Australian Newsagency Blog

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What can newsagents do to achieve a better retail tenancy occupancy cost?

Mark Fletcher
June 4th, 2018 · 32 Comments

The usual go-to place for any discussion about reducing occupancy costs is the landlord. Retailers, including newsagents, blame their landlords for high occupancy costs.

The thing is, we all sign our leases. We all agree the terms of our leases. While leases from years ago can be problematic today, the challenges of our channel were obvious ten and more years ago.

Here is a list of things I think newsagents and other retailers could do to improve their occupancy cost situation where occupancy cost is the ratio of all lease related costs to revenue for products (and commission from agency lines). You should also assess it as a ratio of GP.

There are many steps one can take to improve the occupancy cost situation:

  1. Negotiate with the landlord. I place this first as it is the usual go-to place for retailers. If you plan to seek a better deal, make sure you have a strong commercial case, a case backed by evidence. However, also know that a rent reduction does not provide long-term, growth like, benefit.
  2. Grow your overall GP%. Do this through broadening your product mix with a focus on sought-after higher than average GP% for your business items. It depends on the suppliers from whom you purchase and the extent of point of difference you leverage in what you sell.
  3. Increase foot traffic. Do this through ranging more diverse products and promoting your business outside the business. Success with this depends on the range of inventory you offer and how this is promoted outside the business. It depends on the reasons why you attract people to your business.
  4. Increase basket depth per transaction. Do this through shop floor engagement, sales counter product placement, key traffic freeway disruption and your business format.
  5. Increase GP for everyday items over which you have pricing control. Plain and simple – increases your prices. Success with this depends on thoughtful adjustment where you know it can be done without reducing unit sales volume.
  6. Broaden the appeal of your business. This idea picks up on some thoughts above but adds more. Here is what I mean – your business up to today attracts shoppers for a set range of reasons / purposes. Note those down. Now, contemplate adding sought-after considerably higher than average GP for your business products and / or services that are genuinely new for your business and that are not satisfied by a nearby business. Each new product / service reason, if successful, improves your occupancy cost situation.

These are items you can action right away, regardless of your occupancy cost situation. Items 2 through 6 and tasks that should be core business activities you pursue relentlessly.

The cost of retail space is Australia is higher than most countries in the world. It needs to reset. However, the level of reset necessary will not happen as long as people keep signing leases that are not viable.

Here is how the opportunities I have outlined above can play out. I have two scenarios for you:

  1. Traditional newsagency. Shopping centre based. Average GP% between 28% and 32%. $1M revenue (product revenue plus agency commission). Occupancy cost of 25%.
  2. Transitioning newsagency. Shopping centre based. Average GP% 45%+. $1M revenue. Occupancy cost 25% – but closer to sustainable because of higher GP%.

My core point here with this post is that as retailers we can take steps to buttress our businesses against high occupancy costs. However, to do this we need landlords to agree flexibility with what we sell as it will likely need to be outside the old-school permitted use clause for a newsagency.

There are those in this place and in our channel more broadly with strong opinions about what will work and what will not. Some even tell those in businesses and claiming success that what they claim is not possible. The thing is, we all live our own truth. For some, that is in what has happened in our businesses publicly while for others it is what we see happen daily without public disclosure.

Newsagents can run sustainable businesses in shopping centres as long as they have the right opportunities in their leases, the right approach to managing a retail business today and a love of change.

30 likes

Category: Newsagency challenges · Newsagency management · newsagency of the future · Newsagency opportunities · Retail tenancy

32 responses so far ↓

  • 1 James // Jun 4, 2018 at 3:54 PM

    Just to clarify Mark, you’re talking 25% of sales as occupancy costs?

    0 likes

  • 2 Mark Fletcher // Jun 4, 2018 at 4:09 PM

    In those examples, on those numbers, yes.

    0 likes

  • 3 Ken Wilson // Jun 4, 2018 at 5:54 PM

    Headline from last week: Newsagency sales benchmark results: Core categories in retail newsagencies challenged while specialty categories grow.

    Exert from the same article: Newsagencies today cannot sustain occupancy costs of more than 15%. The goal must be 11% for the business to be profitable and able to serve the usual level of debt needed for such a business.

    Newsagency Blog Editors correction: “Oops, I under estimated occupancy costs by….nearly 60%. Reality is probably 25%.

    Exert from the same article: Labour cost for an average newsagency sits at 16% of revenue where revenue is product revenue plus agency commission.
    On a pure benchmark analysis, this is too high.

    Newsagency Blog Editors correction: You cannot operate a 1 million dollar turnover retail newsagency paying award rates opening 7 days a week at anywhere near $160K.

    Do I need to continue on all the other costs involving operating a business?

    2 likes

  • 4 Mark Fletcher // Jun 4, 2018 at 6:36 PM

    Ken you are misrepresenting what I have written. The post today explains that a retail newsagency with higher GP% can sustain a higher occupancy cost percentage.

    I get that you want to talk down the channel because of your own experience. The facts are there are plenty of newsagents enjoying success, contrary to your own experience and what you claim others will experience.

    1 likes

  • 5 James // Jun 4, 2018 at 10:21 PM

    I like my numbers as much as the next person but I confess I find this all a bit confusing. I get it that a higher GP means you can accommodate a higher occupancy cost. Maybe its just the choice of 25% as the percentage. I just cant see how anybody in our channel could make a go of it in a true commercial sense at that level. And i still say 45% is bloody hard to get to if you have a meaningful magazine offer.

    Anyway, people are obviously doing it and well done to them. If they are doing it on 25% occupancy cost, Im giving them miracle worker status.

    1 likes

  • 6 Mark Fletcher // Jun 5, 2018 at 5:09 AM

    James, the target occupancy cost is 11% as it has been for years. That number is based on a closer to traditional product mix.

    A newsagency without agency lines and with a 10% floorspace commitment to print media with the rest taken by items of 50% GP and more can achieve the 45%+ overall business GP%. This buttresses them to sustain a higher percentage occupancy cost.

    0 likes

  • 7 Ken Wilson // Jun 5, 2018 at 7:40 AM

    45% Margin
    Less 25% occupancy
    Less 20% wages
    Less 10% variable costs
    Less $50K per annum capitol cost to refit the store after 5 year lease
    We are already in the red. With this model every owner will need to add capitol annually to keep the business opening its doors.
    UNLESS your other business interests pay some of the cost like admin, payroll, finance and accounts payable and other business interests pay your remuneration.
    NO retail business in a shopping centre is financially viable commencing at anywhere around 50% margin.

    0 likes

  • 8 Colin // Jun 5, 2018 at 7:49 AM

    I agree with Mark that higher occupancy costs, even approaching 25% can be entertained. Crucially occupancy would have to include ammortation of fit out, utilities security etc.

    But I also agree with Ken’s $160k number for staff. Many will have a lower number, they are fooling themselves as to the true cost of operating a newsagency, traditional or transitioning .

    I disagree that both are sustainable at $1m sales. Turnover would need to be at least $1.5m to sustain the 25% and an inevitably higher staff cost.

    Mark’s message is being loss because the sample numbers do not seem relevant to most operators. My advice is think again, stop obsessing about rent and think turnover/GP.

    1 likes

  • 9 Mark Fletcher // Jun 5, 2018 at 8:23 AM

    Ken your handling of percent wages in your comment is wrong.

    0 likes

  • 10 Mark Fletcher // Jun 5, 2018 at 8:24 AM

    Here are the take-away action items from my post:

    Grow your overall GP%. Do this through broadening your product mix with a focus on sought-after higher than average GP% for your business items. It depends on the suppliers from whom you purchase and the extent of point of difference you leverage in what you sell.

    Increase foot traffic. Do this through ranging more diverse products and promoting your business outside the business. Success with this depends on the range of inventory you offer and how this is promoted outside the business. It depends on the reasons why you attract people to your business.

    Increase basket depth per transaction. Do this through shop floor engagement, sales counter product placement, key traffic freeway disruption and your business format.

    Increase GP for everyday items over which you have pricing control. Plain and simple – increases your prices. Success with this depends on thoughtful adjustment where you know it can be done without reducing unit sales volume.

    Broaden the appeal of your business. This idea picks up on some thoughts above but adds more. Here is what I mean – your business up to today attracts shoppers for a set range of reasons / purposes. Note those down. Now, contemplate adding sought-after considerably higher than average GP for your business products and / or services that are genuinely new for your business and that are not satisfied by a nearby business. Each new product / service reason, if successful, improves your occupancy cost situation.

    1 likes

  • 11 Ken Wilson // Jun 5, 2018 at 10:28 AM

    Colin, your numbers are spot on, the business is financially viable on turnover of $1.5 million ex gst. So you need to take an average $31,730 per week in a 150 to 200 sq mtre store in a major shopping centre. NO transitioned Newsagency business is meeting this number.
    NO, NONE, ZIPPO!

    0 likes

  • 12 Mark Fletcher // Jun 5, 2018 at 10:37 AM

    Ken, energy you expend telling newsagents what they cannot do it extraordinary. Your businesses failed. Others are succeeding. I suspect that galls you. Get over it.

    A newsagency with a GP% of 45% or more young $1M in sales can do well.

    You don’t understand because you never ran such a business.

    5 likes

  • 13 Jon // Jun 5, 2018 at 2:55 PM

    Hi Ken,

    Speak for yourself. I’m in a major shopping centre with Coles and David Jones doing over $15k per sq metre on a 200sqm store. This excludes lotto Commission. I’m not affiliated with any group.

    5 likes

  • 14 Ken Wilson // Jun 5, 2018 at 7:20 PM

    Jon, well done. Can you please advise your store name and Shopping Centre?

    0 likes

  • 15 Jon // Jun 5, 2018 at 7:42 PM

    For various reasons no I won’t Ken. Take it or leave it what I say I’m not stressed either way.

    0 likes

  • 16 Lance // Jun 5, 2018 at 9:18 PM

    Ken ?
    Can you please advise your store name and Shopping Centre?

    4 likes

  • 17 Ken Wilson // Jun 6, 2018 at 7:26 AM

    Jon, having had a very full life personally and in business with vast experiance there are two things I am at the height of:
    1. I’m able to say “no” better and choose what’s right for me.
    2. I have learnt that the vast majority of preachings from so called experts and people sprouting success mostly turn out to be incorrect.
    You insinuate that you are taking 3 million dollars a year in either a Newsagency or a transitioned Newsagency…Oh and you don’t want to sprout that fact from the roof top… refer point 2.

    1 likes

  • 18 Ken Wilson // Jun 6, 2018 at 7:44 AM

    Lance, I bought a major shopping centre (Werribee Plaza) Newsagent after I read and had discussions of all the good reasons why Newsagencies are good businesses to own. VANA, Newspaper Publishers, TATTS, Brokers all portrayed that you should trust to be in this industry…its very successful…
    My store was turning over $400K in cards, $400K in gifts, $100K in plush, $100K in party… all the good things that transitioned Newsagents did. My issue was I bought a business that was 1 year into a 10 year lease with double the space that was now required to be successful.. rent $8K per week (500 sa m store). I paid too much for a business (my fault), I signed the assignment of lease (my fault), I tipped in millions of dollars (my fault). So, I have the experiance and the numbers to know whats real and whats not real. The numbers I was taking are nearly impossible to take in a 150 to 200 sm store. So why am I interested because Mark portrays that his stores are the way to go, that despite the newsagency business going backwards at rapid rates, his stores have unbeleivable increases on a good base. Mark’s stores are a marketing toll and like my stores in a shopping centre, they are not financially viable. Why would Mark’s stores still be standing when nearly every major shopping centre newsagent is gone… thats because they have to be supported financially and have donated owner unpaid time in order for them to survive. I have no issue with Mark’s stores, I think they are presented well and merchandised great BUT it is not an example the industry can mimic because they are not financially viable as a stand alone business. I only started comment because Mark preaches that your rent should be 11%, that at 15% its not sustainable but now after being questioned he’s up to 25%… refr to point 2 in my previous post.

    2 likes

  • 19 James // Jun 6, 2018 at 7:57 AM

    Rob that’s fantastic. We need to tap into whatever it is that you are doing because forget Newsagency, forget Australia, you are one very top tier of global retailers period. Not quite Apple or Tiffanys, but in the conversation.
    Average retail density around the world is $3000 to $4000 per square metre which interestly WH Smith with all of their resources is doing in their “High Street” businesses which includes town centres and shopping centres. It’s in their “Travel” business where they are doing a bit over $15K per sqm, i.e. Airports and transport hubs and I don’t even want to think what the occupancy cost is in those locations.
    The worlds most lucrative apparel retailer is currently Lululemon and they do around $15k per sqm.
    Harrods and Aldi have you covered but not by much. You are right there with Tesco and Sainsburys. Apple is doing $60 per sqm and leads the pack by the length of the straight.
    So forget overseas study tours, we all need to beat a path to your door because you’re the model we need to to emulate.

    1 likes

  • 20 Jim // Jun 6, 2018 at 8:31 AM

    Ken how big is the nextra at werribee now? I bet the landlord has taken their medicine by now?

    1 likes

  • 21 Mark Fletcher // Jun 6, 2018 at 8:34 AM

    James, my advice is don’t emulate what a business does, emulate how they do it – their processes, their inspirations, their benchmarks, how they develop and maintain their USP.

    I know of newsagents achieving $35K in their first year of going online. This is incremental revenue without any capex whatsoever. So, add that to the mix and you can see plenty of options.

    1 likes

  • 22 Mark Fletcher // Jun 6, 2018 at 9:12 AM

    Ken, my retail businesses are stand alone, as I have said before. It is a pity you continue to publish false and misleading information about my retail businesses. I think you do this to dilute the focus on your retail business failures.

    I met you just as you took over your first business. You were going to change the world, going to show everyone else how it was done. You did not want advice or help from anyone. I visited your stores. I suspect what you claim here as gifts is other items, not the 50%+ GP items I’d call gifts.

    1 likes

  • 23 Jim // Jun 6, 2018 at 9:28 AM

    Ken you must’ve told Mark you didnt want to join newsxpress?

    2 likes

  • 24 Mark Fletcher // Jun 6, 2018 at 9:34 AM

    Jim, Ken did say he did not want to join newsXpress. He saw no benefit, said he could do it himself. Everyone makes their own business decisions, as it should be.

    My issue is here is here regularly publishing false information and talking down the channel. It’s like he hates it that others in businesses similar to his are thriving.

    1 likes

  • 25 Peter // Jun 6, 2018 at 11:02 AM

    $8k a week in rent Ken, wow!! Even an optimist would have to acknowledge this is a challenging retail environment. The signs are all there
    1/ Department stores hanging in by a thread
    2/ Premier Investments( Solly Lew battling high rents)
    3) Fashion brands closing shop
    4) Franchise stores in free fall
    5) Frank Lowy gone( very smart)
    6) Amazon and other online retailers and tech innovation taking sales and disrupting business models
    The scary thing is I think the disruption is only in its infancy, as evidenced by that Amazon store recently. All retailers are going to have to be exceptional to survive and landlords and franchisors won’t survive either unless they start to put their retailers before short term returns and shareholders.

    3 likes

  • 26 Mark Fletcher // Jun 6, 2018 at 11:06 AM

    Peter, success in retail in coming years will depend on retailers not acting as retailers have. On several levels, the world today is fundamentally different. I agree with you on disruption – it is early days.

    0 likes

  • 27 Ken Wilson // Jun 6, 2018 at 11:13 AM

    Jim, you would think that the some great parts of my business would have rubbed off on the next great operator.. Sadly not, I’d suggest their doing their balls!

    James, WOW, great research… Sorry.. Jon is keeping the worlwide secrets to himself OR refer to my point 2. Mark’s response is forget those numbers Jim and what Jon is doing…why? Refer point 2.

    Mark, My store’s margin was nett 42%, surely you’d remember me telling you that in the VANA offices when there was a meeting of “what can we do about the future of newsagents”. You said that margin was at the top end of what transition Newsagents are achieving. I said “Yep, but the store is not financially viable” I was so impressed by your comments I went to WaterGardens to have a look at what you were doing… funny..you rocked up there also.
    You can point out the $130K of plush, the $35K of online sales…its all good… except no one gets to $1.5m or Jon (yeah right) therefore the total number is what you need.
    I’m not talking down the channel, I hope everyone succeeds where I didn’t but don’t tell people a number that’s not true or achievable and make them feel less than you because they can’t make it work.
    Mine is a reality story, yours is good and everyone needs to be doing everything they can to save their capitol. Its not your fault Mark, there has been a Tsunami against the industry for a decade… talk real, don’t tell people they can go to the landlord and get their rent down to 11%.
    Fact: I went to my landlord over a 2 year period with facts, statistics and presentations. Every time they stated “We’re not oblivious to your industry and situation however you have a lease with 6 years to run and there is nothing we can do”. When I phoned them as a courtesy to tell them I was about to engage an Administrator they asked me to come immediately. Their offer was to reduce the rent by 50% effective immediately however I was still personally responsible for the total amount and that they had taken a lien over my house for their own security. So I had a choice to make… trade for another 6 years, break even and then when the lease ends Pacific Shopping Centres calls in the balance of 1.2 million or call it quits. I called it quits after I had no more surplus funds to transfer from my other successful businesses and the final straw came when my wife told me that the 4 million American Express points she had built up over 10 years to take our grandchildren to Florida had cashed them in for $40K and the funds put into Central News to keep it going.
    Mark, you pointing out my business failed is a known, its a cheap shot and a low life retaliation without any sympathy for any person who tries really hard and loses their net worth. I don’t want to happen to anyone else and when it does I won’t be calling them a failure!

    12 likes

  • 28 Peter // Jun 6, 2018 at 11:26 AM

    Thanks for sharing your story so openly Ken. I hope you and your family are doing ok.

    4 likes

  • 29 Mark Fletcher // Jun 6, 2018 at 12:08 PM

    Ken, stop talking down our channel. Your failure is your failure because you operated your businesses badly.

    I have not started using the term transitioning newsagency until the last few years, after your businesses collapsed. So, Ken, once again, you lie about what I said.

    You are seeking to hijack this post, as you have tried with others. Your comments are off topic, distanced from the good advice I provided to newsagents.

    Your =focus on a $1.5M turnover is wrong, too. There are newsagents doing less than this, making good money and enjoying growth.

    These are the facts Ken.

    As for commenting that your businesses failed, I do so as it sits at the base of what motivates you to publish here what you publish here.

    2 likes

  • 30 er // Jun 6, 2018 at 1:23 PM

    brick and mortar shops basically are dying. i don’t see any future either.I found that customers are willing to spend more online than purchasing from shop floor. Including me

    1 likes

  • 31 Ken Wilson // Jun 7, 2018 at 7:54 AM

    Peter, I’m ok, I’m a successful business person who got involved in an industry at the wrong time. But my wife took it really hard, no one wants to lose a life’s net worth, no want wants to go bankrupt, no one wants to be embarrassed. Thank-you for your concern. ( Not sure the bloke underneath you shares your thoughts.. Oh, I remember he did a post on R U OK…. )

    1 likes

  • 32 Mark Fletcher // Jun 7, 2018 at 8:27 AM

    Ken, when your distribution business was in a mess I offered to help, when your shops were in trouble I offered to help. In each instance you did not respond, which is okay. I also reached out to some of those who lost money in your business collapse. As for your comment about me rocking up to Watergardens when you visited, I invited you, remember.

    You have made excuses as to what happened. In my opinion, you led the business poorly and refused to listen to those who sought to tell you this. From what I saw, including the creditors report, the failure was not about getting involved in the newsagency channel at the wrong time or landlords.

    Today, many years on, you have come to this blog with an agenda to put down reports of growth and good news. You publish false information, I think, deliberately to draw attention from something I have written.

    Like it or not, there are newsagency businesses in shopping centres and on the high street growing.

    Like it or not, my newsagency businesses, operating independent of my software company, are doing well.

    I feel for you and your financial loss. However, your efforts to talk down the investments of others in this channel must be challenged.

    3 likes

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