Major retailers put the pressure on

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WDC.AX10.65+0.110

Due to falling customer numbers, an ever-growing trend towards online shopping and subdued discretionary spending, rivals Myer Holdings Limited (MYR.AX) and David Jones Limited (DJS.AX) are stepping up the pressure on shopping centres to reduce rents, The Australian Financial Review reports.

Despite reporting its third consecutive quarter of same-store sales growth, Myer will review the future of each of its existing 70 and 12 planned stores. With online sales growing strongly (over 8 million online visits in the last six months), Myer may reconsider resigning leases should shopping centre groups not compromise on rent prices. In 2012, Myer reported that its ‘minimum lease payments’ were in excess of $193 million – an amount which was around 2% higher than what was paid in 2011. Myer will be closing its store in Elizabeth, South Australia, which will add to the three already closed within the last 12 months.

Meanwhile, a number of David Jones’ leases are also expected to expire within the next few years. Following its adopted omni-channel strategy, the company will decide whether to renew these contracts, having already closed three stores in the past five years.

Corporations such as Westfield Group (WDC.AX), Stockland (SGP.AX), and GBT Group (GBT.AX) rely heavily upon Myer and David Jones to attract customers to their shopping centres. The two retailers are often strategically positioned at opposing ends of a shopping centre to create a large volume of customer traffic. It is therefore vital that these leases be retained, to maintain a good flow of customers to other stores that lay in between.

Westfield revealed that leases were being signed for 4-5% below what previous leases were signed for – a benchmark that David Jones and Myer both wish to utilize in further negotiations.

Foolish takeaway

Both Myer and David Jones have recovered strongly since their woes in July last year, defying suggestions that the brick and mortar form of retailing is a thing of the past. For the long-term survival of the companies, both must focus heavily on saving costs and selling high-margin products in order to maximise profits.

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More reading

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