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retail leases

Not all shopping centres are recovering from Covid the same

While high street shopping appears to be strong and better than pre-Covid, for at least most of the stores I have seen data for, in shopping centres it is a different story.

Retailers in some centres are doing well while some in other centres are down significantly on 2019 trade.

I’d like to see state and federal governments work together to capture accurate data to assess the situation, to help us understand how shopping centres, overall, are performing in 2022 compared to pre-Covid and, then, how each centre is performing. 

I suspect an independent study would reveal significant differences in the performance of each centre. I am sure we would see some centres have bounced back while others have not. It is in that second group, where tenants are dealing with annual rental increases of 5% and more where we may find significant financial pressure, brought on by Covid.

Any study should only be about understanding the situation, and not about laying blame. If one centre is performing poorly while another is performing well, it does not mean the poorly performing centre is being run poorly. There are many factors that could be driving the different results. We can’t consider that until we have the data. That’s why a government-led study would be useful.

While landlords have sales data, their interests are too vested, too narrow, for that to be of value nationally. An independent assessment of the situation would be helpful, especially for the independent retailers in these centres.

In one situation I was looking at this week, revenue is stubbornly sitting at 20% less than in 2019 for a vibrant and appealing business that is engaged on social media and undertaking other marketing to attract shoppers. Their business is in a category that is strong out on the high street.

In another situation, revenue is down 15% which nearby retailers in the same category are up 20% … and the nearby retailers are doing less marketing and offer a less appealing (in any opinion) experience than in the shopping centre.

But this post is not about specific retailers. Rather, it is a call for a national assessment of retail performance in shopping centres so that we can understand if there is a problem, and if so, the centres in which the problem is amplified. Again, landlords are unlikely to drive this. That’s why I hope governments engage.

With most of the Covid support now gone, small business retailers have few options. Those in shopping centres that are yet to be back at pre-Covid trading levels are facing operating costs that, for some, will be unsustainable. No one wins from that – the landlord, governments, the community, the owners. The sooner we have data to understand if there is an issue and the scope of it the better.

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Newsagency management

The best way to negotiate a lease in a major shopping centre

Major shopping centres looked appealing for years. All that foot traffic. The bright and shiny look. Being there was appealing.

The Covid hit, and traffic to major centres crashed. It’s coming back, but it’s not where it used to be.

With good space availability, leasing execs are doing the rounds, seeking to fill spaces. In some cases they are cutting deals, while in others the occupancy cost is as high as ever.

My advice to anyone negotiating for space ion a major shopping centre is: negotiate as if you have a better deal elsewhere. Don’t rely on it. Don’t visualise that centre as the only location for you. Have a viable plan ‘B’ and even a plan ‘C’. And, only agree to what you are 100% happy with.

Too often I see retailers agree to leases because of the appeal of bright shiny lights and what appears to be good foot traffic, one;y to rue the decisions for years.

By having viable and appealing options you allow yourself to have a more circumspect off the major centre leasing exec pitchy and that works in your favour.

I know there are people in our channel who say they get the best deals. It’s one think to claim this and another entirely to prove it. Ask for the evidence. In one situation I heard about recently when the retailer asked for evidence of deals a party claimed they had achieved the response was oh, privacy. That’s a crock in my view. If you claim you can get an awesome deal, prove it … otherwise, it remains marketing spin not backed by evidence.

You’re in your lease situation for 5 years at least usually. That’s a long time to be locked into something which with you are dissatisfied or unhappy. It is why you need to research carefully, to be sure you will be happy. It’s why you need to have options so you can compare before you sign anything.

One tip for those considering a shopping centre situation, have a plan ‘B’ option that is outside the centre and it is this different situation comparison that could be particularly helpful in landing at a decision. The two settings are physically and location different, they are usually financially different, too. This is what it is good for you to have the option with which you can compare. I have done this myself and pivoted to outside of shopping centre retail – less stress, lower occupancy cost and higher profit from sales = better business value.

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retail leases

Victoria extends commercial tenancy support

This will be welcome news for plenty of retailers:

14th Jan 2022

Commercial Tenancy Support Extended

The Victorian Government will extend the Commercial Tenancy Relief Scheme (CTRS), providing rent relief and protections for commercial tenants and landlords experiencing hardship through the latest wave of the pandemic.

The CTRS was created in 2020 and reintroduced in July 2021 to support small to medium businesses. It will be extended to 15 March 2022 to provide further financial relief and security for thousands of small businesses across the state.

The extended scheme will be available to businesses with an annual turnover of $10 million or less and which have suffered a decline in turnover of at least 30 per cent due to COVID-19.

Landlords will be required to provide continued proportional rent relief in line with a reduction in turnover. For example, a business with a turnover of 40 per cent of pre-pandemic levels could only be charged 40 per cent of its rent.

Of the balance, at least half would be waived, with the remainder to be deferred. The freeze on rent increases will continue.

The Victorian Small Business Commission (VSBC) will continue to provide mediation support to tenants and landlords if parties cannot reach a satisfactory agreement.

The eviction moratorium will continue. Landlords will not be able to lock out or evict tenants without undertaking mediation through the VSBC.

The new regulations will take effect from 16 January 2022. Tenants and landlords should abide by the conditions in their existing agreement. Small and family businesses that already have a deferment will have more time for repayments as a result of this extension.

Many commercial landlords have already backed their fellow Victorians by providing rent relief to commercial tenants, supporting eligible businesses through reduced trading due to COVID-19.

Eligible commercial landlords that have provided rent relief to their tenants have received support through the $20 million Commercial Landlord Hardship Fund. They will continue to do so while their tenants are eligible for the scheme.

Full details of the scheme including eligibility will be published on the VSBC’s website. Tenants and landlords can contact the VSBC for further information on 13 87 22 or visit vsbc.vic.gov.au.

Quotes attributable to Minister for Small Business Jaala Pulford

“Victorian small and family businesses play a critical role in creating jobs and driving economic growth – and that’s why we’re supporting them to get through this challenging period.”

“We have allocated more than $13 billion in funding to businesses across Victoria throughout the pandemic.”

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retail leases

This ABC story about Pearcedale Hardware is a must-read story for all small business retailers and every Australian who cares about or relies on small business retail

Pearcedale Hardware is closing today and the ABC has published a deep-dive into why:

The cost of doing business

Published

For many residents in the quiet township of Pearcedale, the local shops are the heart of the community.

On this weekday, the complex an hour’s drive south-east of Melbourne is beating strong.

Shoppers exchange cheerios across the car park and small talk about the impending rain as they bustle, car keys in hand, between the 13 shops.

…

The shop was their retirement plan. They hoped to rebrand it and work towards selling it, believing they could get a few hundred thousand dollars.

But they say things began to look shaky when their lease lapsed in 2019, and the owners wouldn’t sign a new agreement with them.

They were on a month-by-month arrangement, when in May this year their property agent emailed them a new leasing agreement.

“[I was in] disbelief. I couldn’t believe what they were asking,” Adrian says.

The landowners were tripling the rent — from $29,687 a year to $88,638 a year.

Be sure to read the whole story.

There are many good landlords out there who go above and beyond for their small business tenants. There are also plenty of landlords who suck.

This story is a reminder that we small business retailers sign our leases, accepting the terms and conditions, accepting the risk.

When a lease goes to month-to-month, that’s what it is. We need to manage our business with that expectation and do our own planning, rather than relying on a decision from the landlord.

I appreciate it can be difficult and challenging. But, it’s best we expect the worst and plan for it, to protect ourselves and our business as much as we can … because, too many landlords do suck.

Retail is fundamentally changing in ways we can see and, more importantly, in ways we cannot see. We have to be as far ahead of that curve of change as we can be. This means disrupting your own businesses.  Running a shop with one prime source of income (the shop) is an out of date model. we seen to diversify as to what people buy, how they buy and the locations they buy from in the retail world today. This approach spreads the risk.

Back in the day, opening the front door of your local shop was the key marketing activity. Not now. Not for many years.

I have been in the situation of the folks at Pearcedale Hardware, facing a massive rent hike. I said no thanks. I am lucky to have a diverse business such that closing one shop would not hurt too much. But … I evolved the business to be that, to not rely  on one location.

I appreciate many local small business retailers don’t feel they can do that due to capital, local situation or other factors. But, there are ways to insulate your business from the impact of a massive rent hike. The time to seek those ways out is long before you need to … and that is the core point I’d make today.

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Ethics

There are signs major landlords are scrambling to appeal to newsagents

Newsagents in two different large capital city shopping centres received revised offers from their respective landlords last week to entice them to stay in the centre.

In each case their lease was ending and the newsagents had advised they would not continue because of the high occupancy cost.

\For months the respective landlords said there was no room to move and then, at the last minute, they blocked and offered a substantially discounted offer.

What makes these cases different is that the discounted offer is a discount on base rent, not some manipulated pitch that enables the landlord to claim higher value for the space than what is actually paid.

If what I’m told Wass pitched last week is a trend, it would be good news for newsagents in shopping centres.

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retail leases

Shopping centre landlords will struggle to attract newsagency tenants

Covid is demonstrating that high street newsagencies have significant benefits over shopping centre newsagencies in a pandemic. It is also helping high street newsagents be flexible in their approach to business, something that is more channeling in a shopping centre setting.

I suspect there are newsagents in shopping centres today looking for nearby high street location opportunities.

I suspect, too, there will be some who were considering a shopping centre tenancy who now consider it unlikely.

With shopping centre occupancy costs yet to reflect new market conditions, they are not appealing, especially when you consider the restrictions coded in leases as to floorspace allocation for categories outside what a landlord considers to be cor newsagency categories.

If shopping centre landlords do reset occupancy cost to reflect the new conditions, which would mean an occupancy cost decline of at least 33%, their space could be appealing for a newsagency or a newsagency related business.

It would be a bold landlord who makes that move. They are not known for wanting to be first for such changes.

The thing is, a newsagency is good for a centre, especially an evolved newsagency that is focussed on the future with a nod to the past. Such a business can be fresh, enticing and net traffic generating, not relying o=n the traffic a centre itself has.

With fashion retail looking at a tough year ahead and some other niches also challenged. the mix in shopping centres will change. That could be an ideal time for landlords to better support a traffic anchor like a newsagency. It will be interesting to see if they have what it takes to make their space commercially interesting to newsagents … because right now it is not commercially interesting.

One thing Covid has provided newsagents is options, meaning we are not as reliant on shopping centres as we used to be.

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retail leases

Westfield locks out some retail tenants

The Nine papers late Thursday night reported actions by Westfield against some major tenants over unpaid rent.

Westfield shopping mall owner Scentre has begun locking non-rent-paying retailers out of their stores in a dramatic escalation of tensions between major landlords and their retail tenants.

ASX-listed retailer Mosaic Group, which operates stores such as Noni B, Rivers and Katies, told investors on Thursday afternoon 129 of its stores in Westfield nationally had been “temporarily closed by the landlord Scentre Group”.

…

Scentre’s approach is the newest escalation of tensions between landlords and major retail tenants over rental amounts paid during coronavirus lockdowns, where many stores were shut or receiving significantly reduced income due to social distancing measures.

Mosaic, along with other retailers such as Solomon Lew’s Premier Investments, have either refused to pay rent or paid a reduced level of rent to their landlords during the period, saying that proprietors should share the burden of the economic crunch brought on by COVID-19.

The ABC published a story about this yesterday.

I was surprised months ago to read that several major shopping centre tenants had stopped maying rent. I have shops in 2 Westfield centres and have kept paying, albeit at a reduced amount and with transparency to Westfield, as I knew at some point, once the national code discounts are applied, there’d be a call what is owing.

While I am interested in any pressure on landlords on rent overall, deliberately not paying rent is not a good negotiating tactic in my view. It will be interesting to see where this story plays out.

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retail leases

COSBOA: The big landlord problem is now obvious for all to see – small businesses need intervention

The Council of Small Business Organisations of Australia, of which ALNA is an active member, is lobbying on behalf of small business retailers. Here is their complete release on this, a release that draws on an earlier release from ALNA:

The big landlord problem is now obvious for all to see – small businesses need intervention

COSBOA calls upon the biggest landlords in Australia to set an example of responsible behaviour in a time of crisis, and to start acting in good faith with the proposed Mandatory Commercial Tenancy Code (“the Code”). Some landlords are doing the right thing, but many, including the largest ones, are still unwilling to share the financial impact of social distancing.

Peter Strong, CEO of COSBOA, stated “The COVID-19 issues for small business are many, as they are for everyone. We recognise that thanks to strong leadership, federal and state/territory governments have flattened the COVID-19 curve. A consequence of this, however, has been an extraordinary drop in our retail foot traffic. This is not the fault of tenants or their landlords, but one of the most pressing issues is getting landlords to engage genuinely and effectively with their small business tenants to fairly relieve their rent burden when they have few or no customers. As we work hard on the other big issue, employment, through the JobKeeper program, we have to also deal with the immediate challenge around rent and retail leasing. A business cannot use JobKeeper if it is bankrupted, or will be, by a landlord.”

COSBOA sees the best solution now is for the states to legislate that all retail tenants who are eligible under The Code and who are the most vulnerable, like businesses with less than $2 million turnover, have an immediate three-month waiver for April to June on rent, with support from government to share this cost with landlords.

This will clear the decks with immediate support and we won’t lose businesses unnecessarily. It can be followed by good faith negotiations under the code. Mediation can occur if it is required, as is the intent of the Code.

Mr Strong added “the fact is that payment of rent is not possible for a large proportion of small businesses in malls and the current behaviour of the landlords will create tens of thousands of bankrupt businesses. The development of the JobKeeper program would be meaningless if a business was bankrupt and the owner of the business was in deep despair. However, landlords overwhelmingly seem to fail to understand we are in a crisis.”

COSBOA understands this is not a federal issue as the states are responsible for legislating the leasing regulations required for the proposed Code now.

Mr Strong also added “we see the West Australian Government have led the way with yesterday’s announcement of $100 million in land tax relief grants available for commercial landlords who waive rent for 3-months for small business tenants who have suffered a 30 per cent drop in turnover due to the impact of COVID-19.

Where the federal government can help is to bring forward changes to sensibly increase the thresholds for Unfair Contract Terms (UCT). This will provide fairness for small business tenants from aggressive contracts and leases. It must be acknowledged that the Prime Minister and the Treasurer have confronted this problem, and they have probably discovered what we in small business have known for decades: that the biggest landlords are not the most constructive, contributing members of our society.”

Many businesses need outcomes now or at least in the next few weeks, not the next few months. Unfortunately, we do not see this happening. There is also the recent intervention of the ACCC which has given many landlords the ability to share information about their tenants. This has provided those landlords the opportunity to legally connive and then take similar ‘actions’ with tenants. These landlords appear to be using the authorisation and The Code (even though it is not legislated yet) to co-ordinate and provide a protective mechanism for themselves while complicating and deferring outcomes for tenants.

Some of these landlords are asking for extensive information from tenants far in excess of what is required under The Code. This includes in many cases requests for P&Ls and balance sheets, not just disclosure of revenue impacts. They are also asking the retailer to demonstrate they have used all state and federal small business support packages first as well as bank assistance before they will consider any request. The landlords are creating significant additional and needless expenses for their tenants. These requests are time consuming, delay outcomes and require information which they really have no right to require (other than revenue impacts), and are not consistent with The Code or acting in good faith.

Mr Strong further added, “Bizarrely, some of the biggest landlords are asking tenants to predict their turnover for the next twelve months. This shows the landlords are not capable of forward planning yet expect small business people to do that planning for them. The federal government has deferred its own budget until November as it knows it cannot yet predict the future with any certainty, but the landlords expect small business people, under extreme personal stress, to produce a plan for the next twelve months. It is obvious that the authorisation landlords have been given by the ACCC should now be rescinded, and they must stop opportunistically asking for information that they do not need and that may harm these tenants in the long run.”

Note: The business folk and the employees who will be affected come from cafes, restaurants, newsagents, shoe stores, clothing shops, lottery agents and hairdressers among others and they need government help and good faith from their landlords to address this.

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retail leases

A retail tenancy win for small business in WA

Great news out of WA tonight with the state government announcing 3 months rent free for SMEs that have experiences a 30% decline in turnover. It is backdated to start from March 1, 2020. The government is providing landlords terrific financial support if they waive rent for 3 months for SMEs. The landlords have an excellent incentive because of this.

This is an excellent result from the WA government, a government that continues to deliver terrific results for small business retailers.

NOTE: the 3 months rent free is exactly what ALNA and all the newsagency marketing groups have been agitating for and suggested members write to politicians about.

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Ethics

Landlords demand secrecy from SME tenants as they continue to push back on the MANDATORY CODE OF CONDUCT SME COMMERCIAL LEASING PRINCIPLES DURING COVID-19

Small business retailers can’t take a break in dealing with landlords over the collapse of retail traffic in shopping centres. Yesterday, several retailers told me that in addition to demands for extraordinary business and personal financial data, the landlords are demanding a signed confidentiality agreement.

Two requests I have seen make it clear that a signed confidentiality agreement is required before any discussions can proceed. This is despite existing leases covering confidentiality requirements.

It makes no sense that landlords are demanding more paperwork when they have a lease in place covering these requirements.

Every day this drags on is a day closer to small retail businesses going to the wall.

The behaviour of many shopping centre landlords in Australia is appalling. Their approach to dealing with the mandatory code as agreed by the national cabinet makes a mockery of the decisions by state and federal governments. The landlords are demonstrating that they are a law unto themselves.

On top of extraordinary demands for personal and business financial information, some landlords are refusing to put anything in writing, demanding that the matters are discussed. I suspect this is so there is no record of the discussions.

Shopping centres, major shopping centres, are empty. People are not visiting. This is not due to the retailers. The retailers should not have to bear the costs of their tenancy if the centre is not delivering the people expected to be in the centre in the usual course of business.

Governments have to step in here and help address what is now a crisis for independent small business retailers because the landlords are acting, together it seems, agains these most vulnerable retailers.

This is why I support an immediate three months rent free arrangement – to provide time for politicians to actually understand the problem and to realise that their decisions so far, while made with the best intent, have disadvantaged small business retailers and pushed SME retail to the brink of collapse … because of appalling behaviour of shopping centre landlords.

While it sounds melodramatic, this is a crisis for many families around Australia. It has been made a crisis by the landlords and their disinterest in fair resolution of the situation brought about through no fault of SME tenants yet for which SME tenants are having to carry the majority of the financial cost.

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Ethics

How small business retail tenancy landlords are ignoring the national cabinet’s MANDATORY CODE OF CONDUCT SME COMMERCIAL LEASING PRINCIPLES DURING COVID-19

More and more landlords are pressuring independent small business retailers to provide information prior to them considering negotiating rent relief.

It appears to be that these landlords are doing everything possible to delay agreeing to any offer.

There appears to be a co-ordinated campaign by landlords to slow access to relief to small business tenants. Here is an example of communication I have seen from a national real estate company sent to all tenants in a small shopping centre.

The landlord is sympathetic to the impacts of COVID-19 and echo the Prime Minister’s comments that Landlord’s and Tenants need to work together during this unprecedented time. 

Following the announcement from the Prime Minister and National Cabinet on 7 April 2020, there has been further clarity on the proposed amendments to legislation and the now released Mandatory Code of Conduct. 

As stressed by the Prime Minister, tenants are still obligated to honour their leases and its terms throughout this period. The landlord is committed to providing an equitable solution, but we expect tenants to respond in kind. 

The landlord is willing to provide support to retailers so all parties can emerge from the current challenging environment. We would recommend that all tenants have the following information prepared, so we can move quickly on any responses and support all retailers in a proportionate and equitable manner. 

  • • Evidence that the business has made application for the “Job Keeper” assistance and has a turnover of less than $50 million (in which case the mandatory code will apply); 
  • • A statement of financial position, outlining income, expenses, assets and liabilities (preferably audited or certified by a chartered accountant), as at 31st March 2020; 
  • • Year to date and recent financial year financial statements for the impacted tenancy 
  • • FY’19 and year to date FY’20 P&L 
  • • Balance Sheet; 
  • • Sales turnover history for 24 months to March 2020 by a Certified Accountant 
  • • Documented evidence of their application and acceptance for assistance from the ATO, State Govt, Federal Govt. and Franchisor where applicable. 
  • • Report from an accountant or financial advisor with evidence that the business has experienced a substantial reduction in its ability to pay rent due to the impacts of COVID- 19; 
  • • Summary of major debt obligations and whether any repayment holiday has been offered by the financier; 
  • • Other relevant information depending on the nature of the business, for 
  • instance, evidence of a decline in sales or loss of clients/projects and the consequential anticipated turnover for the current quarter, which shows how circumstances have changed as a result of COVID-19 since 1 March 2020; 
  • • What arrangements are currently in place for the ongoing operation of the business, such as work from home arrangements and whether staff have been stood down; and 
  • • Whether the tenant holds business interruption insurance that covers the payment of rent and outgoings and if the circumstances for a claim on that insurance have been triggered. 
  • • Business Plan looking forward as to actions planned post lockdown and beyond. 

We thank you for your understanding during this difficult and unprecedent time. 

The code of conduct is clear. Plenty of the information being requested by this real estate agent is not covered by the code. Worse still, plenty of what they are requesting will require small business retailers to spend unnecessarily to provide the information.

Take the supply of turnover data. Most shopping centre retailers provide turnover data monthly. To now ask for certified data, which will cost more, is nonsense. It’s like the landlords say they do not trust the data they have bene receiving for years.

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Ethics

Position reached on retail tenancy

The national cabinet has reached agreement on retail tenancy. This, from the ABC:

Prime Minister Scott Morrison has announced new rental waivers and deferrals for commercial tenants hit by the impact of the coronavirus crisis.

Under the scheme, which was announced after a meeting of the National Cabinet on Tuesday, landlords will have to reduce leases in proportion to the reduction in the tenant’s business.

The waivers will have to account for at least 50 per cent of the reduction in business.

Deferrals — rental payments that will need to be made, but can be put off — must be spread over the remaining time on a lease and for no less than 12 months.

That means that if a tenant had three months remaining on a lease, they would still have at least a year to make any deferred rent payment.

The code will apply to any tenancies where the landlord or tenant applies for JobKeeper and where they have a turnover of $50 million or less, Mr Morrison said.

The arrangements will be overseen by binding mediation and a mandatory code will be rolled out in each state and territory.

Mr Morrison said landlords were legally required to speak with tenants about rental arrangements and if they refused they would “forfeit their way out of the lease”.

Click on the link for more on this story.

3 likes
retail leases

How the government’s inaction on retail tenancy in this COVID-19 world is problematic for small business retailers

The Prime Minister late yesterday asked business owners and landlords to sit down and work with each other to find a solution to the retail tenancy challenge presented by the restrictions imposed in government responses to COVID-19.

Based on my work with retailers in many situations, city, country, high street and mall, the approach of sitting with landlords will not work for most.

While some individual landlords have already delivered practical help with rent holidays and rent discounts, too many have not. In the shopping mall situation, I am not aware of any of the major landlords like Westfield offering any financial support. Indeed, in my now experience with Westfield, their approach has been quite threatening – don’t close, pay your rent on time.

At the independent landlord point, I have seen discounts as high 75% for six months put in place, April / May rent free in a couple of situations. The most common discount I have seen is 50% off for April with a commitment to reassess.

My experience is that independent landlords are more likely to act sooner and at a more valuable level.

This is where the Prime Minister’s announced approach is problematic as it relies on too much work to be done, too many conversations to be had. Big landlords like Westfield operate in silos, they treat each tenant differently with independent small business retailers usually be treated worse than big retailers.

What we need is national consistency. We need this urgently. We need the federal government to set a position, urgently, that all – retailers and landlords – can rem;y on as a single national position. Without this. the weak will carry the higher per square meter cost, as is the case today.

I urge the Prime Minister and others in authority to resolve this nationally for the benefit of the mental and financial health of small business retailers.

We have been hearing about something coming for two weeks. With each day that passes with no decision, the perspective and health of those so desperately waiting deteriorates and this is problematic for their businesses and those who rely own their businesses.

We can’t trust the Westfields of the world to fix this. They have no track record in this regard. This is something the federal government needs to address, and urgently.

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retail

Why are there so many empty shops in Australia?

Talk to any small business retailer and they will have stories about empty shops in their area that are having a negative impact on their business.

In shopping centres, suburban high streets and country town main roads, there are plenty of empty shops.

Some have been empty for years.

Empty shops make a shopping centre or area feel unpopular, making the task of attracting shoppers harder for remaining retailers.

Some councils have been innovative in addressing the vacant retail space challenge by opening them to local makers and artists. Most councils, however, have not.

Why are there so many empty shops? Talk to retailers and they will blame landlords for rents that are too high. Talk to economists and others expert in retail property space as a ratio of population and they will say that Australia has too much retail space. Talk to the folks in some specific towns and they will blame the main street empty spaces on the new mall that has opened just outside town. Talk to almost anyone and they will blame online. Talk to some landlords and they will say retailers are not innovative enough.

As with any contentious issue that has opposing vested interests, it is hard to get to the truth of the situation.

For what it is worth, my opinion is that the answer to the question lies in a mixture of the reasons offered above.

I do think we have too much retail space in Australia. Rent is among the highest in the world. Retail is not that innovative. People are shopping online for convenience. So, yes, I am hedging my bets.

That said, the why does not matter as much as what to do with them.

Occasionally, you can find a pragmatic landlord who is happy to have a space filled at a lower rent than sit empty for a year or more. I think we need more pragmatic landlords.

Occasionally, we see small business retailers burst out of what has been traditional for their type of business and create something genuinely innovative, which is embraced by local shoppers. We need more of this.

Occasionally, we see empty shops torn down and the space used for something difference. We need to see much more of this.

The challenge for small business retailers today with empty shops nearby is how to deal with the stench of those empty shops.

If your landlord has those shops too and there is one next to you, ask them if you can use the space for display. To me, that would be a win win for you both.

If the shops are not from your landlord, the most obvious response will be to be louder and bigger from your premises. By louder, I mean more events to attract shoppers, give people more reason to come to you.

The best way to deal with online is to be online yourself, with a compelling offer, probably under a brand that is not your shop brand, seeking out shoppers far from your shop location.

The alternative to action is to complain because, yeah, complaining achieves a lot … not.

Empty shops are a problem in Australia. How we deal with that in our own retail businesses comes down to us and the actions we take.

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Newsagency challenges

Shopping centre landlords need to address the occupancy cost issue

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.

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retail leases

The challenge of the permitted use clause in shopping centre leases

Major shopping centres can be fierce in their interpretation and regulation of permitted use clauses in leases.

The permitted use clause details what you can sell or offer in your business.

Some newsagents are coming up against permitted use clause challenges when they evolve their businesses in response to market changes. I have and it can be a frustrating and expensive experience.

The ABC recently published a story about a hairdresser who refused a girl a haircut based on gender, because of the permitted use clause in their lease.

Vivien Houston was a regular at Jimmy Rod’s Barber Shop in The Gap Village Shopping Centre.

But when she turned up for a trim recently she was turned away because she was female.

Jimmy Rod’s managing director James O’Brien said women were not able to have haircuts at the shop because of a new lease agreement he had signed with the local shopping centre management.

It is important that anyone signing a lease does so knowing the full implications of the lease and, in particular, the permitted use clause. If I was a hairdresser I would not want my business to be in a position of turning anyone away because of gender.

It is disappointing the landlord sought this type of restriction for the barber shop. However, it is not uncommon for landlords to set permitted use stipulations that look ridiculous and non-commercial  on small businesses. It is a cost of business for those of us who trade in shopping centres so I guess we often suck it up.

We are in a retail world of rapid and considerable change. Legislating borders is out of date with the retail situation of today.

15 likes
Newsagency management

Oxford Street Newsagency location still empty a year on

Taylor Square Newsagency closed a year ago. The shop remains vacant today. I wonder if the landlord now wishes they had taken a different approach to rent negotiation for an empty shop is an expensive investment to carry.

When I drove past earlier this week I was keen to see what retail was now in the place. Under the Newsagency shingle is an empty shop.

Landlords need to understand the occupancy cost benchmark for newsagents and similar businesses: 11% of turnover where turnover only includes agency commission and not total sales.

6 likes
retail leases

Sunday newsagency challenge: be prepared to walk away

If your lease turns out to be too expensive for your business it is on you. You signed it, you accepted the terms. This is why, during a lease negotiation, you need to be prepared to walk away.

Too often, retailers don’t walk away because they have invested considerably in their business and have not achieved the return they want, thinking that will come when the business is sold.

The reality is you make your most money while running this business. Choose this as your mindset, be prepared to walk away and any lease you ultimately sign will be better for you and the business.

12 likes
Newsagency challenges

Steven Lowey of Westfield on the new landlord model and the Westfield Cloud

IMG_0063Steven Lowey of Westfield spoke at Shoptalk 2016 Tuesday in Las Vegas, introducing us to the Westfield Cloud, what he calls a connective tissue between shops and shoppers. he went on to call it a cultural shift in sharing data.

Westfield has a centre in London where they are trialling the technology live, connecting retailers and shoppers in a way never done by landlords until now.

Westfield has made an extraordinary investment in developing technology and partnering with tech companies to address knowing who is shopping in a centre, where they are, the retailers they like and retailers they may visit.

The example video shown looked futuristic – however, this is what is being trialled by Westfield in London now.

They have solved issues common in shopping centres of tracking shoppers by their phones by retrofitting technology to track and engage shoppers. While this opens considerable privacy issues for the company it does present retailers a completely fresh type of engagement with people in a centre.

Those of us in Westfield centres could have an opportunity soon enough to spend more money with the company to leverage shoppers in or near our centres in a fresh way, a smart way based on information Westfield knows about shoppers, information are unlikely to know. This is one small part of the Westfield innovation that could change shopping mall retailing in the next phase of retail innovation.

While there are privacy issues, retailers, big retailers especially, see tapping into shopper proximity and other data as key to personalising shopping experiences in ays big retailers are challenged with.

9 likes
newsagency of the future

How a retailer had their business ‘stolen’ from them by a franchise promoter who said they can get a better lease deal

I was contacted a few weeks ago by a retail business owner who wanted to tell their story about how they had their business “stolen” from them.

Their lease was close to being up and the head of a franchise group happened to walk in one day for a chat about business. Thinking he was talking to a colleague, the retailer shared information about the lease and issues he was having in negotiating with the landlord. The conversation ended with no help sought and no offer made.

A couple of weeks later, the retailer was visited by the same person again and told that if he wanted to keep his business he would have to join the franchise group as they had negotiated a head lease for the premises and that trading as part of the franchise was a requirement.

The retailer was given an ultimatum: walk away from the business they had owned for years or join the franchise group. He saw it as no choice as the business was his main asset. He joined the franchise group.

His experience in the franchise group was awful, business went downhill. Product arrived in-store that he had not ordered and was unable to return. He was visited and told to do things in the business he did not want to do. He was forced to pay hefty fees he had not had to pay when he operated independently.

The business went downhill and the retailer eventually sold for a lower than reasonable price. He felt he had no choice but to accept the low offer because the franchise agreement had conditions relating to the sale that made it challenging for him to sell outside the group.

The retailer concedes his naiveté and wishes he had engaged a lawyer immediately on hearing of a lease deal to effectively steal the business from him.

This is the story as told to me. While I am not a lawyer, I suspect the actions of the franchise operator and the landlord were illegal and that the retailer could have taken action. But he was broken and was happy to get out.

This is a cautionary tale.

  • Never share lease information unless you are 100% certain of the person involved.
  • Never take on a business where someone else holds the head lease as this gives them power over you.
  • Never join a franchise when you feel you have been coerced, pressured or threatened to do so.
  • If you have been wronged, be prepared to fight at the earliest opportunity to right the wrong.

Industry associations representing retailers ought play a role in monitoring and protecting retailers in this area. When they take money from any franchise group and promote them in journals and elsewhere they offer tacit endorsement. It is incumbent upon them to ensure they understand the values and processes of any such business they endorse in this way.

Yes this story is vague. The franchise group I am writing about is litigious.

17 likes
Ethics

AFR story on retail tenancy incomplete

mallsbounceThe AFR story yesterday on specialty stores recording 2.8% year on year revenue growth in shopping centres in Australia is incomplete as it did not record that these stores have been hit with at least 5% year on year rent increases as agreed in their leases.

Newsagencies are included in the speciality store cohort. Given the 2.8% is an average, I suspect many will have recorded a sales decline. This is the challenge for long term leases – you agree to an increase based on expectations and assumptions and have to pay it regardless of what actually happens.

I’d have liked the AFR to more completely report on the situation for specialty stores – so their readers understood what while 2,8% is good, it is not enough to fund the increase in rent faced by these businesses.

Min my own situation, sales are up 17% year on year in the last quarter so I am ahead on the 5% increase in my lease. This is due to constant change in the business and thoughtfully playing outside what is expected of a traditional newsagency business.

5 likes
Newsagency management

Newsagents: beware any who claim they can get you a better lease deal

I heard this week about a newsagent who relied on someone who claimed they could get a better lease deal and ended up paying more per square metre than a nearby competitor. The lease negotiator they used negotiated the lease for a couple of newsagencies that went broke on the back of what I’d saw were poorly negotiated leases. I say they were poorly negotiated because I saw the leases and would not have agreed to them myself.

It is easy to claim to help newsagents get a better lease. Achieving a good lease requires a good business or business plan from the newsagent, diligent professional work, a co-operative landlord and a lease professional who has no vested interest other than getting the best lease deal for you.

If a newsagent asks me for lease advice, especially one in a shopping centre, my advice is to pay for the services of an independent lease professional.

Too many newsagencies have gone broke in recent years on the back of leases negotiated by parties with a vested interest. This is why I say buyer beware of people who claim they can negotiate a better lease for you.

Be inquisitive about any marketing pitch by someone or a business claiming they offer lease negotiation services or that they are favoured by landlords. Seek evidence. Seek clarification. Get it in writing and do your research.

See if the claims about lease negotiation stack up to the test of history.

Anyone can make a claim in their advertising and marketing. The truth is what matters and I know of former newsagents who would say that they wish they had done their research before believing they would get a better lease through a specific party.

Ask for before and after evidence in writing. Ask for their most recent references. Don’t accept their word, accept only proof of good they have done.

Even ask for advice from a friend or someone in whom you have trust. Don’t be afraid. The alternative is you trust them and maybe find that the lease they negotiate for you is the worst business decision you even made.

A bad lease can cost you hundreds of thousands of dollars, your home, your health and even your family. There are former newsagents with stories they could share.

This post is about no one person or business. The advice is advice anyone with your best interests at heart would give.

9 likes
Ethics

A Kennys Cardiology outlet closed by the landlord

k2The landlord moved and locked out the Kennys Cardiology operator at Robina Town Centre last week. The notice stuck to the shutter names the company holding the lease – a Kennys head office company as I understand it.

There can be all sorts of reasons for landlords locking people out. Sometimes it is part of lease negotiation with the landlord flexing their muscle. In this instance it looks permanent as hoarding has now been erected at the site.

This activity is on the back of a retreat by Kenny’s from their corporate store at they Myer Centre in Brisbane – delivering a free kick for other card retailers in the centre.

0 likes
retail leases

American shopping malls a dying breed

BqkQoj6IYAAKHuyMore and more reports are coming out of the US about shopping malls that are closing and being abandoned. What’s interesting is that it’s mall based shopping that is challenged and not shopping itself. The New Yorker has an interesting report quoting Rick Caruso, CEO of the company with malls delivering best-practice per square metre sales. Caruso malls are outdoors and more about the LA lifestyle experience.

This trend is one we need to watch and assess whether it is unique to the US or something we are likely to see in Australia because right now, we’re seeing more malls being built than close – leading some to say we are over served with retail space.

There was a time when being in a newsagency in a shopping mall was the preferred outlet. Today, that preferred location is more likely to be a high street situation in an area with a strong sense of community.

7 likes
retail

Micro retail tenancies a retail trend for the newsagency?

tinyshopRetail is changing in many ways and quickly. With  space costing more, landlords and retailers are looking for new models to through which to drive value. We are seeing more smaller shops open than ever before.

Years ago there was a trend for large newsagencies – 300, 400, 500 square metres with coffee shops and other stores within the store.  Now the trend in shopping malls is for newsagencies to be close to 100 square metres.

On Tuesday I saw one of the smallest shops ever, a ‘cafe’ in Auckland. Click on the photo to see how big / small the My Kitchen business is. It’s as wide as a doorway.  They serve meals from a space that is smaller than a kitchen.

My Kitchen is one of many similar-sized stores I saw in Auckland, reflecting a trend I’ve not yet seen on this scale in Australian capital cities and shopping malls.  It’s similar to some malls I have seen in China but there retail is quite different. What I saw in Auckland was these tiny shops mixed in with larger businesses – where a larger size space has been slices into a number of these micro spaces.

These trends are interesting but we need to be cautious as retail rends are like fashion – they take on quickly and fade even faster. The key for being a trend retailer is getting out ahead of the fall.  That said, this apparent trend to micro tenancies could be here for a while if it means landlords can improve their return per square metre.

I’m not sure I can see a newsagency in a space of three square metres (or less) but I could see part of a newsagency.

5 likes
newsagency of the future
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