Another newsagent is about to exit a major shopping centre in Melbourne following months of negotiations on rent. With an occupancy cost of 22% and a business gross profit of 34%, once you allow 12% for wages, there is nothing left for overheads and the owners.
While one could argue a higher GP and higher revenue would address the issue, and you would be right, these goals take time to achieve. Often, the annual 5% rent increase in the lease makes achieving these goals challenging. However, in this case, the lease restricted how far from a traditional newsagency the retailer could expand. The damn permitted use clause strikes again.
If the business was not charged a marketing fee by the landlord they may have stayed and done somewhat better. I say this as the operators have consistently promoted outside the business and the centre to attract new shoppers. It is doubtful the marketing by the landlord landed any significant traffic in the business. Hence, the comment about the considerable marketing fee paid.
If shopping centre landlords want newsagencies or newsagency like businesses to remain in their shopping centres they need to consider their rent model for these types of businesses.
I like the idea of a flat percentage rent, a percentage of turnover. I’d agree to a premium even for this of, say, 13%. However, as long as there are people lining up to sign leases and able to borrow to pay rent landlords will not feel compelled to address the issue.
Of course, from a channel perspective, a major issue is poor margin on some core newsagency lines – meaning we either replace them with better margin lines or the suppliers change decades-old practices.
Something has to give.
Note: I have no commercial involvement in the business mentioned whatsoever.
If Melbourne has tenants “lining up….. able to borrow to pay rent” then how I wish I was a Melbourne landlord.
When you say occupancy cost do you include commissions in the denominator? Do you also include it in the denominator and numerator of your gp figure of 34%. Sounds kind of low.
We don’t pay rent out of Sales We pay expenses including Rent or Occupancy costs out of Gross Profit.
In our analysis we compare both. Sales are irrelevant a D.J.’s Myer will testify Record sales no profit = record losses. Sales are inclusive of Commissions from services incle Subagents or anything with a G.P. of 12.5% or less.
if your paying 13% of turnover then you are paying all of the services G.P. earned in products sold for that percentage or less. not tenable.
Jim, yes, commission.