High street retail bellwether Next has outlined expectations for rents to fall by 50% on average this year across 60 of its stores, as it continues leasing negotiations with landlords.
The chain expects to renew these 60 store leases, extending them by an average of 3.5 years in exchange for the rent reduction. This will generate savings of £9.9m per annum for the retailer.
Of these renewals, 18 are linked to store turnover. The retailer said it also expects to receive £5.3m of capital contributions or rent-free incentives, and will invest £6.8m in upgrading the stores.
Next said that when negotiating new leases, it stress tests each store on the basis that it will suffer a 10% like-for-like decline each year going forward.
At the end of July, Next’s average lease commitment was 5.5 years, down on 5.9 years at the same point in 2019. Half of its store leases by value will expire or break within 4.7 years, and 82% within the next decade.
Next plans to close 13 mainline stores this year – down from the 14 closures forecasted in March. It currently operates around 500 stores in total.
Through the sale and leaseback of its head office and warehouse complex, Next generated £37m net profit in the half year ending July.
The retailer reported pre-tax profit of just £9m during the first half of the year, falling from £320m in 2019, while total group sales fell 34% to £1.4bn.
However, it has upgraded its profit guidance to £300m, up from previous guidance of £195m.
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