Malcolm Walker - Retail Week Columns
The best of both worlds
We could use some of the US’s ambition, but they can keep their food, says Malcolm Walker
July 9, 2010
I am writing this on a plane heading back from the US after visiting a small Midwest town called Rochester.
My trip was for a routine health check and on the recommendation of Graham Kirkham and Tom Farmer I went to the best medical centre in the world - The Mayo Clinic. The experience reinforced all my beliefs and prejudices about the US.
The Mayo Clinic employs 50,000 staff including 3,000 world-class doctors. The buildings, the people, the organisation and the cleanliness are beyond the comprehension of those accustomed to healthcare in the UK.
The grand piano and the opera singer in the atrium are fit for a grand hotel. And everything else about the clinic impresses - from the clean-cut, educated, English-speaking staff to the state-of-the-art equipment, and the efficiency and politeness with which you are processed through. There is no waiting, no appointments for next week or next month - anyone you need to see is called and makes the effort to see you now.
The MRI scanner at the Chester Bupa hospital is a mobile unit on a lorry and is only there on Tuesdays. The Mayo has banks of them.
It costs money but the only complaint we heard from our taxi driver was about the Obama medical bill being forced through. He doesn’t want the government “screwing up health - leave it to private enterprise”.
Yet for a city built round a hospital with the most advanced healthcare in the world, a remarkably high percentage of the local residents are fat. Not just fat, but grossly obese to the point where they can’t even walk properly.
The restaurants in town had the most amazing staff in the world but the food they served was dire. It is not possible to eat healthily. Most of the protein comes in bread buns and if it doesn’t you have five choices of sauces. The portions are enormous and even upscale restaurants offer a take-out box for any leftovers. Why?
Bizarre contradictions abound. Eating a breakfast in the Mayo hotel should guarantee the clinic a customer for life: even the French toast is deep-fried. The Mayo has the most accurate and sophisticated brain scanners but the hotel internet wouldn’t work.
The US is the economic powerhouse of the world, a nation of entrepreneurs whose self-reliance and confidence leaves us for dead. The saying went that in the US a man sees someone drive past in a Rolls-Royce and thinks “one day I’ll have one of those” whereas in Britain he thinks “bastard”.
And it certainly used to be true. When I acquired my first Porsche in the early 1980s I parked it away from the office as I was embarrassed if the staff saw it. That didn’t stop it being scratched on a weekly basis by the local residents.
People also say: America today, Britain tomorrow. I just hope we can import some of their drive, ambition and can-do attitude and leave behind the food and the resulting obesity.
Having said that, it’s here already and I blame not the US but whoever abolished domestic science at school. That is actually the root cause of many of our health and social problems.
And that comes from me - the ultimate purveyor of chicken nuggets. But in my next article I’ll explain why Iceland leads the way in healthy eating.
After all, my aim is to live to be 120 in perfect health - and The Mayo Clinic confirms that, so far, I am exactly on plan.
The retail Arctic Explorers’ Club
A little volcanic ash couldn’t dampen a birthday trip to the North Pole, says Malcolm Walker
April 30, 2010
Retail entrepreneurs can be a surprisingly generous lot. Sir Philip Green famously flew all his mates to a lavish birthday party in the Maldives.
I thought Lord Kirkham showed even more imagination when he called me some weeks ago to tell me he’d organised a birthday treat for me. “I’m taking you to the North Pole.”
I’ve known Graham for 30 years and he’s always had the capacity for the unexpected but this did seem a bit extreme even for him. I suppose he thought it might be an appropriate destination for me.
“Yeah right,” I said, but then realised he wasn’t joking when he explained we were going with the famous Arctic explorer David Hempleman-Adams. He’d also invited his pal Sir Tom Farmer, the Kwik Fit founder.
Any more information was in short supply until the kit list finally arrived. Scott of the Antarctic managed with leather boots and Harris Tweed but clothing technology has moved on.
Four hours in four different specialist shops saw me with base layers, mid-layers and outer shells made from fibres I never knew existed. I always get cold feet - literally - when it gets below freezing but inner socks, vapour barriers and outer socks would do the trick. It’s not often the advice and guidance from a young sales assistant could be a matter of life and death.
The trip was to take five days and I envisaged pulling sledges across frozen wasteland and possibly losing a few fingers to frostbite. More people have climbed Mount Everest than have ever been to the North Pole and this wasn’t something to be undertaken lightly.
Only two days before departure the itinerary finally arrived. It didn’t exactly make it look cushy but I was rather reluctant to dilute the admiration of my friends and family by showing it. The trip involved a four-and-a-half-hour flight by private jet to Spitzbergen, just on the Arctic Circle, followed by a two-and-a-half hour flight in a Russian jet to within 30 miles of the pole, and finally a half hour flight by Russian helicopter to land at the pole itself.
Spitzbergen is the size of Switzerland, with a population of 2,000 humans and 5,000 polar bears. It’s -25°c and the cold was a shock as we got off the plane.
We overnighted at the polar hotel and were warned not to leave the hotel without a guide with a rifle - polar bears are everywhere.
The Arctic ice cap is only a few inches thick but the Russians clear a runway for just four weeks every year and manage to land an Antonov S.T.O.L. transport plane to service their scientific research station. We spent the night at “base camp” in an unheated tent we erected ourselves. The temperature was -35°c. Surprisingly, no one was ever cold; the specialist gear did the trick.
The old Russian helicopter probably presented more of a risk than actually walking to the pole but we finally made it to the top of the world. We had a couple of hours taking photos and drinking hot punch before we finally retreated in the face of near frostbite and back to base camp.
Our journey back via Spitzbergen involved a stay several days longer than intended due to certain volcanic activity but we filled the time with long journeys into the wilderness each day either by snow mobile or driving dog sleds. Now, as fully paid up members of the Arctic Explorers’ Club, we are debating what to do next year.
It’s Kirkham’s birthday in December. I think I’ll just send him a card.
Sexy products are more interesting...
Entrepreneurs thrive on selling products that they find sexy, says Malcolm Walker
March 12, 2010
I always think that as entrepreneurs we fall into our respective companies pretty much by accident.
For most of us business is business and not often a hobby as well although of course in time, if we are to succeed at all, we become absorbed and even excited by our products.
That wasn’t the case with my first job as a trainee with Woolies. I hated it and wasn’t even much good at it, but I stuck at it for seven years.
I always had a few things going on the side and from my school days I used to book a church hall, hire a pop group and sell tickets for dances. I suppose I could have called myself an impresario. After finding a hall with a large capacity available on Saturday nights, I had a call from some guy called Peter Stringfellow who wanted to come in with me. How different life could have been.
Another venture with a Woolworths colleague found us trying to sell strawberries from a roadside stall one Sunday. He had his girlfriend and I had my wife with me. Not one single car stopped.
Peter and I hid behind a wall and left the girls to it. Within minutes cars were pulling in and we’d sold out within an hour. There’s a lesson there somewhere.
We spent the money in the pub that lunchtime and conversation got around to what to do next, which is how we came to open Iceland and how Woolies came to fire us a few weeks later. Now 40 years on I’m still running Iceland and enjoying it enormously.
I’ve been a member of my business club for years and it’s interesting watching the other members and the satisfaction they get from their businesses.
Lord Kirkham was a member for years and I’ve never seen anybody so excited by sofas. Well, maybe it’s not actually sofas but the business itself. James Timpson repairs shoes and cuts keys and is passionate about his company.
We have members who provide scaffolding, run landfill sites, build houses, make paint and dozens of other products that seem sexy to them but would be boring to others.
We meet with our wives and invite speakers to join us for dinner. Needless to say, whoever invited the chief executive of Manchester City Council couldn’t really have expected the same turnout as when Sir Stuart Rose came. He was funny and charming and scored a very high rating talking about his life and business.
On Tuesday night my fellow columnist Jacqui Gold agreed to speak. We meet in Manchester and don’t pay a fee so it’s remarkable to me how fellow entrepreneurs so generously give of their time to join with like-minded people and share their experiences.
Would anybody be surprised that Tuesday night was the highest turnout for ages? Maybe it was something to do with the champagne reception we held in the Ann Summers store near the hotel. Or the lingerie models passing round the canapés.
Jacqueline is a remarkable woman who gave a brilliant talk on her life and business. She runs a serious company and clearly enjoys what she does.
I guess that many of my business colleagues, much as they enjoy their business, would rather be involved with something else; manufacturing ski gear, selling boats or expensive cars.
But given the choice most of us might like the chance of running Agent Provocateur, or a 50:50 joint venture with Peter Stringfellow.
There but for the grace of God…
How a soldier turned vicar helped change Malcolm Walker’s mind on assisting ex-offenders
January 8, 2010
There we were, on safari in Botswana hundreds of miles from anywhere, when a new group walked into camp.
They looked odd. Everyone else we met on the tour appeared to have spent a fortune on the right gear but this lot weren’t dressed right.
One guy wore a black Armani suit and trendy shades; others wore the wrong sort of casual clothes. It turned out they were Christian millionaires from a church in Knightsbridge - they’d been giving away money in Rwanda and decided on a few days safari.
One guy looked different. Tough, with a lived-in face. It turned out he was their tour leader and an ex-soldier, ex-prisoner, ex-bad boy who found God and become a vicar.
I liked him and his life story was enthralling. His focus now is helping prisoners create a new life after release. I’m a lock them up and throw away the key sort of person - particularly with shoplifters - but I was amazed at what he told me.
A prisoner on release might have served five or 10 years. It’s difficult to readjust anyway but, chances are, when he walks out of the gate he has nowhere to live, no family and no job. He’s clutching all his possessions in a clear prison-issue bin bag.
Help is at hand though: he gets £45 and a rail warrant to where he was arrested. Not to where he actually wants to go, just to where he was arrested. If he applies for benefits they take six weeks to come through. So who’s surprised that the reoffender rate is 78%?
My new friend Paul the vicar has created a volunteer network who work in prisons and help those who want to lead a better life. They are met at the gate on release and fall into a support network that helps them find somewhere to live and keep on the straight and narrow.
It works. Their reoffending rate is 20%. The problem is these people can’t get a job and the self-respect that brings. If they could, it would help drive their reoffending rate even lower.
Instead, they can look forward to a life on benefits. We don’t employ anyone with a criminal record and I guess most other companies don’t either. “I can give them a job,” I heard myself saying.
Ironically, a couple of weeks after I got home the News of The World discovered that one of our contractors uses an open prison as a base to transfer boxes between vehicles. Instead of praising us for providing work for prisoners they decided some of them were probably drug users, so the angle was to “expose” us for hypocrisy after our little fall-out with Kerry Katona.
Well, at the risk of more bad press, Iceland is setting up a scheme with my vicar friend to offer ex-offenders placements.
During the past two years Iceland has raised more than £2m for charity - mainly Alder Hey Children’s Hospital. In a way, that’s an easy thing to do - conventional, respectable and laudable. Offering jobs to ex-offenders is more challenging and open to setbacks.
I actually feel quite good about this. Maybe we can help to change some people’s lives. Everyone deserves a second chance and I’m looking forward to the challenge that brings. Any of you want to join in?
Armbands on the Titanic
Appointing a grocery ombudsman will achieve nothing but cost increases
October 30,2009
It’s a funny word, Ombudsman. Apparently it’s Old Swedish in origin, and Sweden established a Parliamentary Ombudsman as long ago as 1809. Ours did not arrive until 1967, but we have taken to this Nordic import as keenly as we did to Abba, and now have nine different UK Government-appointed Ombudsmen covering everything from housing to legal services, pensions to telecoms.
Please don’t let us take it into double figures by inflicting one on the grocery industry. Because the English word that springs most readily to mind in conjunction with that Swedish one is “useless”. You can’t raise an issue with the original Parliamentary Ombudsman unless you do it through an MP, and even then nearly half the complaints are rejected without investigation. Those that do make it through the obstacle course typically take 40 weeks to resolve.
The internet is riddled with criticism of the English Local Government Ombudsmen, mainly because all three of them are former council chief executives, suspected of sympathising with their former colleagues. My brother’s pension fund was shrunk dramatically by awful financial advice and mismanagement, but he could only obtain redress in court; the Pensions Ombudsman was not empowered to resolve his complaint, and could award only derisory compensation anyway.
What on earth does the Competition Commission hope to accomplish by asking the Government to impose an Ombudsman on the grocery industry? The only certain outcome will be more bureaucracy, frustration and cost.
The Government is always inclined to legislate for PR purposes in a way that puts a sticking plaster over perceived public concerns, but does not fix the underlying problem. Take, for example, knife crime. What do they hope to achieve by making it a criminal offence to sell a knife or even a razor blade to someone under 18? Any child can get a knife from anywhere – the kitchen drawer being the obvious place to start. And God help them if they need to start shaving.
When I was young penknives, a piece of string and a sixpence were standard issue for boys; I wonder how many Parliamentary hours would be devoted now to clamping down on my catapult.
The same tendency to knee-jerk legislative overkill is evident in the draconian crackdown on alcohol sales that I have already written about, and the infamous Dangerous Dogs Act.
Businessmen have to prioritise, but legislators seemingly don’t know the meaning of the word. Spending money on useless Ombudsmen and quangos apparently ticks all their boxes, while they happily skimp on such luxuries as helicopters and body armour for Afghanistan.
If a grocery Ombudsman is created, he or she will be there to fix a problem that does not exist; and, if it did exist, an Ombudsman would not fix it. All it will do is increase costs and therefore ultimately put up prices to the consumer.
There have been many enquiries by the Competition Commission in recent years into supermarket power, the alleged abuse of suppliers, and retail competitiveness in general. It has cost us all millions as both retailers and taxpayers, but never found evidence of a problem. Yet the notion persists that the Government needs to curry favour with the public by putting in “safeguards” that will prove as effective as a pair of inflatable armbands on the Titanic.
The plain truth is that all big companies (not just retailers) will often bully small suppliers. Big suppliers are equally likely to bully small traders. It is in the nature of negotiation, whatever industry you are in and indeed in most human relationships. In short, we are dealing with a simple fact of life that nothing is likely to change, and certainly not the appointment of an Ombudsman. The public interest will always be protected by this simple fact: retailers would kill each other for market share, and can only gain it by serving the public well and giving them what they want.
A victimless crime?
The police must recognise that store theft and assault seriously affect staff
August 21, 2009
Two guys are waiting in the car park behind the store. It’s dark and the manager comes out after setting the alarm and locking up.
The blokes come up behind him with a gun, force him back into the store and make him unlock the safe.
A variation could be the timing - maybe it’s early morning, or maybe it’s a knife instead of a gun. Sometimes the store is trading and in front of everyone a gun is pulled on the checkout assistant and the attacker runs off with a fistful of banknotes before anyone realises what’s happened.
It has been known for someone late at night to simply drive a stolen car right through the front window to gain access, but that’s not happened since we stopped selling cigarettes.
It’s a dangerous armed robbery but at least everyone knows where they stand. Head office is alerted, HR swings into action to comfort and counsel the staff, security at the store is reviewed and it’s sometimes reported in the local paper. The manager is in shock but always shrugs it off and gets on with the job - these guys are heroes.
Oh, and the police turn up. They never catch anyone but at least they turn up.
And here’s the amazing thing… it happens almost every week.
But can you believe, a bigger problem for us is the little old lady who steals a packet of cheese or the kids who nick a few sweets? That’s because petty shoplifting has been decriminalised - it’s not really a crime at all, is it? No one suffers, the shop can afford it. It’s victimless. The police aren’t interested and usually don’t turn up.
It’s a bigger problem for us than the armed robbery, because the “little old lady” probably has £60 worth of goods in her bag. She comes in every day and has already been banned from the store but we have no deterrent.
The “kids” are maybe 18 and stealing for drug money or already high on drugs. They come in gangs and the store manager is terrified of them. Maybe they’ll eat a bar of chocolate off the shelf in front of the manager and dare him to do something about it.
If he does he maybe gets attacked or spat at or threatened with a syringe.
Sometimes the manager “arrests” a shoplifter and insists the police turn up. Two hours later they still haven’t arrived and the manager is holding an increasingly agitated shoplifter in his office.
Our staff have to deal with this day after day - in some stores many times every day. More than once a fight has broken out and the police have arrested the store manager on the accusation of the “victim” - the shoplifter. At least armed robberies may happen only once or twice in a manager’s career, but this is every single day.
It costs us millions of pounds in stolen goods. We spend millions on security guards (whose primary job is to protect our staff). Thank God we’ve never had anyone physically injured in an armed robbery, but several of our managers have accumulated an impressive list of injuries over the years from kids and old ladies. We spend millions on cameras but I don’t know why we bother - the tapes have never been used in evidence.
We have a tidal wave of petty shoplifting, hundreds of incidents every day that end in verbal abuse and often violence - but it’s OK because it’s not really a crime is it?
It sounds absurd, but the weekly armed robbery is much less of a problem for us - I think our managers would agree that one armed robbery (soon over with) is better than the daily grind of constant aggravation, taking all the fun out of the job. Somebody please tell the police it’s a crime.
Red tape has gone too far
Heavy-handed legislation on selling alcohol asks retailers to police drinking
June 5, 2009
Every Monday morning our board meets for coffee and we go round the table to give an update of what’s happened the previous week. It’s always a light-hearted affair liberally spiced with jokes and banter.
Sales, store openings, highlights from store visits, the rolling profit forecast, gross margin, logistics, marketing, the latest revelations about Kerry Katona – it all gets covered. Some things are more interesting than others and people usually start texting or fetch more coffee when our IT director gives his report.
The same could sometimes be said about our company secretary. Insurance claims and legal issues can be very boring, but health and safety legislation and stores that fall for local authority entrapment on serving alcohol usually provoke a bit of mild outrage round the table. He’s got a very dry sense of humour and is good at telling jokes. Last week he told a great story…
Have you heard the one about the draft legislation for serving alcohol in stores? The Home Office has put forward a mandatory code for retailers:
• The minimum age for buying alcohol is 18 but we have to challenge anyone who looks under 21
• A senior member of staff has to maintain a live text or radio link with the local police to facilitate rapid response in case of disorder
• We must have a direct line to a taxi operator to get people home safely
• We must install CCTV to monitor and prevent alcohol disorder
• We must have a “dispersal policy” in conjunction with the local police to prevent disorder
• We must keep an incident record to keep police informed
• We must carry out a risk review of our shop and put in place a plan, which should be agreed with the licensing authority, to prevent crime and keep the public safe
• We can’t offer discounts after 5pm or at weekends
The trouble is he wasn’t joking. If we don’t comply our checkout staff could get six months in jail or a £20,000 fine – or both. No, come on, that must only apply to a nightclub in the rough end of town. Surely we don’t have to do all that in our little shops selling Rioja on 2 metres of shelf space… ? Yes, we do.
Am I missing something? Has there been rioting in the wine department at Tesco? Has Sainsbury’s had public disorder in its drinks aisle? Maybe Iceland does need a “dispersal policy” to “keep the public safe”.
Our politicians have gone mad. What planet are they on? In most European countries booze is as freely available as a can of Coke – it’s no big deal, but then European kids don’t binge drink like we apparently do. In the UK the answer seems to be draconian legislation, which increases the burden of red tape.
MPs seem to think it’s OK to rip off taxpayers with their expenses but threaten with jail anyone guessing someone is 21 when they are only 20.
Imagine a phone conversation with the local police: “I’ve caught a shoplifter with £80 worth of our goods. Can you come immediately?”
“Madam,” said the policeman (this is a true story), “wouldn’t our time be better spent catching terrorists?”
Then imagine on the other line: “Police, this is Iceland, I have a 17-year-old who tried to buy a bottle of cider.”
“Don’t panic madam, I’ll send a squad car round immediately.”
Thank God that when I was 17 and used to sneak into my local pub for a half of bitter the local bobby was more understanding. He’d either ignore it or if we were too blatant he’d threaten a clip round the ear.
Know your customer
Kerry Katona may have had her problems, but she was still right for Iceland
May 22, 2009
“Do you still use Kerry Katona?” If I had a pound for every time I’ve been asked I could retire.
It’s always asked by a certain type – typically middle class and probably a Waitrose shopper. It’s not really a question. It’s more a statement of incredulity meaning: “Why use someone like her in ads? Why not a posh bird like Mylene Klass?”
Everyone thinks they are a marketing expert but I’ve wasted enough millions on TV ads that don’t work to finally speak with some authority.
The worst offenders are ad agents themselves. They say 50 per cent of advertising doesn’t work – but no one knows which 50 per cent. Looking at some, it shouldn’t be hard to guess.
When I returned to Iceland I wanted to change the agency. Since sales had been negative, whatever they were doing clearly wasn’t working. They once tried to attract more upmarket shoppers by confronting their prejudices and put forward a proposal with the headline “Shop at Iceland? – I think my cleaner does”. Jesus.
I knew who to use – Tom Reddy from Manchester. He invented “Mum’s gone to Iceland.” It ran for years, then I sacked him and brought in a big London agency. It was really expensive and produced some of our worst ads.
I had to ask Tom to work for us again. He produced “Driving home for Christmas”. We had our best Christmas ever. Soon afterwards our then marketing director sacked him again.
Now here I was inviting Tom back for a third time. But not wanting to upset too many people in my first week I conceded we should let two other agencies pitch.
Both teams consisted of three young men, two dressed like Mormons and one in a denim jacket who was of course the creative director. There was also the obligatory beautiful young woman in a suit.
30 minutes were spent on a slick presentation showing us slides of our shops (to prove they had been), then a raft of demographic data. Then came proposed ads. They made you wonder what the previous 30 minutes were about. We had singing freezers and the usual polar bears and penguins.
Then in shuffled Tom. He’s err… of mature years and overweight. Calling him scruffy would be a compliment. It was hilarious seeing the reaction of people who hadn’t met him.
Tom explained we needed a powerful relaunch. He would never normally recommend a celebrity as they, rather than the product, could become the star. Who knows, no sooner have you signed them than they get caught taking drugs or something. But he said take a risk and showed us pictures of Kerry Katona. “Who’s she?” I asked.
Former pop star, Mother of the Year twice, on the front of every popular magazine almost weekly, she has “edge”. Perfect for you, Tom said.
It’s four years since I went back and Iceland has been transformed. Sales and profits are through the roof and there is no sign of slowing. One of the reasons why is Kerry Katona. She’s professional and has a great sense of humour. She’s had her problems, but haven’t we all?
One famous financial journalist doesn’t like Iceland and when we were a public company I had to suck up to the likes of her. She speaks with authority and people listen. Once she wrote Iceland had had its day – our customers were buying their ciabatta and sun-dried tomatoes elsewhere.
She’s a snob, but she could have been an ad executive with that level of market knowledge.
In defence of the landlord
Speaking up for public enemy number one
March 20, 2009
I always like to be controversial, so in my first column I thought I would speak up for retailers’ public enemy number one – the landlord. Landlords are probably viewed with the same disdain as the newly disgraced bankers.
Almost 40 years ago I opened my first shop. I had to find a solicitor and he duly presented a complicated 50-page document – the lease. It frightened me but I read every word before I signed it.
As I opened more shops, reading leases almost became a full-time job. They always seemed to be drafted in landlords’ favour and contained bizarre clauses. I couldn’t cover more than 10 per cent of the windows with posters. I couldn’t use the premises for immoral purposes. I had to decorate the interior every three years with good quality lead paint. If the landlord was teetotal, perhaps there was a ban on selling alcohol.
After a while I realised I could negotiate on lease terms and we’d spend hours debating trivia such as whether I could cover 25 per cent of the window with posters instead of only 10 per cent.
The point is, I was signing a binding agreement – usually for 25 years. Nobody forced me to do it. I knew what I was getting into. In return for agreeing to their terms and conditions the landlord would grant me “quiet enjoyment” of the property.
After my first 50 shops I gave up reading leases and let my lawyer get on with it. I realised that provided I paid the rent on time the landlord wasn’t really bothered about the lease’s daft details. That was just fees for the lawyers.
Sometimes I bought a freehold. I preferred to spend my cash on fitting out shops, but if buying a freehold was the only way to get a property then sometimes I would buy it.
Having bought a property I had a policy of never selling it. Over 30 years, almost by accident, I built up a portfolio of properties worth hundreds of millions of pounds and never sold a single trading freehold.
Many times I resisted advice from City whizz-kids and professionals to sell (and leaseback) freeholds in order to release cash to “invest” in the business so I could grow faster.
It seemed to me like the family silver, and when I looked around me the strongest retailers always seemed to own the most freeholds. We’ve seen it so many times. When freeholds are stripped out of companies for short-term gain it leaves them vulnerable and the cash “invested” is usually wasted. It’s never the founding chief executive who does this, but always some short-term manager who finds himself the new boss and wants to prove how shrewd he is.
I’ve seen one new boss sell swathes of freeholds and agree penal leaseback terms with the new landlord in order to maximise value, then a few years later become a spokesman for the anti-landlord brigade complaining the terms are unfair. If I agree a deal, I like to stick to it.
I now realise that a landlord isn’t really interested in bricks and mortar. They are making a financial investment. They buy a property and usually borrow money to do it. They then rent it out to give a percentage yield on their investment. If the tenant doesn’t pay the rent they’re in trouble.
The retailer might suffer in an economic downturn, but so does the landlord. Retailers going bust and empty units with no income to pay the bank loan can put a landlord out of business. Council rates on empty properties make it worse and retailers wanting to renege on their agreements and pay rent monthly can devastate a landlord’s cash flow.
The landlord is running a business like everyone else, and it’s not always an easy business. How many owners of Woolies freeholds are small-time landlords who will be wiped out now they have no income?
The problem is, many retail analysts and City commentators know as much about property as they do about forecasting share prices. I once had a long conversation with a well-known financial journalist who was asking my views on a certain retailer that had just sold a batch of freeholds at 9.5 per cent.
I said it was total incompetence and gross mismanagement as they could easily have achieved 7.5 per cent. She couldn’t understand what I was saying and was totally convinced that a higher yield had to be good news.
And it was – but for the landlord not for the retailer, which had just received perhaps £50m less than the freeholds were actually worth at the going market rate.
