Navigating through choppy waters
Published: 07 February, 2009
Bespectacled, quietly spoken, with a somewhat studious demeanour, Jeremy Collins seems well-suited to the no-frills ethos of the John Lewis Partnership’s London head office where he is the department store group’s head of retail development. And he promises to bring the same unostentatious but thoughtful approach to his term in office as president of the BCSC.
“It’s actually a good time to be taking over,” he says. “This climate is forcing people to think about what they’ve been doing and therefore it’s a good time for the BCSC to take stock.”
And he promises: “My presidency will be about making sure we’re clearly focused on just a few areas. If we do that to an excellent standard we can add to the debate and add value for our members.”
As the first retailer to head the shopping centre industry’s trade body since Roger Groom almost 20 years ago, he will bring a different perspective to the role, and he has made it his mission to build bridges between the occupiers and owners of retail property.
The savage recession hitting retailers and property investors alike has exposed the fault lines in the landlord/tenant relationship that go unnoticed in a better market. But rather than collapsing into mutual acrimony, Collins is calling for the industry to seek mutual understanding. And he is well-placed to make such a call: he joined JLP five years ago but for the 15 years before that he was on the landlords’ side of the fence, latterly at Lend Lease where he led the Touchwood project in Solihull.
“It’s about making sure the retail property industry understands retailers,” he explains. “I know they say they already do but having made the transition I now know that what they understand is retail property. Now is the time to get to understand each others’ businesses better.”
And that applies equally to retailers, Collins insists. “We both need each other. Retailers need developers to provide them with new space and to unlock the capital for them to occupy that space. They need to understand the process of unlocking that capital.”
In the short term, though, retailers’ focus is going to be on managing costs. “There’s huge pressure on cashflow at the moment, and for that reason I think the move on monthly rents by the likes of the Prudential is a welcome initiative. We now need a consensus in time for the March quarter day.”
He refutes the suggestion that March is a hopelessly ambitious target for the property industry. “At John Lewis we have 350,000 product lines and we had just three days’ notice of the VAT change. We changed our shelf prices and our till systems in time. And bear in mind that not every item is VAT-able so it wasn’t just a matter of making a blanket change.
“There’s a real need for swift and effective action. If landlords can do it in a consistent way it’ll send out a message of support and co-operation to the retailers,” he says.
And Collins warns that the climate for retailers is going to get worse before it gets better. “One retailer said to me: ‘Christmas proved only one thing, and that’s that we’re good at giving stuff away.’ And a lot of retailers hedged their currency exposure, as we did, so they haven’t felt the impact of the collapse of the pound.
“There’s a dynamic between turnover and profit for retailers and this year we’re going to see that turnover – expressed as like-for-likes – is only one part of the equation. That’s going to come through loud and clear in the next few months,” he forecasts.
So if retailers have to look at total property costs, next in the spotlight after monthly rents is going to be the service charge. “Both sides would benefit from taking stock of the service charge,” Collins asserts. “It’s an an area of cost that’s gone up inexorably.”
And he adds: “We need to establish what is an effective service charge level. The generic 20 per cent cut that has been talked about is a good starting point, but the reality is that as retailers’ margins get squeezed if we don’t cut the service charge then something else is going to have to give. And that something else would be rent.”
Inevitably, cutting service charges could lead to a reduced level of service provided to tenants and shoppers in shopping centres. Yet John Lewis is notorious for demanding the highest standards from the centres it operates in, to the extent of questioning tenant mix and influencing where RMUs can and cannot operate. How does Collins square that circle?
“John Lewis Partnership expects high standards,” he says. “We challenge ourselves and others to improve efficiency and spend less money on delivering a better quality of service and environment.”
And he is certain there are savings that can be made. “Shopping centre managers have focused on levels of service and the increasing sophistication of marketing etc. I just wonder if the benefits of all this have been accurately measured. Is anyone out there looking at value for money?
“In a rising market there’s always a temptation not to be too rigorous when it comes to market analysis. But now every penny counts.”
Collins recognises that not everyone in the industry will welcome the cuts. “We’ve seen a wide range of reactions from owners and managers, and we recognise it’s as tough for them as it is for retailers,” he says. “But we need to look beyond the lease at the real business drivers in the relationship between landlords and retailers.”
And here Collins believes the BCSC has a job to do in helping landlords to come to grips with this change: “There’s a role to play in informing owners, especially those who are new to the market.
“The secondary market especiallyhas seen a huge shift and it’s now dominated by debt-driven players – often small businesses or individuals – who haven’t had a lot of professional advice. They’re going to need a lot of support and we’re going to focus very specifically on that,” he pledges.
Another element of retailers’ total property cost is the business rate. “The property industry’s primary focus has been on empty rates, because that’s the bit that affects them directly,” Collins notes. “But there are several other strands that impact the occupier, and therefore I think they should be of equal concern to the landlords.
“We need a clear and consistent message from both sides, and to achieve that we’re working with the IPF, the BPF and the BRC to open up dialogue with government. I hope they’ll react but the onus is on us to explain the implications of what they’re planning.
“It’s not going to be enough to say ‘can’t pay won’t pay.’ We need to be able to demonstrate the real economic impact of raising rates at this time: it’s about corralling our resources to do that in an effective way.”
But Collins insists this will be a rare example of the BCSC taking on a lobbying role. Because it has a diverse membership, the organisation has often found it difficult to go to government to say ‘our members think X’ or ‘our members demand X’.
“We decided 18 months ago that the BCSC’s role was to act as an independent advisor to government. I think too much lobbying is about raising issues, not providing solutions,” he says.
And he is looking to turn a potential weakness into a strength. “The BCSC has been effective with government precisely because it is a broad church and we’ve been forced to find consensus. We’ll continue to be a broad church and therefore we’ll continue in an advisory, rather than a lobbying, role.”
Some felt that the BCSC was marginalised in the debate on upwards-only rent reviews because it was unable to articulate a clear party line on the issue. And now the BRC appears keen to push the issue back up the agenda. So where does Collins stand?
“For me the issue is ensuring that retail property remains an attractive asset class so it can continue to attract new capital at favourable rates. And the upwards-only rent review is an important part of that financial equation for long-term investors.
“So it’s not enough just to say ‘take away the upward-only rent review’ because there’d be unintended consequences.
“We need to find a new financial model to rebalance the viability equation so that it encourages development, refurbishment and urban renewal: the retailers are going to want to see that as the economy recovers. But what would that model look like if it’s to remain attractive?” he asks.
“If developers don’t have a viable model, development won’t happen. So let’s start that process by getting to understand each others’ businesses,” he concludes.
Incoming BCSC president Jeremy Collins talks to Graham Parker about his expectations for a turbulent year
Bespectacled, quietly spoken, with a somewhat studious demeanour, Jeremy Collins seems well-suited to the no-frills ethos of the John Lewis Partnership’s London head office where he is the department store group’s head of retail development. And he promises to bring the same unostentatious but thoughtful approach to his term in office as president of the BCSC.
“It’s actually a good time to be taking over,” he says. “This climate is forcing people to think about what they’ve been doing and therefore it’s a good time for the BCSC to take stock.”
And he promises: “My presidency will be about making sure we’re clearly focused on just a few areas. If we do that to an excellent standard we can add to the debate and add value for our members.”
As the first retailer to head the shopping centre industry’s trade body since Roger Groom almost 20 years ago, he will bring a different perspective to the role, and he has made it his mission to build bridges between the occupiers and owners of retail property.
The savage recession hitting retailers and property investors alike has exposed the fault lines in the landlord/tenant relationship that go unnoticed in a better market. But rather than collapsing into mutual acrimony, Collins is calling for the industry to seek mutual understanding. And he is well-placed to make such a call: he joined JLP five years ago but for the 15 years before that he was on the landlords’ side of the fence, latterly at Lend Lease where he led the Touchwood project in Solihull.
“It’s about making sure the retail property industry understands retailers,” he explains. “I know they say they already do but having made the transition I now know that what they understand is retail property. Now is the time to get to understand each others’ businesses better.”
And that applies equally to retailers, Collins insists. “We both need each other. Retailers need developers to provide them with new space and to unlock the capital for them to occupy that space. They need to understand the process of unlocking that capital.”
In the short term, though, retailers’ focus is going to be on managing costs. “There’s huge pressure on cashflow at the moment, and for that reason I think the move on monthly rents by the likes of the Prudential is a welcome initiative. We now need a consensus in time for the March quarter day.”
He refutes the suggestion that March is a hopelessly ambitious target for the property industry. “At John Lewis we have 350,000 product lines and we had just three days’ notice of the VAT change. We changed our shelf prices and our till systems in time. And bear in mind that not every item is VAT-able so it wasn’t just a matter of making a blanket change.
“There’s a real need for swift and effective action. If landlords can do it in a consistent way it’ll send out a message of support and co-operation to the retailers,” he says.
And Collins warns that the climate for retailers is going to get worse before it gets better. “One retailer said to me: ‘Christmas proved only one thing, and that’s that we’re good at giving stuff away.’ And a lot of retailers hedged their currency exposure, as we did, so they haven’t felt the impact of the collapse of the pound.
“There’s a dynamic between turnover and profit for retailers and this year we’re going to see that turnover – expressed as like-for-likes – is only one part of the equation. That’s going to come through loud and clear in the next few months,” he forecasts.
So if retailers have to look at total property costs, next in the spotlight after monthly rents is going to be the service charge. “Both sides would benefit from taking stock of the service charge,” Collins asserts. “It’s an an area of cost that’s gone up inexorably.”
And he adds: “We need to establish what is an effective service charge level. The generic 20 per cent cut that has been talked about is a good starting point, but the reality is that as retailers’ margins get squeezed if we don’t cut the service charge then something else is going to have to give. And that something else would be rent.”
Inevitably, cutting service charges could lead to a reduced level of service provided to tenants and shoppers in shopping centres. Yet John Lewis is notorious for demanding the highest standards from the centres it operates in, to the extent of questioning tenant mix and influencing where RMUs can and cannot operate. How does Collins square that circle?
“John Lewis Partnership expects high standards,” he says. “We challenge ourselves and others to improve efficiency and spend less money on delivering a better quality of service and environment.”
And he is certain there are savings that can be made. “Shopping centre managers have focused on levels of service and the increasing sophistication of marketing etc. I just wonder if the benefits of all this have been accurately measured. Is anyone out there looking at value for money?
“In a rising market there’s always a temptation not to be too rigorous when it comes to market analysis. But now every penny counts.”
Collins recognises that not everyone in the industry will welcome the cuts. “We’ve seen a wide range of reactions from owners and managers, and we recognise it’s as tough for them as it is for retailers,” he says. “But we need to look beyond the lease at the real business drivers in the relationship between landlords and retailers.”
And here Collins believes the BCSC has a job to do in helping landlords to come to grips with this change: “There’s a role to play in informing owners, especially those who are new to the market.
“The secondary market especiallyhas seen a huge shift and it’s now dominated by debt-driven players – often small businesses or individuals – who haven’t had a lot of professional advice. They’re going to need a lot of support and we’re going to focus very specifically on that,” he pledges.
Another element of retailers’ total property cost is the business rate. “The property industry’s primary focus has been on empty rates, because that’s the bit that affects them directly,” Collins notes. “But there are several other strands that impact the occupier, and therefore I think they should be of equal concern to the landlords.
“We need a clear and consistent message from both sides, and to achieve that we’re working with the IPF, the BPF and the BRC to open up dialogue with government. I hope they’ll react but the onus is on us to explain the implications of what they’re planning.
“It’s not going to be enough to say ‘can’t pay won’t pay.’ We need to be able to demonstrate the real economic impact of raising rates at this time: it’s about corralling our resources to do that in an effective way.”
But Collins insists this will be a rare example of the BCSC taking on a lobbying role. Because it has a diverse membership, the organisation has often found it difficult to go to government to say ‘our members think X’ or ‘our members demand X’.
“We decided 18 months ago that the BCSC’s role was to act as an independent advisor to government. I think too much lobbying is about raising issues, not providing solutions,” he says.
And he is looking to turn a potential weakness into a strength. “The BCSC has been effective with government precisely because it is a broad church and we’ve been forced to find consensus. We’ll continue to be a broad church and therefore we’ll continue in an advisory, rather than a lobbying, role.”
Some felt that the BCSC was marginalised in the debate on upwards-only rent reviews because it was unable to articulate a clear party line on the issue. And now the BRC appears keen to push the issue back up the agenda. So where does Collins stand?
“For me the issue is ensuring that retail property remains an attractive asset class so it can continue to attract new capital at favourable rates. And the upwards-only rent review is an important part of that financial equation for long-term investors.
“So it’s not enough just to say ‘take away the upward-only rent review’ because there’d be unintended consequences.
“We need to find a new financial model to rebalance the viability equation so that it encourages development, refurbishment and urban renewal: the retailers are going to want to see that as the economy recovers. But what would that model look like if it’s to remain attractive?” he asks.
“If developers don’t have a viable model, development won’t happen. So let’s start that process by getting to understand each others’ businesses,” he concludes.
