Following the refusal by the landlord to renegotiate on rent, another newsagent has walked from their major shopping centre tenancy. They left behind a shop-fit which was just three years old. The landlord, following a tradition which emerged in 2011, then negotiated new terms with another party to operate a newsagency in the tenancy.
While some landlords have shown a preparedness to renegotiate terms for newsagents tenants who are doing it tough, many refuse.
When your occupancy costs pass 15% in a shopping centre and continue to rise you are living on borrowed time. The math is simple. With an average gross profit of between 30% and 35%, a labour cost of 12%, rent of 15%, theft of 3% and overheads of 5% there is nothing left to fund business borrowings let alone provide a return to the owner.
Smart landlords understand that much of what is sold in a newsagency is on a fixed margin, at the low end of margins achieved in the shopping centre tenancy mix. They can see that the prices of many products are not even keeping up with CPI (newspapers, magazines, cards). They understand the important role newsagencies play in the tenancy mix and the service they provide. These smart landlords are the ones likely to agree to either a rent reduction or to not applying the usual annual 4% to 6% rent increase.
We need more smart landlords. Otherwise, we will see fewer shopping centres in Australia with newsagencies.
Hi Mark and others
This gradual decline in profit margins in shopping centre locations is becoming very scary and I am very surprised that there were no comments.
The annual increases of say 5% is crippling most centre agents if they continue to see a decline in general revenue including cards and stationery.
We recently gave back 88smtrs of space as I can see that our sales will not accommodate increases in rent based on the larger shop format.
The only issue is that when you decrease in size your rate per s.mtre is increased.
Yes hopefully we will see more landlords adopt a realistic approach to annual increases . Also of course what we need to amortise is the cost of new shopfits every new lease another $300,000 to $400,000.
We need overall gp% to be 40% plus not 30/35%
Lets not forget Landlords should realise they do need viable newsagentsas when they are done well are a huge drawcard.
Last night the best and busiest small retailer in Brisbane’s largest Centre Westfield Chermside was the Newsagent.
IT WAS PACKED!
This Newsagency has a huge sign up on ceiling announcing they have been voted Australia’s BEST NEWSAGENCY!!!!
Congratulations to them.
I doubt they are the best. They were a lucky winner from a flawed competition pro ell which would fail a transparency test. It’s an okay Newsagency.
Michael Mark has written previously and well about shopping centre leases. Mark can you give a link?
Hi Michael,
They must have stolen the sign of us… we too have that same sign and in very small words we reference it by us…
Cheers
Peter
i thought the best newsagency award went to a victorian newsagency ?
Nah Shaun, we’ve never won it. Ha ha….
We spoke to our landlord a few moths back and handing back some area was one option covered but as they said to us once gone its probably gone for good so we’re making a big effort on improving margin. Still may have to have another meeting after Christmas but at least our landlords are reasonable people and will look at all options we present to them. A drop in rent or a rent based more on turnover may be plced on the table by us.
One way to deal with shopping centre landlord challenges is to shrink the shop and overheads. There are times this is the best option. More times, however, I see newsagents missing opportunities to expand their offer in the existing footprint and thereby achieve a greater gross margin return on floorspace. This is hard work but can be far better for the profitability and sale value of the newsagency.
The other point I’d make is on shop fits. Newsagents spend too much. We go for monuments to our egos when we should go for monuments to our frugality.