Section 6: Sustainable Rents
FSP RETAIL BUSINESS CONSULTANTS
Passing Rent – Sustainability In standard FSP reports, rent sustainability is assessed on two dimensions: Corporate Risk and Unit Risk. Corporate Risk Refers to the level of risk associated with the business overall. For example, HMV may have been performing well in High Wycombe, but financial vulnerability across the Company has put the individual store in jeopardy. Corporate Risk is assessed using information from Company Accounts that is in the public domain and is shown in this example report. Corporate risk can be assessed only for retailers that file annual accounts at Companies House. Unit Risk This refers to the health of a particular retail unit. For example, Next is financially healthy as an overall business. However, for various reasons, Next might not trade well in every location. Assessing unit risk requires the use of sensitive, and usually confidential, information (e.g. annual rent per unit). In this Demonstration report, the unit risk section is fictitious; it is not indicative of trading in High Wycombe town centre, and is provided only as a visual aid. It will be made clear which charts are examples, and which are based on actual data in the following pages.
This section is for example purposes only and does not reflect the true sustainability of Eden’s retailers. 40
FSP RETAIL BUSINESS CONSULTANTS
Passing Rent – Sustainability The Demonstration chart shows the proportion of rent in Eden deemed Thriving, Viable and Vulnerable As a whole, Eden is Viable, with Sustainable Rent 8% below Passing Rent 39% of rent is Thriving, largely driven by Marks and Spencer 42% of rent is deemed as Viable 19% of rent is deemed Vulnerable, predominantly driven by Gap and Lush
Vulnerable 19%
Thriving 39%
Viable 42%
For an explanation of how FSP calculates Sustainable Rents, please refer to Appendix 5.
Source: FSP
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FSP RETAIL BUSINESS CONSULTANTS
Retailer Sustainability The majority of merchandise categories are deemed Viable. C&F is particularly strong with Sustainable Rent 15% above Passing Leisure Goods and F&B categories are both Vulnerable Example Summary Schedule
Total Gross Lettable
Merchandise Category
Clothing and footwear
ft
2
Selling Space
Space Conversion
2
%
ft
Est Sales Density
Est Gross Turnover
Passing Rent
Sustainable Rent
2
£k
£k
£k
£/ft
Sustainable over Passing
£k
%
311,155
191,178
63
397
76
752
862
110
15
Personal
57,433
42,336
36
593
25
830
686 -
144 -
17
Household
59,711
42,602
40
469
20
140
138 -
2 -
2
Leisure
31,558
20,266
56
518
11
489
340 -
150 -
31
F&B
42,359
25,250
68
313
7,906
256
183 -
73 -
29
502,216
321,632
64
25
8,038
2,467
2,208 -
259 -
10
4,446
3,432
77
510
1,749
262
292
30
12
506,662
325,064
64
30
9,787
2,729
2,500 -
229 -
Total Unit Shops
Grocery
Total Non-Grocery/Grocery
8 Source: FSP
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FSP RETAIL BUSINESS CONSULTANTS
Financial Risk Matrix The Financial Risk Matrix (overleaf) classifies retailers according to the Department for Business, Innovation and Skills (BIS) Wealth Creation Index (see Appendix 6 for definitions) – Very Worrying, Head Above Water or Healthy. FSP compares this to individual unit risk – Vulnerable, Viable or Thriving within Eden. By definition, the analysis deals with historical accounts data and in a period of high retail instability, like the present time, retailers’ viability can change substantially from one accounting period to the next. It should be stressed that FSP’s Sustainability model assumes retailers will be seeking to achieve at least their average portfolio Return on Trading Assets (ROTA). Thus, retailers showing as Vulnerable are not necessarily losing money, but may be achieving a below average return.
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FSP RETAIL BUSINESS CONSULTANTS
Financial Risk – Passing Rent Matrix Example The chart below is an example, showing what a standard FSP Risk Matrix would look like if the relevant rental information were provided. Note – the Unit Risk shown below is also example only. Unit Risk Vulnerable
Viable
Gap Very Worrying
Muse
Corporate Risk
5%
Build A Bear Workshop Starbucks
Two Seasons Bijou Brigitte
6%
3%
Ann Summers
The Fragrance Shop
Zara
Linens Direct
Jones Bootmaker
Clintons
F.Hinds
H&M
Head Above Water Claire's
Cargo
Blue Inc.
YO! Sushi
Zizzi 8% Games Workshop Waterstones Healthy
Subway
Bhs HMV
Lush
Thriving
Clarks
Nando's
Office
Apricot
Herbert Brown 6%
Charles Fish
L'Occitane
Thorntons
River Island
New Look
Beaverbrooks
17%
Mothercare Pandora
House of Fraser
19%
15% M&S
Ernest Jones
Holland & Barrett Monsoon
Next
Superdry
Cineworld
H. Samuel
Boots
21% Source: FSP
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FSP RETAIL BUSINESS CONSULTANTS
Corporate Risk Commentary BIS Very Worrying – 5% of Passing Rent subject to analysis by BIS methodology. Lush – Medium Risk – £12.6m is owed to group undertakings Gap – Medium Risk – there has been substantial re-organisation of the European operations and there has been an undertaking by Gap Inc. to support the Company for at least another 12 months. £20.1m is owed to subsidiary undertakings Muse – Medium Risk – £1.8bn is owed to group undertakings under long term creditors
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FSP RETAIL BUSINESS CONSULTANTS
Unit Risk Commentary A further 14% from rent is from retailers deemed as Vulnerable by unit risk, but Head Above Water or Healthy by Corporate risk – indicating Vulnerability is specific to Eden. An example of these retailers include: Cargo – significantly undersized unit compared to the retailer’s FSP audited average, plus a high rent per ft². A larger unit with lower rent per ft² could be more suitable for Cargo Waterstone’s – poor sales, which is an on-going company wide problem, and above average rent per ft² for this retailer Games Workshop – low estimated sales density for the retailer. With an above average store size for Games Workshop, a smaller unit could provide better sales densities
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FSP RETAIL BUSINESS CONSULTANTS
Sustainable Rents Centre Plan An example of a Sustainable Rent plan of Eden is shown, classified by unit risk – Vulnerable,
Viable or Thriving.
Source: FSP/GOAD
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FSP RETAIL BUSINESS CONSULTANTS