Britain's John Lewis withholds service payments to landlords

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LONDON (Reuters) – British department stores group John Lewis has told shopping centers landlords it will withhold 20% of this quarter’s service charge as it seeks to cut costs, it said on Friday.

The move, first reported by the BBC, highlights the pressure UK retailers are under in the face of subdued consumer spending, the structural shift to online shopping and with Brexit looming.

John Lewis is part of the employee-owned John Lewis Partnership, which said on Tuesday it was seeking to save 100 million pounds ($123 million) through a major management restructuring.

Service charges are the fees retailers pay, in addition to rent, for services such as heating, cleaning, maintenance and security. John Lewis said these charges had risen regularly and landlords had not cooperated in trying to reduce costs.

A spokeswoman for the chain said it was withholding 20% at around 20 covered shopping centers. It has 50 UK department stores in total.

“At a time when we are doing everything we can to reduce our cost base, we have unfortunately been faced with regular increases to the service charges we pay for some of our shops in shopping centers,” John Lewis said.

Over the last three years it has seen an increase in service charges of 20%.

“These continued increases are simply not acceptable particularly in the absence of strenuous efforts by landlords to work collaboratively with us to reduce these costs,” it said.

“We are investing more in our current shop estate than ever before to do everything we can to encourage customers and grow footfall and we hope that our landlords will support us in continuing to do this.”

Asked if the move could leave John Lewis open to legal action from landlords, the spokeswoman said: “We are looking to work with our suppliers, so those conversations have started.”

Hammerson (L:) and Intu Properties (L:) are among John Lewis’ biggest landlords.

Last month, John Lewis reported a 61.8 million pounds loss for the six months to July 27. Its sales are down 2.1% over the 35 weeks to Sept. 28.

Britain’s department store sector has been under intense pressure from weak demand and rising costs for several years.

BHS went bust in 2016, House of Fraser was bought out of administration last year by Mike Ashley’s Sports Direct (L:) and Debenhams went into administration in April and is now owned by its lenders. Debenhams secured major rent reductions in May when creditors approved a restructuring.

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