Harris Scarfe could have wider impact on mall landlords

The collapse of Harris Scarfe could cast a pall over the outlook for mall landlords heading into Christmas.

Harris Scarfe signage in Adelaide’s Rundle Mall. Picture: AAP

The collapse into receivership of retail homewares chain Harris Scarfe could cast a pall over the outlook for shopping centre landlords as they head into the Christmas season.

Amid warnings of a recovery in consumer spending being pushed back to next year, and moves by landlords to renegotiate leases with the receivers of the fallen chain, Morgan Stanley analysts warn the receivership could have a wider impact.

The listed Scentre Group, owner of the local Westfield empire, and Stockland, are among big-name retail operators caught up in the decision to place Harris Scarfe in receivership.

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The chain operates 66 stores across the country, including 24 in Victoria, 13 in NSW and nine in South Australia.

Scentre is landlord to about 10 Harris Scarfe stores, with Stockland having around five, while four are in Vicinity malls and two in GPT centres.

Morgan Stanley said there were 21 stores located in malls owned by the listed REITs it covered. A typical store spans 3000sq m, and being a mini-department store, would have rents of about $300 per sqm.

“This is a further sign that landlords are likely to face continued headwinds as tenants struggle in the current economic climate,” Morgan Stanley said.

Harris Scarfe will trade through the Christmas period, while a sale process of the business has already commenced.

Morgan Stanley said there was a risk that Harris Scarfe will not continue as a going concern, and all the floor space is handed back to the landlord.

In the alternative, the store network could be sold to a new owner, which may then demand a rent reduction across the board.

The analyst said the direct earnings impact on landlords of Harris Scarfe leaving was not huge but its concern was that this was another major retail closure and “not great for the mall business”.

“Our concern is not so much the rent that Harris Scarfe pays – but more around what its troubles mean for Australian retail,” Morgan Stanley said.