Some shopping centre landlords are not taking notice of newsagency sales data and are increasing base rent by as much as 75% without apparent justification. Add to this increased competition from other retailers in shopping centres today compared to a few years ago, supermarkets, Australia Post to name two, as well as trading terms from suppliers which do not reflect the difference between a shopping centre newsagency and other stores and is it any wonder there are shopping centre newsagencies which are struggling.
The industry average gross profit for a newsagency is between 30% and 32%. The average occupancy cost for a shopping centre newsagency is 15%, labour costs 12%, operating expenses are 5% and theft costs at least 2% and often more. The labour cost of 12% usually does not include owner’s wages.
A note on the 15% occupancy cost – this aspirational for some newsagents who have occupancy costs closer to 25%.
One way to address this the shopping centre challenge is to diversify. However, the permitted use clause of the lease and an inflexible landlord can often get in the way of this. I have seen situations where landlords have refused to allow newsagents to sell books, get into gifts or to offer homewares as part of a seasonal sale catalogue tiedback to magazine themes such as food. At the same time landlords have permitted coffee shops to take on newspapers, Government owners posi offices to expand into stationery and supermarkets to take on papers and magazines.
With sales in core categories over which newsagents have no price or supply control, magazines, newspapers, cards and lotteries, down year on year, it is hard to see the justification for a landlord increasing rent yet it happens – usually 5% a year regardless of trading conditions.
The challenge, of course, is that as long as a landlord can find someone prepared to take on a newsagency at a higher than reasonable rent, they will sign them up and not renew the lease of a long term existing newsagent who will not accept an exorbitant (in their opinion) increase in base rent.
One only has to look at recent history in major shopping centres in Victoria, New South Wales and Queensland so see that this is what has happened. A bullish negotiator talks up the landlord, says they can achieve a higher than industry average GP, the landlord believes this and signs them up for a nice premium. The lease is handed (sometimes maybe forced) to an operator who is pumped up by the promoter and sooner or later they close, sometimes losing the family home along the way as has happened recently. The ‘promoter’ walks away unscathed and does it all again.
Publishers, magazine distributors, industry associations and other stakeholders who want to see newsagencies to continue to operate in shopping centres need to do more work educating landlords about fair rent. Too many newsagents of long standing lose their businesses at the end of their lease. Too many make barely minimum wage during their time of ownership of the business.
I’d like to see an open forum with landlords and stakeholders to educate all parties and to co-operatively seek a solution which sees newsagencies thrive in shopping centres and deliver an equitable return on investment for the newsagents.
Not just in shopping centres Mark, we are in a street front and our occupancy cost are 12-15% by the time you factor in all the outgoings. This does not leave a lot left at the end of the month. We have just resigned our lease and had to fight tooth and nail not to have it raised above cpi.
We are currently negotiating with our landlord who wants a 85% increase. Not much fun working for the landlord.
what about a shop with no water for 12 months no toilet except for a porta loo out the front of our shop for 12 mths aircon off for 6 months also scafolding covering our shop front or 5 months and still being asked to pay full rent?its all one sided so what can you do?
we are a strip shop also
We are spoilt by having landlords that are commmercially realistic and reasonable to deal with. Having sais that, we have in our lease that we can stock any items availabe to us through GNS or newsXpress as these groups among others being newsagent specific, define the normal and expected stock range of a newsagency. This clause allows us to change our stock range with very few problems so long as we can prove it is normally available through newsagent suppliers and/or in an industry catalogue or promotion. All leases need to have this type of clause regarding stock in them
So pleased that I managed to buy the freehold. It was one hell of a struggle and I am paying the bank but hopefully there will be something for me at the end of my business days.
When I renewed the lease in my old shop the landlord put in 2.9% annual increases. It looks like I was lucky. The post office next to me refused to sign his lease asking for a 20% increase, and is still paying the old rent but doesn’t have a lease. The supermarket on the other side got a 33% increase.
I think next time I buy a store, I want to own the property to save this headache.
Sounds like I’m lucky too. 2.5% annual increase and no outgoings. It’s a strip shop and probably at the higher end of the lease range for a strip shop butgood to know what I’m in for for the next 4.5 years .
Good on you Carol, we managed to buy the shop premises, we paid a premium of 20% to market valuation, was advised against it by my consultant- waste of money they were. Glad i paid the premiun.
Do a web search on
rent per m2 on specialty am surprised with what major shopping centre get away with.
I have tatts -Tattersal on their web site has provided some advise on this issue.
theo
Mark – didn’t you express recently that occ costs shouldnt be above 12% for shop ctrs?
Which is it I should be aiming for with my renegotiations?