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Three Questions That Help Solve The Birmingham John Lewis Conundrum

John Lewis opened its 247K SF Birmingham Grand Central store in September 2015. In July 2020 it has abruptly announced its closure.

On the face of it, this appears a simple story of high street retail woes, as online retailers bite chunks out of bricks-and-mortar rivals.

In reality, it is a more complicated story of leases, high-wire acts and negotiations, as the answers to these three questions highlight.

Birmingham New Street railway station — gateway to higher property prices

Is John Lewis playing a game?

On the face of it, the answer is no: Serious businesses like John Lewis do not engage in brinkmanship, nor announce closures only to change their mind. Yet there are precedents.

Several of the House of Fraser closures announced last year were reversed, once discussions with landlords concluded. Moreover, closing a store after just five years, with several years (perhaps as many as 25) left on the lease, has inevitably lead to suggestions that John Lewis’ strategy may be renegotiation not termination of its Grand Centre venture.

There was already a history of friction with Hammerson (over service charges, in 2019), which adds to the sense that there may be more to this than meets the eye.

Redundancy notices have yet to be issued, which suggests there may be scope for further talks. 

Hammerson is already in a weakened position, having collected just 16% of the rent due in June and being forced to line up a £300M credit facility to prevent it sharing the same unhappy fate as rival intu, whose main corporate vehicle is now in administration.

John Lewis would not be the first retailer to think July 2020 was an ideal moment to refresh its leasehold terms. Maybe announcing a closure and waiting for the landlord to make an offer is preferable to simply withholding rent as many tenants have done?

The only trouble with the brinkmanship theory is that Hammerson may not be in a position to give John Lewis very much in return, thanks to …

Does Hammerson Have A  Canadian Problem In Birmingham?

Hammerson bought the 435K SF centre in 2015, paying Birmingham City Council and Network rail £335M. It lined up a partner and owns Grand Central in a 50/50 partnership with Canada Pension Plan Investment Board. 

As intu discovered earlier this month, the Canadians play hardball. CPPIB declined to agree to a 15-month debt standstill, providing the straw that finally broke the intu camel’s back and forced it into administration.

On this form the Canadians will want to preserve the value of the investment, vastly reducing Hammerson’s scope for clever solutions.

But even if they can resolve their Canadian problem, Hammerson face another, which is …

Can Hammerson Resolve Its Mounting Department Store Headaches?

That Hammerson is also fire-fighting another Birmingham department store closure — Debenhams 207K SF store at the Bullring — will not be making life easier. To paraphrase Lady Bracknell, finding a use for one large former department store may be regarded as possible, finding two feels ambitious.

"We will continue our discussions with John Lewis regarding their future in Birmingham, as there remains a significant period left on the lease. However, the strong city centre and high footfall location of the current John Lewis space lends itself to future alternative uses, which we will explore," Hammerson said in a statement.

If the closure goes ahead, Birmingham will take a blow to its pride, and suffer reduced consumer spending.

“At this stage the closure is still only a proposal, and one that I believe risks being a terrible mistake,” former John Lewis boss and now West Midlands Metro Mayor Andy Street said.

An insider like Street will surely know what ears to bend, and what arguments to deploy. He was in charge at John Lewis in February 2011 when the Grand Central letting was announced (the deal had been a badly kept secret for at least six months prior).

In the meantime Hammerson has work to do at Grand Central: In February it announced the next stage of the transformation of Grand Central’s New Street Mall, with the commencement of the second phase of a £2M investment to upgrade the key link to New Street and Stephenson Place.

The latest works will create an enhanced sense of arrival in Grand Central with a new double-height atrium to complement the first phase. Hammerson will be hoping to have the question marks over its anchor tenant lifted rapidly so that visitors have something worth arriving for.