High rents, high wages, PBS reform and a tough retail market aren’t doing pharmacy any favours, writes Mark Churchill
The speed at which the most recent PBS reforms have been applied has not allowed pharmacists time to review and adjust their fixed business costs. These unrealistic timeframes threaten to break many businesses if they don’t act fast.
Pharmacists are caught in a really difficult position. Their commitment to offer an integral service to their community (now for significantly less money) is being compromised by their responsibility to pay their landlords and their staff.
While these costs are not set in stone, it takes time to adjust them—time that has not been factored into the rollout of the PBS reforms.
Rental negotiations are slow
Many pharmacists rent their premises on long-term contracts, which are not easily overwritten. Plus, they’re in a market where retailers are generally doing it tough, due to the growing market share of online sales and the emergence of international retailers.
Pharmacists have been dealt a double whammy, with the challenges of the PBS price cuts on top of the slowing economy.
But there is hope, according to Michael Cuda, Director of Northcape Retail Property Specialists.
“Never accept your situation as the status quo. If you are struggling with your rent, don’t wait until the end of your lease—approach the landlord now. With professional guidance, you may just be able to renegotiate your terms.”
Cuda recently saved one his clients $125,000 per year. “They were midway through a long-term rental agreement worth half a million dollars a year and we were able to negotiate a 25% saving permanently,” said Cuda.
When negotiating, it is important to understand each side’s position, and the impact of each compromise.
“For every dollar the landlord drops off your rent, they effectively lose between $10 and $20 off the valuation off their asset. It’s a very big deal, but in some situations they may be willing to negotiate because there are other factors at play—like maintaining the ideal tenancy mix for the long term.”
This is where a professional lease negotiator who understands your industry will make a big difference to your chances of success.
Wages weighing pharmacists down
Pharmacists can’t just cut staff as a knee jerk reaction to lower their business costs. It’s never that simple.
When you’re dealing with people’s livelihood, there are certain protocols that must be followed and contracts to renegotiate, not to mention the common decency loyal staff members have earned. It takes time to review and redesign staff rosters in a way that will reduce wages costs without affecting quality of service.
“Under our workplace laws, employers must consider their total staffing situation before making any changes. They must advise all staff of the need for change and consult with each staff member in regards to alternative roles and/or rosters,” said Brian Sullivan, General Manager of Corporate Services, Pharmacy Alliance.
He emphasises that employers must advise each employee in writing how the changes will affect them – and give notice of changes to hours, and employment status.
“It is important that employees are treated respectfully. To take the necessary time to make staff changes properly and legally in the timeframes set by the speed of the PBS reforms, pharmacists have had to carry the losses.”
It’s clear the latest PBS reforms came in so quickly, there was no time to renegotiate fixed costs such as rent or wages, so pharmacists have had no choice but to try to carry on as best they can.
In my business, which offers financing to the pharmaceutical industry, I’ve seen the huge financial stresses that these changes are putting on my clients. If they’d been given sufficient time, they could have been better prepared on all accounts.
Even if your numbers are looking good, there’s no harm in checking in with your financier for a second opinion. A holistic review of your situation will allow you to be proactive rather than reactive – a much more comfortable position to be in, especially when dealing with your lender.
Mark Churchill is managing director of Allfin Financial Services.