The graph below shows a few listed retailers and their rent to revenue ratios over the past six years:
As you can see, the percentage of sales being handed over to landlords has been going up. Significantly. Most of them have passed some of that on to their customers in the form of higher prices. You can see that in their gross margins:
That’s why the internet is eating retailers’ lunch. There is a lot of whinging about GST and the high Aussie dollar, but the biggest problem is that they are paying too much rent and, as a consequence, charging prices that are too high.
The current retail woes will be passed on to the likes of Westfield and Stockland eventually.
One final interesting graph. Here’s the same rent to sales ratio for JB Hi-Fi and Woolworths:
No prizes for guessing which companies bring the foot traffic.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.