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34 BUSINESS THROUGH INNOVATION RETAIL MANAGEMENT RTENT REVIEWS: DON’T PLAY BALL IN THE MALL he Australian economy is slowly recovering with the ongoing lifting of pandemic emergency restrictions, although spikes in coronavirus infections continue in hot spots, particularly in Melbourne. Landlords, especially those of large shopping centres, are getting a lot of ‘push-back’ from some of the major retailers, which are demanding better rental deals based on sales and store performance. A post-COVID-19 world presents the opportunity for pharmacy owners to get some much better rental deals from their landlords. JobKeeper changes JobKeeper was scheduled to finish in September this year but it has been extended to March 2021. Payments however, were reduced to $1200 per fortnight for full-time employees (currently at $1500 per fortnight), and to $750 per fortnight for people working less than 20 hours a week. The change will come into effect at the end of September 2020 and will be reportedly revised down again in March 2021 to $1000 per fortnight for full-time workers, and $650 per fortnight for those working part-time. Its eligibility criteria has changed too. While previously businesses that expected to see a 30 per cent reduction in turnover were eligible, from September 28 eligibility will reportedly be based on whether businesses have shown a 30 per cent reduction in turnover across the past two quarters, and into the next quarter. Convenience is king Smaller neighbourhood and suburban shopping centres have held up a lot better than the major fortress malls and CBD retail destinations during the COVID-19 downturn. Convenience would appear to be the most desirable element in terms of retail location as foot traffic in neighbourhood suburban regional assets hasn’t deteriorated as much as in shopping centres. Foot traffic declined in most CBD areas impacted negatively by lack of tourism and a reduced CBD workforce and is yet to return to pre-COVID levels. Many retailers have reopened their doors in the major shopping centres as the lockdown restrictions have eased, but some, such as Naomi Milgrom’s Sussan group, have opted to remain closed for a longer time. The fall in foot traffic and the change in consumption patterns, including increased online shopping, has put pressure on long-standing rental arrangements between retail tenants and their landlords. The sharpest rental disputes are between landlords and tenants in the stressed retail sector. Department stores such as Myer and David Jones have been heavily impacted by the COVID-19 crisis. Myer has cut another 90 roles in its Melbourne head office in a desperate attempt to slash costs as the pandemic decimates sales. Myer is also closing stores and has been in negotiations with banks to refinance debt, with the assistance of KPMG and landlords to reduce rents. Given the size of the latest job cuts, more restructuring costs are likely in September. 7-Eleven and McDonald’s have joined Hungry Jack’s in seeking changes to rent deals or in stopping payments as the crisis has peaked. Solomon Lew’s listed Premier Investments and the Sussan group are also negotiating rent waiver for periods when they were shut down and for payments when they reopen to be made as a proportion of sales turnover. What this means for pharmacy operators As previously stated, community pharmacy outlets in a post COVID-19 world will emerge stronger, with many retailers that share the shopping centres with them either never reopening or returning in a much weaker position. However, pharmacy owners must be careful to take advantage of these unique market conditions. As mentioned in my recent articles, there has never been a better time to negotiate a new lease deal, but only on terms that are fair and reasonable where you secure optimum conditions. Avoid the temptation being offered to go into a longer lease term, as opposed to rent relief from your landlord. The only reason landlords will offer you a longer lease is that it suits them with their long- term view that rents are going down in value (and if anything, their proposed occupancy costs are obviously too high). If you feel you don’t have the requisite skill and experience to negotiate these commercial terms, then engage an independent, experience retail consultant. Resources Lenaghan N. ‘Follow the feet: small malls do better’. Australian Financial Review, 22/6/20. Powell D, Johanson S. ‘Retailers warn Scentre not to play hardball’. Sydney Morning Herald, 20/6/20. Mitchell S. ‘Myer cuts another 90 head office jobs in push to restore growth’. Australian Financial Review, 24/6/20. Wilmont B. ‘Malls mauled as giants join rent rebellion’. The Australian, 25/6/20. By Bruce Engeman. Professional Property Advocate Engeman Retail Bruce Engeman is an independent, professional property advocate who works exclusively for pharmacy operators. He started Engeman Retail in 2008 and has handled pharmacy negotiations hundreds of times over the past six years. Inquiries: bmengeman@bigpond.com or 0418 470 175. RETAIL PHARMACY • AUG 2020