Page 26 - Retail Pharmacy March 2021

24 BUSINESS THROUGH INNOVATION RETAIL MANAGEMENT COVID-19: WHERE TO FROM HERE? ovid-19 continues to dominate As online sales soar and account life in Australia and the rest for a growing proportion of total retail of the world as societies spending, landlords are pushing and economies confront the for rents to include a proportion of challenges of bringing the pandemic e-commerce sales. Their argument In Australia, Macquarie Bank analysts estimate that online retail penetration will reach 20 per cent by 2025, reducing demand for bricks-and-mortar retail space. Retailers such as the Accent Group and Kogan.com predict that 22 per cent to 30 per cent of retail spending will have shifted online, consistent with the trends in the UK, the US and China. Australian landlords facing declining footfall, declining store-based sales and less demand for space will inevitably increase the pressure on local retailers to include a base-rent variable component based on a proportion of a retailer’s online sales. The outlook for pharmacy owners Pharmacy operators will continue to experience the stop-start lockdowns and hot spot declarations over Covid-19. However, the Australian economy and community are better placed than practically any other country in the Western world to deal with the ongoing impact of the pandemic. In this environment, pharmacy owners must continue to reinvent and develop their businesses to take advantage of changing circumstances and new challenges in this different and ever- changing environment. Where possible, pharmacist owners should reduce their physical footprint and invest more in digital formats. Pharmacy owners should also be careful to ensure that they don’t sign any new leases with online- sales clauses as they become less dependent on their landlords. References 1. Mizen R. ‘Covid-19’. AFR, 9/1/21. 2. Kehoe J, Burton T, Patrick A. ‘Covid hunt keeps nation in slow lane’. AFR, 11/1/21. 3. Mitchell S. ‘Landlords eye rent boost from online sales’. AFR, 5/1/21. under control. Australian economy in the slow lane Just when you thought it was safe, the new year brought about more Covid-19 outbreaks and lockdowns in Australia, but also the promise of an early release of vaccines aimed at protecting lives and limiting the spread of the virus. There continues to be much discussion among the states and territories over border closures. However, for the sake of businesses and the economy at large, a better approach than the stop-start lockdowns and hot spot declarations is needed. The pandemic is certainly keeping the Australian economy in the slow lane. However, we’re in a remarkably good position compared with other countries around the world. In Australia there have been no Covid-related deaths since October. This compares with more than 1000 daily deaths in the UK and more than 4000 daily deaths in the US. State and territory leaders in Australia will continue to be in a tricky position in managing outbreaks over the coming months, amid some uncertainties about how effective a vaccine will be in limiting further transmission in the community. The months ahead will reveal the real impact of the vaccine rollout and the restrictions on the Australian economy. All states and territories need to open their borders as much as possible in the coming weeks and months, to limit job losses and the number of people stressed in 2021. Landlords will seek a rental boost from online sales Retailers have been calling for leases that better reflect modern shopping habits. They propose that rents should be restructured and based on a percentage of sales rather than shopping centre foot traffic or fixed rents with annual increments for inflation. However, there could now be a case for being careful what you wish for. is twofold. They say a retailer’s store presence helps drive online shoppers to their e-commerce sites. They also say a growing portion of online sales are fulfilled or collected from stores or returned to stores. Many retailers, such as Accent Group, Myer, David Jones and Super Retail Group, even have in-store kiosks where customers can order goods online when they can’t find, for example, the preferred size or colour of a product in-store. “Landlords will inevitably increase the pressure on local retailers to include a base-rent variable component based on a proportion of a retailer’s online sales.” Landlords’ push for a share of digital sales came to light at the height of the pandemic when online sales peaked at 20 per cent of retail spending and reached 75 per cent of sales at some retailers, such as the Accent Group. Vicinity Centres CEO Grant Kelley is pushing hard for rental agreements to include a base rent plus a variable component based on a proportion of a retailer’s online sales. He is saying the definition of retail space should be a virtual construct as well as a physical construct, because two-thirds of online fulfilment is happening through ‘click and collect’ from stores in shopping centres. Retailers are rejecting this argument, asserting that such a viewpoint is “a bit rich” from landlords, based on sales that haven’t been made from a centre’s physical stores. Yet small and medium- sized retailers could be forced to agree to landlords taking a share of digital sales. This debate between retailers and landlords is also going on in the UK, where online spending accounted for about 20 per cent of retail spending before the pandemic. Dozens of large retail landlords are considering new rent calculation models that would factor in e-commerce sales, including delivery and click-and-collect sales. 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 • MAR 2021