Too many pharmacies on unsustainable rents?

Some pharmacies should consider downsizing and negotiating total rent – not just deferring payments – if they want to survive post-COVID-19, warns pharmacy business expert

Pharmacies located in business districts or with a large number of patients who are office or city-based workers, along with pharmacies in larger shopping centres or medical centres whose doctors have transitioned to telehealth, have reported significant reductions in their overall business, Victorian community pharmacy proprietor Anthony Tassone recently told AJP.

Meanwhile one business expert is warning proprietors of such pharmacies that they may need to make some tough decisions in the near future.

“Convenience has definitely dominated the customer’s agenda. So pharmacies that are conveniently located, providing ease of access, speed of delivery of the service or product, has been paramount,” says Norman Thurecht, Partner at Pitcher Pharmacy Services.

For example, strip location pharmacies and those in regional areas have comparatively held up okay as an essential service.

“Shopping centre pharmacies would be the hardest hit ones, because you’re really dependent on the shopping centre traffic. And it’s only probably in the last week or 10 days that you’ve had department stores opening back up. The shopping centre food courts are going to be a problem if people have to socially distance, so people aren’t going to congregate in the shopping centre,” Mr Thurecht says.

Meanwhile as some shopping centres have trimmed their opening hours, a lot of retailers have closed. Therefore some shopping centre pharmacies went down to about 70-80% in turnover through the later half of March, April and part of May.

“I think the immediate concern for shopping centre pharmacies is going to be how do you manage to roster down to adjust for the turnover and the customer traffic?” asks Mr Thurecht.

“In the medium-term, shopping centres have to be dealing with the landlord, not only on the Code of Conduct rent relief over the next three to six months, but the landlord and the tenant need to … actually re-visit the lease.

“There’s too many pharmacies in shopping centres that are still on unsustainable rents, and I think there’s a conversation to be had around the actual right size of pharmacy, the right rate per square metre.”

Mr Thurecht says that pharmacists can talk to their landlord about rent deferment if turnover is down 30% or more, although this may not be the best step.

“The reality is if you do that and defer the rent till later, there’s no guarantees that the business will come back to what it was beforehand, to be able to afford to repay that deferred rent,” he says.

“I’m not sure what happens from here, in relation to consumer sentiment. I think there will be some unemployment out there post-COVID, and so that will have a sentiment effect on turnover and activity in the pharmacy.

“Shopping centre pharmacies will struggle to come out the other side of this. With rent being deferred, I think it’s pushing a debt on the pharmacy that it can’t afford in six months’ time. I just can’t see the sales returning to what they were in six months – maybe 12 or 24 months. So I think the real discussion is around the total rent, not just rent abatement.”

Meanwhile, medical centre pharmacies have also been hard hit as GPs have transitioned to providing telehealth appointments.

GPs have also seen a downturn in consultations, with AMA Qld branch president Dr Dilip Dhupelia recently highlighting that patient numbers are down by up to 40%.

New data from the MBS also reveals a 10% drop in GP visits for the management of chronic disease in March 2020, equating to 96,000 less visits compared to the same time last year.

As with pharmacies, many GP clinics have been forced to apply for the JobKeeper subsidy scheme.

“Our capacity’s extremely idle at the moment, even with telehealth consultations to take care of the vulnerable, the ones that can’t come down for whatever reasons,” AMA national president Dr Tony Bartone told the ABC.

However Mr Thurecht believes pharmacies located near medical centres will regain business faster than those in shopping centres.

“[They] will bounce back a lot quicker, just out of need and generally they’re a smaller footprint, so they don’t have a lot of the discretionary spend stock, they can manage the roster down, they can size the business appropriate to the activity that’s going on,” he said.

“The reality is that doctor’s surgeries will come back – we don’t have that many active cases [of COVID-19] at the moment in Australia, therefore the GP clinics and surgeries should be comfortable in reinvigorating their face-to-face consults… although I do think telehealth is something that will gain traction.”

So far Mr Thurecht hasn’t seen many pharmacies closing due to the pandemic.

However many are opening at reduced hours, especially as teams become smaller with many pharmacists and pharmacy staff not wanting to go to work due to threat of the virus.

“That reduces the team significantly. It’s been interesting to manage through the roster as I’ve spoken to different clients, how they’ve managed that process,” he says.

“Pharmacy is the frontline triage for a lot of conditions. Some of the things pharmacy has implemented, such as distancing, limiting the number of people in the pharmacy, the Perspex screens in front of the counter, some of that should stay [on an ongoing basis].”

Meanwhile, Mr Tassone highlights that community pharmacies have played a vital role in the healthcare system despite risks faced by the virus.

“Given that community pharmacies are the most accessible and visited primary care destination in Australia, pharmacists are well placed to be a first port of call for many patients and to help triage and refer to other health professionals for further care when needed,” he says.

“The Australian public have greatly benefited from community pharmacies continuing to keep their doors open, provide outreach and home delivery services to provide continuity of care and access to life-saving medicines throughout the COVID-pandemic.”

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