I am writing this blog post for newsagent suppliers. There are plenty of newsagents in shopping centres who face a minimum annual rental increase of 5% every year. If a newsagent paid $300,000 in base rent last year, this year they will pay $17,500 more.
I know of newsagents paying considerably more than $300,000 a year in rent.
Newsagent suppliers – how would you react if your largest fixed cost increased by 5% every year and if this fixed cost accounted for between 40% and 50% of your gross profit?
You would look at how you could increase your gross profit? Of course!
Retailers can increase gross profit by increasing customer traffic, increasing sales (through more traffic and getting existing customers to buy more) and or by increasing prices.
Newsagents can chase more traffic and sales efficiency but for many products they do not have control over margin.
Newsagents are in the hands of their suppliers on the margin front. Are you taking note suppliers.
On top of this, many newsagent suppliers also control many operating costs for newsagents by controlling supply levers: greeting cards, magazines, newspapers.
I’d note that it is unfair to list greeting cards here as the margin for newsagents from this category can be three times the margin from newspapers and magazines. Plus newsagents can achieve a higher margin by increasing sales.
One way newsagents can address the 5% rental increase each year is by carrying less of the products over which they have little or no control and expanding into other areas where they can exert more control. Unless suppliers of these products improve how they do business with newsagents they will see floor space cut and have no choice but to reduce supply.
While we have seen more newsagent suppliers try and understand these and other challenges newsagents, especially shopping centre newsagents, face, I would like to see more suppliers engage.
Ask yourself, how would you react if your largest fixed cost increased by 5% every year? This is a big challenge for newsagents.
Very good points Mark.
Every extra expense incured by a small retailer comes straight out of their hip pocket so the real comparison for the executives of the major suppliers is to imagine a $17500 pay drop for yourselves or for an even better perspective your staff. That is how it hits most newsagents and its a huge hit. Greedy landlords (thankfully mine are not) should pay heed to this to as they will force the closure of what should be solid tenants for them.