Small business retailers have been left to carry an unfair burden through COVID-19.
The rent relief offered by the national cabinet’s mandatory code of conduct is too little, too late. I suspect it will send many small business retailers to the wall.
We need an urgent federal government funding of 100% of rent for 3 months. Otherwise, the economic impact will be devastating.
I say this based on how landlords are reacting and based on the experiences of several retailers as put to me. Here is one example I heard of yesterday. While the numbers change between stories, the situation itself does not change.
One shop in a major centre in NSW is down 75%. Revenue is $25,000 a week with a GP of 15% given the product mix, plenty of the revenue is lotteries. That is a GP of $3,750.00.
Wages sit at net $500 a week after you allow for JobKeeper. Rent for the business is $8,750.00 a week and the landlord has made it clear they will waive no more than $2,187.50 of that. The landlord has also required this retailer provide certified management accounts 2 years of P&Ls, tax returns, certified current revenue data, a personal assets and liabilities list and details of all grants and other COVID-19 related benefits tapped into by the business and its owner.
The business has a deficit of $3,312.50.
The business has an overdraft maced at $200,000. Their bank is reluctant to lend more as there are no assets to back this.
The owners have three maxed out credit cards and $10,000.00 in the bank.
Their latest BAS will release some welcome funds. However, the amount buys a week or two, no more.
This is a good business, which usually sold plenty of unique, high-margin, items. Through no fault of the owners, foot traffic has collapsed, leaving only low margin traffic visiting and even that is declining further this week.
With governments pumping truckloads of cash into private hospitals, media outlets, airlines and other businesses impacted, they are yet to pump any cash directly into retail. The mandatory code of conduct sees some state / territory tax waivers flow, but not much.
Only an immediate payment of 100% of rent for 3 months buys the time needed to understand the complexity of the situation. Without it, businesses like the example above will collapse, impacting not only the owners but all who rely on the business.
There is urgent concern among SME retailers that politicians do not understand the critical situation they face.
The landlord will be left with 2 fifths of f#%k all if the retailer goes to the wall. This will serve themselves right. If the landlord cannot afford a more significant reduction for 3 months then their business has been poorly run. For big landlords churning retailers in good times is easy, it will be very difficult to employ the same strategy in the current environment.
I agree Peter. I think some landlords are slow coming to the realisation that they are unable to employ their usual strategy.
And lets not forget, in those big shopping centre landlords require a bank guarantee of 3months before you enter a lease.
I’m not aware of anyone saying they did arrive there because of COVID-19.
However, given Easter and Mother’s Day and their specific situation, they were set to be better off by now. Instead, they have no capacity for dealing with their landlord problem. Sure, they could have better protected themselves. I say that about smokers who get lung cancer too.
Anyway, I’m not here pleading a case for them. rather, just presenting data for information.
It is interesting to include lottery turnover in Sales.
The ATO in the mid 2005-10 required all accountantns to seperate Goods from Services on the Profit and loss accounts this means Sales minus purchases gives an operating G.P. Then there is gross commissions from Lotteries Phone cards Blushyft etc.
A lot of P&l’s I get today are still in the previous format.
Landlords ask for turnover sales details every month and if the service side were included as sales as is in the above example the Landlord may have the wrong figures Thet should be Sales from Goods sold plus Commission from Srevices. This includes Dry Cleaning etc or Sales made from consignment stock.
If the fundamentals are wrong then it isn’t any wonder that people get into trouble. In the case her the rent is again at 48% of the G.P. has been for a long time.
It still doesn’t excuse the landlords tactics for they show ill intent and bad practice and unfortunately everybody suffers until they find out they are not wanted any more. Premier are testing this at the moment We can only wait and see.
“” In the case her the rent is again at 48% of the G.P. has been for a long time.””
That’s crazy, is that really common in retail today ?
What some landlords are asking for as a revenue comparison in this COVID-19 world varies wildly from what the ATO looks at.
The ATO has been given the responsibilty of supervising most of the financial reconciliation process through the Sales and Bass. if this conflicts with the Landlords comparison then there is a case of non compliance.
Irrespective of this is the 48% of G.P. for rent I have been banging on about this for years and this is a golden opportunity to show in a business model I have developed to the necessary departments that it cannot work. These businesses that you have shown were doomed because of the Occupancy Cost for years and now there is an open assistance from the Government re transparency for assistance we should expose methodology and self interest as poles apart.
COVID 19 gives us this opportunity for before this virus we were unheard and dying slowly at the Landlords whim.
I am happy to assist in any way This is not a competition of who is what and right it is about restructuring a failing industry on basics fundamental return on investment and return on equity (the latter of which newsagencies haven’t had for some time yet it is their for the understanding of how to do it) which isn’t there for those that paid too much a while ago and are now stuck with that debt.
I agree with Peter. The shopping centre landlord will be hit hard if this retailer is forced into insolvency. This is just one example applicable to thousands of retailers around the country. Without government support and common sense negotiation the major shopping centre players will soon face their own crisis. This sector is going to be hit hard and shopping centre rentals will soon be in a downward spiral.
Banks will be very wary of providing support to an already highly geared sector particularly when valuations are falling.
Any government support should be directed to the retail tenant and not the greedy overcharging shopping centre managers.
Landlords don’t get it. If they go bust the bank takes over, centre sold, life goes on. The landlord is totally indispensable.
The point is in all this, that it is the Landlord being totally unco-operative is at the whole base of this tranaction especially shopping centres.
The virus has brought it to a head. the occupancy cost do not relate to the profit of the business proportunately enough to make the busines viable.
Just as a general observation, how are landlords of the average mom and dad businesses, the little shops, coping with all this ?
Are they more open to a reasonable discussion on any rent review?
Lance, I would say you have a much better chance of negotiating a satisfactory deal with an individual landlord over a major shopping centre landlord. They don’t have shareholders or a high powered legal team ready to slap you down,even when you’re doing the right thing. They are more likely to see you as vital to their future and not just number 22 on a map of their centre. You do indeed pay a price for that high traffic level.
https://www.theaustralian.com.au/business/economics/coronavirus-means-an-oversupply-of-shops-and-airports/news-story/a235e527f24a6d6bbf7cd85c1d5f5ca9
I am not sure how to paste this (see previous post )It is an article about Shopping Centres their future and Retailers. I thought it interesting a very different view -the writer is a former Business writer for the Financial Review and now the Australian.
It really suits the header in this Blog.