Sources inform "Globes" that leading Israeli fashion and retail groups have complained that Melisron Ltd. (TASE: MLSR) and its CEO, Avi Levy, are being inflexible with respect to rents in Melisron's malls. The sources add that several of the large groups are threatening not to renew their leases for their large stores, even in Melisron's leading and prestigious malls. "Tenants are signaling their distress and the company is ignoring what is happening. Many players are unwilling to continue in this situation," sources in the sector say.
This tension ahead of lease renewals for 2019 is attributable to a significant number of leading chains, including Fox-Wizel Ltd. (TASE: FOX) , which has 17 brands (mostly of which have independent chains); Castro Model Ltd. (TASE: CAST), with seven brands having independent chains; Golf & Co. (TASE:GOLF), with eight brands having independent chains; Aroma Israel; Hamashbir 365 Holdings Ltd. (TASE:MSAH); Renuar, with two brands having independent chains; and others. Sources told "Globes" that the Renuar group (which also includes the 24/7 chain) is likely to leave its store in the Ramat Aviv Mall next month.
There is always friction between the large chains and shopping mall groups, but this case is exceptional. Melisron nevertheless claims that the state of affairs is less troublesome that it appears from the complaints reaching "Globes." On the other hand, in contrast to the other shopping mall groups, sources in the sector are saying that the Melisron group has not yet fully grasped how the market has changed. Threats are being made that unless a real turnaround takes place soon, the next step will be the closing down of stores on the group's sites. "Everyone is on the fence," leading market sources told "Globes."
Sources also told "Globes" that meeting with the above-mentioned groups have been held in recent weeks and pressure has been exerted on Melisron to change its rent terms and adapt them to the current situation. Levy confirmed to "Globes" that tenants had recently been asking for easier terms in view of their "falling profits and declining sales volumes." He said, however, that the retailers themselves were responsible for the current situation. "The fact that the fashion chains hurried to open stores in every center opened hurt them and is still hurting them. Today, they realize this and are cutting back their presence when necessary." He added that he was pleasantly surprised by the strong results reported by the groups for the first quarter of the year.
As for the terms granted to tenants by competing groups, such as Azrieli Group Ltd. (TASE: AZRG), Levy asserts that he can simply offer a different and better quid pro quo for the tenants. "Our malls today are the ones with the highest proceeds and real estate value. We have no dead weight malls that we're trying to force on tenants. In general, I don't make entry to one mall contingent on entry to a different mall. Never."
Levy is convinced that he is attentive to tenants, but makes it clear that he is concerned first of all about Melisron's needs and emphasizes, "Replacing brands is also right for them."
"Globes": Don’t you think that the rent burden is too great?
Levy: "The burden in our strongest malls is 11.5% and less than that in others. This is a reasonable burden. A high burden is 15-20%."
Published by Globes [online], Israel business news - www.globes-online.com - on July 23, 2018
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