ADVICE ON RETAIL SPACE OCCUPANCY COSTS

The occupancy cost of a business is the combination of all costs associated with leasing retail space. It includes the actual lease cost plus all outgoings plus GST. GST is included because of how the occupancy cost calculation us used, as a percentage of revenue, including GST.

Occupancy cost is typically the top one or two operating costs for a newsXpress business outside of inventory cost. Labour being the other top cost.

Recommended Occupancy cost benchmark: between 9% and 11% of revenue where revenue is product revenue plus commission from agency lines.

Explanation. The 9% to 11% suggested band is based on the margin we see as common, where there remains a considerable mix of products at 25% and less gross profit level.

Location and situation are a big factor in this benchmark. For example, a large shopping centre business will have a higher cost than a high street situation. 

It is vital to the health of any retail business to manage the lowest possible occupancy cost. It is for this reason we recommend a low and viable base rent and a fair annual increase.

Given that much of what is sold in newsXpress businesses is price controlled, the usual 5% annual increase is unfair as newsXpress members do not have the same freedom over retail price as do majors and other retailers.

Our suggested goal is an annual increase of 3% and no more.

Negotiating the lowest possible occupancy cost at lease negotiation time is the start to viability. From there, the key factors are the best possible buying, opportunistic markup as and when possible and in-store and out of store marketing to attract more and more new shoppers to the business.

To be clear, achieving an equitable occupancy cost from the landlord is a key first step to the business being viable and business viability is essential for any landlord that wants to be paid rent. It is also the first step to business success.

A well run business will be a net new traffic generator for a shopping centre. This makes the business valuable to other retailers and the landlord beyond what the business achieves itself. This is a benefit landlords need to be encouraged to consider when contemplating rent.

We recommend a zero or absolutely minimal marketing contribution. Given your likely spend on considerable out of store marketing it, to us, seems unfair to pay a landlord to do marketing that rarely improves traffic in a business associated with us.