Luxury brands set for London exodus?
Some of the biggest names to grace Bond Street are supposedly considering shutting up shop as a result of business rates and high rents; apparently they don’t see the relationship between rateable value and rental value?
About 25 of the 100 top fashion brands with stores on Old and New Bond Street are understood to have “discreetly” flagged that they are ready to quit the world-famous fashion district. Dolce & Gabbana, Hugo Boss, De Beers and DKNY among them.
Bond Street is one of the most expensive places in the UK to have a store and recent business rates hikes following the revaluation have made the sought-after location a little less attractive.
The chances of any kind of business rate reform are looking increasingly unlikely but how seriously these labels are in moving out of these prime locations remains to be seen.
It could be a serious blow to their status and brand if they were seen to be running for the hills simply because anticipated rising costs outstripped their ability to generate ROI in this prime location.
Perhaps gone are the days when this postcode commanded millions of pounds in “key money” – the premium a brand hands over to the existing retailer to buy their lease – but every square foot of this prime retail space is still worth its weight in gold.
London retailers have also been helped by the weaker pound attracting more foreign visitors with money to spend and it was only last year that Polo Ralph Lauren set a new retail rent record on New Bond Street after agreeing an annual rent of £2,225 per sq. ft. for its store – and no, that isn’t a typo.
Regardless of trading conditions, business rates have added an extra pressure, with Old and New Bond street tenants having to find an estimated £160m over the next 5 years following the revaluation.
Business rates are calculated as a proportion of the rental value. The rental value is supposed to be recalibrated every five years, but the previous revaluation was delayed in 2015 for two years, making the changes that came into effect this April more pronounced, particularly in central London. The flip side of this coin is that the retailers have had an extra two years of savings to reinvest and reward shareholders so my sympathy levels are pretty low on this point.
Whatever the insiders say, I think this latest missive is more of a case of sabre rattling with the luxury brands wanting to send a message to their landlords rather than the Government. I don’t see tumbleweed blowing down Bond Street any time soon.
A Tory MP is calling for business rates to be scrapped and replaced by an increase in VAT in order to save high street businesses.
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