22 Jun Top 5 Tips For Lowering Your Occupancy Costs
Occupancy costs are usually the third highest cost to your business after cost of goods and labour, and does not receive anywhere near the attention it deserves.
Most multi store retailers actually fancy themselves as great negotiators, and to be honest they usually are. Unfortunately, they are deal doers and with restraints around time and data, the lease details may not always be on the best possible terms which can be extremely costly.
For this very reason it’s important to understand the strategy around minimising your occupancy cost across your portfolio. Outside the obvious impact being the top line sales, here is what I believe to be the most important tips for lowering your occupancy cost.
1. Know Your Business
Now this seems a little insulting to retailers out there and I can assure you it is not intended to be. Most retailers know their business inside and out but what I’m talking about is really drilling down to see all the characteristics of your top performing stores and the bad ones. From demographics, to staff, to location, to centre type. Removing the gut feel aspect of the sales figure, I can assure you will have a huge impact on occupancy cost because you know what you can pay. I know some of you will be saying to yourselves, “Yes I know that data,” but do you really?
As any good business owner you want to maximise your returns and landlords are no different. For every renewal, new deal or market review, you must know what are the comparable deals in that location. Again, landlords rightfully so will try and get the best rent. For example, a renewal would start with a 20% increase and you settle on 4% increase. You think you’ve done a great deal but the market is actually a 10% reduction. I know this sounds basic but again I assure you, this is not being done and has a huge impact on portfolio occupancy costs.
3. Exiting Under Performing Stores
One of the biggest drains and often the demise of a good business is the inability to exit loss making stores. Whilst there are lease commitments in place, landlords on a whole are commercial about this issue. There must be a clear strategy and a commercially viable option to exit for both parties. This is achievable and requires time and focus, however the impact is enormous.
4. Lease Management
The days of the excel spreadsheet are long gone. The ability to have your rent monthly being checked by your system can save you thousands. I have seen some retailers change to a proactive system that identifies overpaid rents going back years due to clerical errors that amounts to tens of thousands and in some cases hundreds of thousands of dollars. It happens and it adds up.
5. Ongoing Cost Management
After the initial capital outlay, the biggest expense for stores are the R&M costs, essential services costs and facilities management costs. This is the least sexy part of any business and generally the worst managed. These costs are usually never addressed and in particular the case of essential services audits for insurance compliance are just not done. For some retailers to change light globes means getting an electrician on a scissor lift because of the ceiling height. It all costs money and it can all be managed.
As I have said we are aware that all of the above needs to be addressed, but it just doesn’t because of other noise and distractions in the business. These 5 key points get missed or glossed over. Focus on them, give them the time and watch your occupancy cost lower and your bottom line go up.
Jon Sully is the Director of BDC and has over 20 years’ experience in retail, franchising and property. Jon was co-owner of one of Australia’s largest and most successful retail food chains, Michel’s Patisserie. He has extensive operations and store development experience as an owner of multiple brands.