such as House of Fraser, Flannels, Evans Cycles, USC and Sports Direct itself – a switch to turnover-based rent could have domino effect.

Major landlords such as British Land, Landsec, Intu and Hammerson have all reported declining rental income or property write-downs due to a wave of CVAs and administrations.