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In-store ordering may end turnover rents

The lines have been blurred between bought-in-a-shop sales and bought online sales. Picture: Contributed

The lines have been blurred between bought-in-a-shop sales and bought online sales. Picture: Contributed

  • by DEBORAH WALES
 

For landlords to charge rent based on turnover, they need to know what’s sold in a shop. Online ordering has changed that, says Deborah Wales

On “Cyber Monday”, the first Monday in December, Amazon.co.uk saw more than 4.1 million items ordered on the site, at a rate of more than 47 items per second. This was up from 3.5 million last year at a rate of around 41 items per second.

Amazon is not the only success story. More than ten million UK residents now own a tablet device and seven in ten adults own a smartphone – and they use them to shop 24 hours a day.

Former Burberry chief executive Angela Ahrendts illustrated the importance of online shopping when she says Burberry’s shop windows should replicate Burberry’s website, not the other way around.

The internet appears to be winning the economic battle for Britain’s high streets – the collapse of Blockbuster in November proved yet again that businesses which rely solely on the high street will struggle to survive.

The sparkle of the Christmas lights

But this year’s bumper Cyber Monday statistics should not fool us into forgetting how important our high streets are. Shoppers want an “experience” comprising an attractive store, competitive pricing and fantastic customer service. They don’t just want an automated checkout.

Consumers want the sparkle of the Christmas lights to inspire them, and the lure of the holiday spirit should not be underestimated. There is a good reason why John Lewis’s bear and hare are not shown sitting in their living room browsing the web on their iPads.

The shops that can offer a true Christmas experience (without too many queues) will continue to be successful – especially if that service is backed up with a great choice and convenient delivery – Amazon Drone, anyone?

But while internet shopping has seen a boom for consumers who can complete their Christmas shopping while sitting on the bus on the way home from work, the rise of internet shopping has had a direct impact on retail landlords’ income.

Many landlords charge rent based on the turnover of a tenant’s store. So, the more the store sells, the more rent landlords receive. In theory, turnover rents allow the risk and reward of the success of a tenant’s business to be shared with its landlord.

Yet in-store online ordering and “click and collect” services have blurred the lines between sales which are attributed to bricks as opposed to clicks.

Let’s assume you’re buying an Apple iPad Air from John Lewis. Instead of popping into Buchanan Galleries or St James Centre, you order it on-line while watching the X-Factor final and ask for it to be delivered to your house. You paid for the iPad via the website and a server based in England. The iPad may come from the store, but John Lewis is purely a postman. Can you say you bought that iPad in store?

Reviewing turnover information

It is this dilemma over how to record online-related income that requires landlords to be vigilant when reviewing turnover information to ensure all relevant income relating to the premises is disclosed in the tenant’s accounts. This is extremely difficult for landlords to police when they do not have an in-depth knowledge of the tenant’s business model.

Stores being used as “showrooms” for consumers to browse products and then order items online for home delivery blurs the lines on attributable income even further.

Landlords need to factor in whether these increased cost and time implications of poring over tenants’ financial information justify the perceived benefits of sharing the risk of the tenant’s trading success. Continuing shifts in the trends of our shopping habits could well be the final nail for turnover rents.

And, while this issue may seem a technical argument, of interest to retailers and lawyers writing leases, it has much wider implications.

We used to know what we were buying and who we were buying from. But as the horseburger crisis showed us, and as Amazon and Starbuck’s well-publicised tax arrangements have disclosed, we don’t always know what we’re buying; nor do we know where our money is going. Are we buying our double mocha from a corner shop or a tax haven in Europe?

So, as we look forward to Christmas, perhaps we should also consider not just the convenience of online shopping, but also its impact: how it has changed our high streets and changed the way we shop.

And while progress is inevitable, I can’t help thinking that we may in future years lose something magical when Santa’s reindeer are replaced with an Amazon Drone.

• Deborah Wales is a partner, real estate, with Dundas & Wilson www.dundas-wilson.com

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