Myer weighs up downsizing 15 stores

The newly constructed Hobart Myer. Picture: Matt Thompson.
The newly constructed Hobart Myer. Picture: Matt Thompson.

Under-pressure department store Myer could seek to hand back space at 15 shopping centres over the next four years, according an analysis by investment bank UBS.

The move to cut back outdated and inefficient stores is part of efforts to turn around the ailing retailer but may also slug landlords as other tenants are also cutting back at the same time.

Woolworths has flagged the closure of 30 Big W outlets and fashion chains have also been reverse, hitting rents.

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UBS analysed centres with Myer outlets that had lease expiries running up to 2025 and found there was the potential for the group to hand back about 16 floors over the next three to four years

Landlords would then have to backfill the space to keep customers coming to their centres but could ultimately remix them and put in high turnover chains.

The analysis looked at which of Myer’s 58 leases expired by 2025 and the layout of stores and landlord concentration.

“We conclude about 15 stores (not announced) have expiries up to 2025, with a potential hand-back of about 16 floors over the next three to four years,” UBS said.

“In the majority of cases we expect the landlord to be able to backfill the space to improve foot traffic, sales productivity and ultimately income over time, despite short-term loss of rent during tenant remixing and fit-outs,” the analysis said.

Myer has identified dealing with its large store footprint as one of its major challenges and property industry sources suggested that it was already in talks with landlords.

UBS said stores with up to six years remaining on their lease terms were the most likely to be renegotiated as Myer sought to cut its space back.

It estimated that about 27% of the overall Myer footprint could be affected. As most Myer leases are for more than four years it will need to rely on doing deals with its landlords rather than relying on leases to expire.

The retailer can, depending on the store layout and landlord, cut one floor of space for stores with three floors and two floors for stores with more than three floors.

UBS argued that Myer could realistically cut the 16 floors of space which would amount to a cut of about 90,000sqm.

The majority of Myer stores coming up for expiry that have more than two floors are owned by local Westfield owner Scentre and Vicinity Centres. But the analysts said any changes by Myer would be immaterial to medium term earnings.

UBS suggested the space would most likely be backfilled by supermarkets, discount department stores, mini majors and alternate space users, including the emerging categories of co-working offices and leisure.

Myer has already left some centres. In Sydney’s Westfield Hurstville: it was replaced by Big W, JB Hi Fi, Woolworths and Cotton On, which boosted sales across the centre.

In Cairns, Myer extended its lease but will go from two floors to one and the landlord will put a Woolworths Metro space handed back by Myer.

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