It is coming up to crunch time for renegotiations between retailers and landlords for COVID-19 impacts.
Ask anyone to forecast how retailers will be impacted by COVID-19 over the next 12 months and an honest answer would be “It’s anyone’s guess”.
How do you forecast for a pandemic where there is no precedent historically to compare to, other than the Spanish Flu that occurred 100 years ago?
And yet without a forecast, it will be impossible to renegotiate effectively your rent deals, hence my forecast guide below as a starting point.
I have spent many years training sales teams around the world to negotiate with retail buyers. Those sales teams were selling to Amazon, Walmart, Target, Home Depot, Woolworth, Tesco, Best Buy, Carrefour, Media Markt, and many others, and believe me, retail buyers in these companies are some of the best negotiators you can find in any industry.
I have applied that experience and those techniques to help retailers renegotiate the most important deal they will do, which is renegotiating lease terms with your landlord so you can survive the COVID-19 Recession.
We use a lot of psychology in negotiations, one of the key psychological techniques is called anchoring.
When I ask retailers and sales teams who should lead with price, the accepted principle is to let the other person make the first offer. There is one exception to that rule and that is where there is a lack of knowledge on the product or service being discussed or uncertainty, which is the case with COVID-19 rental lease negotiations, no one can confidently forecast how the next 12 months are going to turn out.
By using anchoring, in these circumstances you can gain an advantage by putting the first offer on the table, it becomes the reference point for negotiations and all discussions then tend to revolve around your forecasts and deal.
My recommendations are:
Step 1: Use the above forecast to calculate the impact of reduced shopping mall customer traffic on your store's profitability for the next 12 months.
Step 2: Calculate how much rent you will be able to pay to survive for each store and what your losses will be (on each store) if you cannot renegotiate.
Step 3: Prepare for Landlord objections, for example you know you will get this objection:
Objection 1: We have a legal right to collect outstanding rent and will litigate.
Reply: You may have the right to litigate however you are responsible for generating store traffic and customer safety and currently traffic and or sales is down X% on last year, we cannot operate this lease and lose $80,000 this year.
Objection 2: Your projections are too pessimistic.
Reply: They have been completed by a retail expert who ……. and so on.
Step 4: Approach your landlord and present your forecast and losses that will occur if the parties do not renegotiate – this anchors your offer
Step 5: Offer to pay a % of store revenue based on last year's revenue to rent % ratio. This is fair to both parties because as traffic levels rise so does the rent. See my previous article link here.
Step 6: Prepare for a tough negotiation, the key is preparation, and no what the consequences are for you and the landlord if you cannot strike a fair deal. Be prepared to walk away from a bad deal.
Every landlord is different and they will use multiple techniques in this negotiation, just remember you are renegotiating for survival. One technique commonly used is to ignore your calls to negotiate. This is designed to increase your stress levels, feel threatened, and act defensively.
Retail buyers have all the tricks, for example making you wait 30 minutes, canceling the meeting at the last minute, putting you in a cramped room, saying they only have 30 minutes when you booked an hour, scream, stack the room, etc. The best buyers do not often resort to these techniques and are very professional as they like to develop a two-way relationship where you bring to the table innovation and insights as well as your products.
Landlords in COVID-19 times are co-dependent on the retailers to survive, being professional means sitting down with the retailer to sort through how both parties can survive the next 12-18 months.
Whether you have 1 store, 100 stores, or 1,000 stores your renegotiations with your landlords will be one of the most critical in the last several years, as it is for your survival.
Preparation will be the key and while your retail leasing executive will be a key support, the CEO and Board will need to step in to guide these negotiations to success.
The key is your forecasts and modelling profitability of your store portfolio based on reduced sales and margins.
By Bill Rooney, CEO of 6one5 Retail Consulting Group, a retail strategy consultancy & digital training business.