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How do retail businesses survive when the rent is so high?

By junketFunket 16 May 2011 30

old dick smith

Has anyone got any experience with owning any retail businesses in Canberra?

I’ve just been curious because I’ve been seeing a lot of vacancies all over Civic and Tuggeranong. So I looked up one of the ones up for lease, and I can’t believe how expensive they are!

For example, the old Dick Smith place is going for $227,000 an annum!
(http://www.rhcommercial.com.au/properties/71085)

That is more than $4000 a week. There is a business selling sports jersey’s there at the moment (not sure if it’s permanent). Say an average sports jersey is about $50, that means they need to have 80 sales in one week just to cover the rent!

And this isn’t taking into account additional costs such as cost of staff wages, utilities, the cost of inventory etc. Even if they could mark up their product by 50%, it would at minimum double that cost to $8000 right there.

Granted I don’t loiter around malls all day long so I can’t say for sure how much they sell, but to me, that just doesn’t seem to add up.

It would surely explain why there are so many vacancies right now, but I can’t even see how most of the existing businesses could even survive given that they need to pull $8000 a week in revenue?

Is it the case that with business leases, it’s the type of thing where no one ever pays the actual asking price? Like nobody would pay $227,000 a year, it’s just the price they have advertised but when you go in, they’ll tell you they have a special offer and are willing to lease at a lower price?

Have I done my Maths right? Is my estimate about how much revenue they get inaccurate? Is there something I’m totally missing?

What’s Your opinion?


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How do retail businesses survive when the rent is so high?
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shadow boxer 9:39 am 18 May 11

JohnK said :

emd said :

Basically, if you’re a retailer, you need to be in a mall in Canberra.

Part of a lease agreement with the bigger malls is that they get to analyse your accounts. If you do well, your rent goes up… basically they decide what revenues they will leave you with.

Very true, it gets worse because the big malls also like to encourage churn, i.e. if they see a candidate that might make more money for them than you do they can make your business unviable or just not worth the effort, new guy moves in makes lots of money off the novelty factor then they get churned as well.

dungfungus 9:23 am 18 May 11

The secret to success in retailing, according to a Jewish friend of mine, is to get the best position in the most active shopping precinct. Preferably he said, choose a shop between Woolworths and Coles and name it “Main Entrance”

junketFunket 10:57 pm 17 May 11

JohnK said :

emd said :

Basically, if you’re a retailer, you need to be in a mall in Canberra.

Part of a lease agreement with the bigger malls is that they get to analyse your accounts. If you do well, your rent goes up… basically they decide what revenues they will leave you with.

Really? So do different businesses pay different amounts or is the price set according to the space and location? Cos I would’ve thought different businesses would have very different levels of profit? Like I’m sure JB-Hifi would make a lot more money than say, Man 2 MAn. So if JB-HiFi moved into Man 2 Man’s space, would they be expected to pay more and if Man2Man moved into JB-HiFi, would they be expected to pay less than JB?

JohnK 4:53 pm 17 May 11

emd said :

Basically, if you’re a retailer, you need to be in a mall in Canberra.

Part of a lease agreement with the bigger malls is that they get to analyse your accounts. If you do well, your rent goes up… basically they decide what revenues they will leave you with.

arescarti42 5:39 pm 16 May 11

Grrrr said :

The “whole empty cities in China” myth has been debunked –
1) The photos seen in the articles recently are selective – some areas are smaller than they appear
2) Some areas are actually populated, and just low-traffic at photo time
3) China likes to build whole cities and then populate them, I guess it’s efficient (just ask the Village Building Company here in the ACT)

Hmmmm, I’m not so sure about that, although that’s not to say there isn’t some selective journalism going on.

http://www.sbs.com.au/dateline/story/about/id/601007/n/China-s-Ghost-Cities “It’s said there are around 64 million empty apartments in China”.

Sure that doesn’t sound like many for a country with 1.3 billion people, but even if you assume average apartment occupancy of 2 people per apartment (just a guess), that’s enough to house 10% of their population. That the apartments are selling for 100k+ USD, but the average income in China is about $170 a month could have a lot to do with it.

Grrrr 5:00 pm 16 May 11

junketFunket said :

I thought about that. And I hear the same thing is happening on the Chinese property market. 1000s of buildings being built, no one actually in them, cause if they actually rented it out, it would lower their capital value.

The “whole empty cities in China” myth has been debunked –
1) The photos seen in the articles recently are selective – some areas are smaller than they appear
2) Some areas are actually populated, and just low-traffic at photo time
3) China likes to build whole cities and then populate them, I guess it’s efficient (just ask the Village Building Company here in the ACT)

Back onto topic, I’m also suprised that empty tenancies haven’t been rented out cheaply and had their rents jacked up on them later. I’ve heard of a business on the outer edge of town who’ve had to put up with a 10-fold increase over a period of 2-3 years.

peterh 4:58 pm 16 May 11

I worked in a store that was located in the glebe park eatery, many years ago. The owner was a mate, and I saw him go without wages to keep the place afloat, he was paying rent, but there wasn’t much left over – food and plasticware were next on the list, with bills last in his priorities. His focus was on the rent. He quit the business after a couple of years, it was sad to see it go, but the cost of running it meant that he had to be there every day that the eatery was open. He had tried, but the rent was the killer – and the end of many other stores in the place.

the conditions are no better in the big centres, if you aren’t keeping the rent up, you may find that your store is locked – so that you cannot get in till the debt is settled. You pay for advertising, you pay for parking, and, in some centres, they ask for your staff’s license plate numbers, to ensure that they are parking in the designated zones, not where customers can park.

Upmarket furniture would have paid less by moving in to the hyperdome. the leisure and lifestyle centre is newer, and is deemed as a more expensive area to lease.

retailers are getting smarter – they are moving away from the centres, using new mediums to advertise and are getting the clients to come to them. The rent is lower, and so is the competition. You will see far more empty stores as they move out, but it is only after the landlords take a hit that they will start cutting rents to attract tenants again.

KaptnKaos 4:45 pm 16 May 11

dvaey said :

Id say the retail space is approximately the same, the only difference being the greed of the owners/developers.

Ch Ching – hit the nail on the head – greed of the centre management. It’s the reason why too many individual shops (ie. not national franchises) have folded, hyperdome best example of management greed and shop close downs.

EvanJames 4:42 pm 16 May 11

johnboy said :

I did love how MFarr called “analysis” what most of us would call “reading”.

He never misses the opportunity to become slightly more important than he was.

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