The ongoing structural change in the retail industry leads to the rise of an undesirable specie on the glamorous shopping streets of this world:
These living dead are retail brands that no longer make or never made a profit on high streets such as Fifth Avenue in New York, Oxford Street in London, at Causeway Bay in Hongkong or Bahnhofstrasse in Zurich. The turnover is going to Amazon, Zalando or AlieExpress, while the high rents and other fixed costs such as salaries cannot be adjusted on short-term basis. Often there is also an obligation to operate under a rental agreement. So these brands are forced to remain in business at locations which are non-profitable for them, even though they would have liked to shut down the stores a long time ago. Today, therefore, international retail tenants, whose negotiation position against the landlords has increased, hardly conclude any long-term leases that cannot be terminated within at least 5 years or sometimes even less to lower the risk of becoming a zombie. At the moment, however, there are still many old leases in place that have been concluded for 10 years or more.
In the past, the zombie tenants were quickly swept off the top streets, because the concepts that no longer performed at the location were replaced by brands that bought the lease from the old tenant with so called key money. The market has thus ensured that new and better functioning brands have always found their place on the top streets. This has kept the streets lively and interesting for the consumers and ultimately also kept rents high.
Everyone was satisfied: The leaving retailer because he got rid of a loss-making store and received some compensation for his investment, the new retailer because he finally got his place in the sun, the real estate broker who forged the deal and often also the landlord, because he got a better performing and sustainable tenant, able to pay the requested rent, without much work to do. This ultimately also benefited the consumers, who in the end decided with their wallet, which brands are to be found on the shopping streets.
However, this market mechanism today no longer works everywhere, which led to the awakening of the dead. Although key money is still being paid for top locations, it is no longer in the quantity and amount that it was just a few years ago. Often there are also cheaper alternatives for brands to secure a place in the game of musical chairs at top streets. Sometimes even reversed key money is paid now. The leaving tenant pays the incoming tenant a compensation, so that he takes over his expensive lease.
Retailers make fewer compromises and prefer to wait longer for the one right store for which they are still willing to pay the top rents, the landlords are asking for. For the zombies, this means waiting longer for redemption, which often comes only at the end of the regular lease term. For the visitor to the shopping streets, this means that he sometimes finds brands that have actually passed their zenith, but still have sufficient cash reserves, doing well elsewhere or in other countries but not at this location or are kept alive by banks or privaty equity, because interest rates are cheap and alternative investment opportunities rare. It would be better to get the market back into balance because only then would our high streets remain attractive and frequented which also keeps the rents stabile in a long-term perspective. It's up to us:
Have mercy and do not feed them!