Some Australian shopping centre landlords are not taking notice of small business news agency 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 news agency and other stores and is it any wonder there are shopping centre news agencies which are struggling.
The industry average gross profit for a news agency is between 30% and 32%. The average occupancy cost for a shopping centre news agency 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 tied back to magazine themes such as food. At the same time landlords have permitted coffee shops to take on newspapers, Government owners post 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 news agency 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 news agencies 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 news agencies thrive in shopping centres and deliver an equitable return on investment for the newsagents.