An expert tackles retail lease obligations and rents for pharmacy owners in the current challenging environment, and provides advice on contingency planning
Phillip Chapman, Director of Lease1, has explored the potential effects of COVID-19 on the retail sector with special advice for pharmacies.
Mr Chapman points out that there is no retail lease legislation or corporate contractual contingency including business disruption underwriters that address quarantinable diseases.
“So, that leaves all industry stakeholders in the same boat,” he says.
“If ever there was a time to view the leasee/landlord relationship as no longer polarised but as allies … now is the time for attitudes to change.”
On the topic of retail lease obligations and rents, Mr Chapman says this is not a “get out of jail free” time for retailers, nor is it time for landlords to play “hard ball”.
“What is required is a battle plan that addresses more than just the rent but represents a considered plan for all parties to come through this period without wholesale closures,” he says.
For pharmacy owners specifically, Mr Chapman tells AJP : “Perhaps right now pharmacy is enjoying a bit of a rush where people are stockpiling the usual hand sanitiser masks vitamins and stockpiling their prescriptions.
“However as the virus continues on, that will die down to a lull and we may find that the sales in pharmacies will suppress dramatically over the next weeks,” he says.
“The other thing we have to be conscious of is, as they’re frontline health workers, their conversations with landlord are related to the risk of pharmacies and other allied health leasees – what happens if they or their staff contract the virus?
“Discuss the contingencies if that does happen, but also to be mindful of the steps in such an instance and be open with their conversations with the landlord.
“Don’t wait to have that conversation – they should be your first call. The majority of them understand their responsibility in the retail sector, getting through this period. You’ll more than likely find that they’ll work with you.”
His top tip for pharmacy owners? “If you are in a situation where the virus is affecting your ability to trade, one of the first areas you should look at is seeking to have your rental payments deferred, and that can be added as an extension to the current lease,” he says.
“That way the landlord and that pharmacist have a process whereby we lose the front but we gain at the end,” says Mr Chapman. “Seek to have that conversation, put that on the table upfront.
“Retailers need to get ahead of the herd and start today on the following elements to develop their own battle plans.”
Mr Chapman provides a general 10-step “plan of attack” for retailers:
- Review rosters v trading hours and create a saving plan (landlords are already advising they will be flexible here).
- Negotiate with bankers to defer loan payments.
- Same for equipment and chattel leases, seek to defer.
- Suppliers, negotiate suitable payment terms and even defer part or all payments for a period of time.
- Review and remove all non-essential operating costs, for example storage.
- Defer capital expenditure on equipment, shop refurbishments, etc., and channel funds into the operating costs plan.
- Compare your numbers on customer counts, sales, gross profit and P & L reports for the same weekly/monthly period this year to last year-be an open book.
- Review your lease for savings areas such as waiving of annual rent reviews, reduction in security/bank guarantee to free up capital.
- Create a revised sales and cash flow projection to the end of this calendar year making assumptions based on the above savings.
- Make an appointment to sit down with your landlord and discuss where they fit into the battle plan. This may be through rent abatement, deferring rent, extending lease term or a combination of these.
“Retailers who are experiencing difficulties paying rent right now need to get their head out of the sandand call their landlord right now,” Mr Chapman emphasises.
“Advise where they are at, how much they can afford to pay and when and further advise when they will have their battle plan for review and discussion.
“If this approach looks like too much hard work, then retailers need to get help now as time is of the essence to set their business up. Not just for survival but to be in a position to thrive once the COVID-19 crisis passes.
“Similarly, landlords need to heed the words of the Prime Minister and step up and play their part ensuring the retail sector gets through these times as well.”
He calls for leadership on both sides.
“Let’s keep things in perspective and consider that the government has already clearly acknowledged that [retailing] is an essential part of the community and to date will not come under the recent public health initiatives,” he says.
“For their stimulus packages to be effective, there needs to be retailers to cycle currency through the economy efficiently.
“What is required is leadership from all facets of the retail sector including landlords, leasees/retailers, bankers, suppliers, staff teams and of course, the government to guide us through what in all estimates may be a lengthy period of trading distress.”