By Maria Wilczek
“Witaj ponownie!” (Welcome back!) read the block capitals strung across the glass doors in a shopping mall in Gdańsk. After seven weeks of lockdown, on Monday shopping centres across Poland finally reopened.
Sanitary rules had been put in place: shopper numbers were capped and food courts closed. The first keen shoppers shuffled around in this season’s must-have face mask and gloves, sampling free hand sanitiser in every shop.
But some stores did not swing their doors open at the first chance. A number of Poland’s largest brands are staying shut as they push shopping mall owners to lower their rent.
This has put those owners, already squeezed by the Polish government’s retailer-friendly regulations, in a tough negotiating spot, with some already announcing bankruptcy.
Hell-bent on lower rent
One such player is LPP, the biggest clothes manufacturing company in Central and Eastern Europe. The company owns several retail brands, including Reserved, Cropp, Mohito, House and Sinsay, and operates 1,765 stores across Poland.
The company this week announced that it will be stepping away from a number of floor rental agreements, for 29.5% of its rented space. On Monday it opened just 32 of its shops in Poland. It currently pays around 100 million zloty of rent per month – and it is pushing mall owners to renegotiate those contracts.
“The current level of rent is not justified in any way, given the limited scope of services that shopping malls can offer,” said Sławomir Łoboda, deputy head of LPP, quoted by Bankier.pl. “It’s possible that we will not come to an agreement with some galleries and then those shops will have to be closed. We cannot keep unprofitable stores open.”
Łoboda added that he has information from several other companies which have “presented shopping malls with notices of termination”, which “shows the determination of retailers”.
Meanwhile Empik, Poland’s leading chain of multimedia stores, is also looking to step away from at least 40% of its lease agreements. “Shopping malls are expected to record lower numbers of visits,” wrote the company in a press release. The company is also looking to close all of its Mole Mole bookshops.
“The new sanitary regime, closed cinemas, limited access to fitness, entertainment and foodcourts, as well as potential bankruptcies of smaller chains, will make shopping centres a lot less attractive,” reports Bankier.pl.
PBH, owner of the Quiosque female clothing brand, has announced that it will not reopen 32 of its stores for now, citing lower customer traffic data from reopened malls in China and Germany.
“With that level of [customer] visits, we will not be able to cover our rent based on current agreements. To survive on the market and salvage jobs, we need to adjust our current business conditions to the new reality, especially regarding rent levels,” said Agnieszka Krzywańska, director of the PBH board, reports DlaHandlu.pl, a retail news site.
Other companies which have limited store reopening include clothing company Lancerto as well as the leather shops Kazar and Ochnik.
In March the government temporarily closed most shops in malls. For those retailers, rental agreements were temporarily suspended, meaning that they would not need to pay rent or service charges during the lockdown. That decision, however, has taken a bite out of the budgets of shopping centre owners.
Other states have balanced the interests of lessors and lessees. In most Western European countries, rent and fee payments have been postponed, with governments stepping in to help retailers pay their dues, according to a new report by Deloitte, a consultancy.
Deloitte estimates that Polish shopping centres will have seen a revenue drop between 0.3 and 0.7 billion zloty in March this year. In April, the first full month of lockdown, that figure may rise to 0.5-1.2 billion zloty.
Adrian Majsterek runs the Tkalnia shopping centre, which opened in 2019 in Pabianice near the central city of Łódź. His mall is home to over 40 shops, of which Reserved and Sinsay (both of the LPP group), as well as Empik, are among the main draws.
Majsterek says that all throughout the closure, shops have been making use of their leased space. “Delivery vans arrive at stores daily. Stocks are kept inside the shops, which I pay security guards to look after. The light are on, and it is me who pays those bills,” he tells Notes from Poland.
“I have all the same costs as before – loan repayments, real estate taxes, cleaning and security fees, media and service charges – but at the same time, the government has deprived me of my principal source of income [rent].”
Some malls have already caved under the financial pressure. In early April, Sukcesja in nearby Łódź announced bankruptcy after almost five years of operation. Its board has said that the coronavirus outbreak has put it in an “unprecedented situation,” reports Gazeta Wyborcza.
“The so-called anti-crisis shield [a multi-billion economic support package for businesses] did not provide any supportive measures for owners of shopping centres, but also, by suspending contracts with lessees, passed all costs of functioning [onto malls], while depriving them of income,” said Sukcesja’s board.
According to Majsterek, the government’s favourable treatment of retailers is due to firms such as LPP being big national brands and providing many jobs. By contrast, many shopping malls belong to foreign investors. “But that ignores the 200 which belong to Poles,” he adds.
Majsterek says that retailers renting space have been twisting his arm by sending renegotiation terms along with notices of termination. While most rent agreements are drawn up for a five year term, meaning that shops cannot legally and unilaterally terminate them, a court process could drag on for years, in which time his mall would go bankrupt. In this context, he says that such renegotiations can “amount to blackmail”.
“A mall is like an orchestra, and shops work together,” he explains. The larger shops – the anchors – are like the first violin, attracting customers to the shopping mall, thereby producing traffic for smaller players. As a result “the actions of the big guys will also impact the smaller shops, which may decide not to extend their own leases”, which can include a clause of conditionality on anchoring shops. He says this gives the big names more leverage.
But “in the long-term, this will hurt retailers,” says Majsterek. “In past negotiations we expected a big name to bring stability to the mall. But now we see that the agreement was worth little. Just two months into the crisis, which has not yet cost shops any rent, they are coming to renegotiate the terms which we have just spent months negotiating.”
Main image credit: Bartosz Bańka/Agencja Gazeta
Maria Wilczek is deputy editor of Notes from Poland. She also contributes regularly to The Economist and Al Jazeera, and has also written for The Times, Politico Europe, The Spectator and Gazeta Wyborcza.