Mike Ashley: How landlords can help save ‘dead’ high streets

“The mainstream high street, as we think about it today, is already dead,” according to Sports Direct boss Mike Ashley. In fact, it is so far gone, he said, it is “at the bottom of the swimming pool, dead”. The murderer, the retail billionaire told MPs at Westminster’s Housing, Communities and Local Government Committee yesterday, is the internet. Because department stores have been stuck with “prehistoric rents” set before online retailing began to rise, landlords “have to take their share of the pain”, he said. Although some landlords were criticised for being “greedy”, Ashley said he recognised the “vast majority want to sit down and work something out”. “But then we get into timeframes and investments, and what happens if you have a store and the whole high street dies around it?” Ashley told MPs. “What will you do with the store then? [Signing] a 10-year lease might bring the whole business down. I’m not Father Christmas. I’m actually, I believe, a very fair guy.” Online sales tax Ashley told the committee the problem could be fixed if the government brought in an immediate online sales tax – even if it was detrimental to Sports Direct’s £400m online business – to level the playing field between companies. The tax could start with retailers that have more than 20% of turnover from their online businesses. He said this would prompt them to invest in stores, and possibly even fuel an “opening spree” to keep 80% of their revenue in the high street. They could also enjoy a boost from in-store click-and-collect services. Free business rates Ashley, whose retail group snapped up the beleaguered House of Fraser and Evans Cycles chains, also urged local councils to offer retailers free business rates for five years if they agreed to match every pound of free rates with investment into the site. He called upon landlords to offer a 25% rent reduction as part of this scenario to balance out the impact suffered by the council. “Everybody has to put in,” Ashley said. “The high street won’t make 2030. It’s not going to be there, unless you do something really radical and grab the bull by the horns.” He told MPs that base rents across House of Fraser stores are expected to reduce by around 50%. Of these, some landlords “are going to get nothing”, while others “will actually put their rent up”. I’m not sitting in my office stroking a white cat. What benefit do I get from closing stores? Landlords are ‘uneasy bedfellows’ Ashley also shared his views with the Commons select committee on the precarious relationship between landlords and retailers. “Landlords and retailers, by definition, have always been uneasy bedfellows. The landlord’s job is to get the maximum amount of rent, while the retailer normally wants to pay the minimum amount,” he said. “They will both sit in a room and promise each other everything, but in reality, when one has the upper hand he gets a big hammer and bashes the other one and [vice versa]. You can’t regulate what a landlord is able to charge in rent.” Ultimately, he said, landlords need to focus more on factoring in central overheads such as logistics and marketing costs, while considering a store’s profitability. He argued that lease terms comprising a percentage of turnover with a base rent would create a win-win situation, but acknowledged they were “not something most landlords like”. “[Landlords] have got to give us the percentage and some rent free and help us pay for [a refit], and then everybody wins. And I [might] sign a longer lease.” On the other hand, local councils gained praise at the meeting for helping to keep House of Fraser stores open. According to Ashley, some landlords refused to agree new terms for the department stores in the hope that they would close in order to increase the likelihood of gaining planning permission for conversion to residential or serviced offices. In a comment that Ashley said would make him “hated by every landlord in the country”, he agreed with observations that expectations of a 20% crash in high street rents in 2019 would benefit retailers. Converting upper floors He suggested other ways to “re-energise” the high street, including more park-and-ride schemes and free car parking that could potentially link to in-store purchases. Ashley told the heated meeting that the department store sector was far from dead but that they “have to evolve and be different”. This could include putting free video-gaming on the upper floors of centres to bring in younger customers. Ashley, who is also a major stakeholder in Game and its Belong esports business, said this would create a “place where people can go [and] interact”. He also backed the notion of converting surplus space for residential use on upper floors, as long as retail was retained on the lower levels. “I accept [HoF] cannot have 500,000 sq ft in Birmingham. You would need an Uber to take you round it,” he said. House of Debenhams Ashley also hinted at closer relations between HoF and Debenhams, in which he has a 29.7% stake. He told MPs: “They should work together, but they should have done years ago. I told them to work together.” He said he found it unfathomable that the pair did not collaborate more now to combine their buying functions in order to save on logistics. He also said if the market continued on the same downwards trajectory, locations close to each other would inevitably merge into one store. The industry reacts Revo chief executive Ed Cooke said: “It is hard to disagree with Mike Ashley’s comments that a massive electric shock is needed to revive high streets that are flatlining.” However, he said he felt Ashley “overplayed” his opinion on upwards-only rent reviews, which he claimed had sent retailers on a “downward death spiral”. “The average new retail lease is around seven years, and rent reviews have been largely replaced by more frequent renewals,” said Cooke. “This means overhead costs are far more reflective of market conditions, and there is far greater flexibility to the benefit of both parties. Business rates, on the other hand, are fixed, punitive and increasingly detached from business performance.” Negotiations so far Ashley told the committee his target was to keep 80% of House of Fraser’s 59 stores open. “I’m not sitting in my office stroking a white cat,” said the entrepreneur. “What benefit do I get from closing stores?” Only a “godlike” feat could have kept all the stores open, he added. Last month, Sports Direct announced it had kept more than 20 of 59 House of Fraser stores from closure, including the iconic Frasers store in Glasgow, which it bought for £95m to convert into “the Harrods of the North”. Since then, it announced U-turns on closing the Kendals flagship in Manchester, which was slated for closure in January, and the Swindon store at the Brunel Shopping Centre. However, Ashley blamed landlords for collapsed rent negotiations, with intu being the most prominent example. The mogul is expected to shut around 17 stores across his brands – including Sports Direct, Flannels and Evans Cycles – after it could not agree terms on its four House of Fraser outlets. The four stores at intu Metrocentre in Gateshead, intu Chapelfield in Norwich, intu Lakeside in Essex and intu Victoria Centre in Nottingham will shut in the New Year. Watch the hearing To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette