There is another business benefit, Baker says: “The advantage of owning is that if your retail opportunity is going belly-up, you have still got the underlying value in the business. You can run the stores at very low level of productivity, and still be profitable. As soon as you are renting your store you have to have a productive store,” he says.
Leasing offer less flexibility than ownership, says Dr Georgia Warren-Myers, property and real estate lecturer at Deakin University, says: “When you own a premise, you can do what you like to it – you can shape the premise into whatever you want. You can rip everything out of it, and create a complete facelift. If you are lease tenant, you probably need to wait to the end of the lease, and then you can only make changes with the permission of the landlord.”
But DJs needs capital, and its investors need returns. The company’s CEO, Paul Zahra, is in the midst of a belated attempt to combat online competition and lower its debt. Rumbold says: “They need to retire debt, and there is an imperative to reinvest in the physical stores and online operation. I support the concept of companies ‘sticking to their knitting’ and getting their retail stores in shape.”
Using the property portfolio as a security blanket against poor performance is not good for any business, including retailers. Says Rumbold: “I am not sure how important that is to the business model of retailers. Not particularly important. Why have a security blanket to obviate the risk that something might happen one day and the landlord says I don’t want you. Realistically, there is little or no risk of a retailer being ousted.”
Rumbold concedes that some retailers have done well buying and developing property, including Myer, which sold off all its property portfolio while under private equity ownership. However, he adds: “There are other people – developers – who are better at doing that. They should stick to their knitting: buying products and selling them to customers at a profit.”
Kath Walters is the editor of LeadingCompany and an award-winning journalist of 15 years’ experience. Kath was previously a senior writer and editor at BRW magazine covering management, strategy, finance, entrepreneurship and venture capital across all industry sectors. In 2006, Kath won the Citibank Award for Excellence in Journalism (General Business). Follow her on Twitter.
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