1. The size of your tenancy
You may not have given enough thought to the most appropriate size of your tenancy. It will have a direct impact on your shop’s financial performance.
You need to determine whether your shop is over or underperforming and make these judgments in relation to its current size. You will also have to take into account the location of the business. That is, whether it is on the street or a community, sub-regional, regional or super-regional shopping centre pharmacy.
A small street or a community shopping centre pharmacy may be operating on a relatively small floor space with a reasonable level of occupancy cost. However, even if you are paying low rent you must still be making enough money to make the shop viable.
Also, you may need to consider the percentage of your business that is script based. The PBS reforms mean that pharmaceutical dispensing revenues are going to decrease, so you may need to expand your shop to capture greater front-of-shop sales.
Some of the sub-regional, regional and super-regional shopping centres are not without their own issues. The common expectation is that a large shopping centre will attract a lot of potential customers. However, it has been well documented that higher rents are being charged at these centres. But higher rents do not always mean substantially higher turnover.
It isn’t sustainable or feasible to be operating out of larger premises and paying higher rents if turnover is not up to expectations. Do your research when you enter into a new lease.
2. How to choose the right sized tenancy
The question of whether you have the right sized tenancy is something you need to consider at some point. Your environment is constantly changing.
For example, your shopping centre may be about to expand, drawing in more customers. However, any real benefit will be lost if you are paying too much rent especially if the lessor plans to introduce another one or two new pharmacy operators when the centre expands.
3. Use your space effectively
The occupancy costs for pharmacists are relatively high in any community, sub-regional, regional or super-regional shopping centre compared with other retailers. You should ensure you are using your space to your maximum advantage.
You may need to do an audit of your total sales and see what parts of your business are generating the most income. If sections of your business are occupying large areas of floor space then they need to be generating large enough sales. Do you have an office or wasted storage space at the back of your pharmacy that you could either hand back to your landlord or relocate to another cheaper part of the shopping centre?
If you really need storage then limit the size of the storage and pay for it at another cheaper area of the shopping centre. You may end up paying $300/square metre rather than $900/square metre for prime retail space.
4. You decide your shop size
You may have decided what shop size you need but too often pharmacy operators are being forced into a shop size that is more beneficial to the owner’s requirements rather than the lessee’s. In many cases the landlords want to give pharmacists the largest possible shop.
Pharmacy operators tend to go into large shop formats because lessors know that pharmacists pay higher rents than most other retailers. That is why many pharmacists are in shops that are too big for their requirements.
Once you decide on your shop size you then have to communicate that information to your landlord. As I have said in previous articles, you’re the voice and you need to take control of the lease negotiations.
Bruce Engeman is the director of EngemanRetail, which advises pharmacists on rental leases.