Northcape

“It’s a tenant’s market”

Over the past few months I’ve dealt with a number of interesting matters that involved retailers who had worked themselves up into a lather about their impending lease expiry. In virtually all cases, the retailer was deeply concerned about their landlord potentially not offering them a new lease or asking for a massive increase in rent. Given the profitability of their business’ (and by extension their livelihood) could be seriously affected by the outcome of how the landlord was going to act, most of my clients were naturally very nervous about their situation, understandably so. (more…)

Lease Documentation – Getting it right…

Happy New Year !…. I believe 2014 is going to be a very interesting year indeed – it will bring some big challenges to the retail sector, but equally I think it will bring big opportunities too. In particular I recommend that you watch the bond and equities markets and perhaps even the property sector, particularly in the US and other parts of the developed world, as well as Australia. I think there’s a big correction coming, however we’ll see if I am right in due course.

This month I thought I would talk about lease documentation, yes I know a fairly dry subject, but one that is very important, I hope you find it interesting. (more…)

2013 A Year In Review….

I was recently having coffee with one of my clients who owns a womens fashion chain, we were talking about his expansion plans and the general state retail industry. Our conversations often go off topic and before long we are talking about all manner of issues ranging from geopolitics, government debt, monetary policy, unemployment and the list goes on.

The subject that we kept coming back to was, “what was going to happen to the economy, the retail sector and by extension, the retail leasing market”. (more…)

Selling Your Business – Dealing With The Landlord

Most retailers will at some stage wish to sell their business and enjoy the fruits of their labour. Sounds straight forward doesn’t it, simply talk to a business broker, place the business on the market, sell it and the rest is merely a formality. Well aside from the fact that the market is a little soft at present, the last part I refer to as “the rest”, is not a merely a formality. It is probably the most overlooked aspect of the sale process and often a cause of major frustration. (more…)

“Skyfall”

Like many of you I watched the recent federal election debate at the national press club between Prime Minister Kevin Rudd and Federal Opposition Leader, Tony Abbott. The economy featured heavily in the debate, particularly how both parties intend on handling the economy as it slows down. (more…)

Retail Shop Design – “Keep it fresh”

I was recently in the city (Sydney) having a coffee at one of my favourite cafés. At the time I was reading an interesting article in the Australian Financial Review about the state of the retail industry and the many challenges facing it, not the least being the onslaught of overseas retailers heading to our shores. I started to drift off and think about my own shopping experiences overseas, particularly in Europe – I recalled a busy high street in Paris where I visited several amazing patisseries a few years ago. (more…)

“What is the current market rent for my shop?”

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Make hay while the sun shines……

Like many of you, I have been reading quite a lot lately about the state of the global economy, in particular the serious problems facing Europe, United States and elsewhere. With so much information coming at us daily, I often ask myself what does it all mean and how will it affect retail business owners. (more…)

Never negotiate out of fear, but never fear to negotiate.

Over the course of the past few months I have been working with a number of retail clients who needed assistance negotiating new leases. Now I realise that most retailers do not negotiate new leases that often, probably every three or five years at best, however I noticed a common thread which I found interesting. In virtually all of the cases I encountered, most people did not have a basic understanding of the principles of negotiating. I was surprised by this as retailers are also business owners and not only need to know how to negotiate with landlords, they need to know how to effectively negotiate with suppliers, employees, local councils, solicitors etc.. the list goes on. It became apparent to me that I needed to take some of the mystery out of this “black art”, because it is a learned skill, not something that comes naturally to most people. (more…)

Welcome to my blog, “the good oil”…….

The good oil, an old Australian expression which refers to practice of giving reliable, sound and truthful advice on a given subject. I thought this was an appropriate name for my new blog which we officially launched today. Every month I plan to post a new a blog which I hope readers will find informative and relevant, especially those of you who are retailers.

Right now there is a lot of change occurring in the retail industry, whether it be new retailers entering the Australian market for the first time, ongoing impact of the internet and social media or the sluggish state of the economy. I want to make this blog socially current, so the subject matter will vary quite widely depending upon whether or not I believe it has any relevance to the retail industry – as a result my blogs may include economic, political, social and technological news & information from both Australia and overseas.

I also wish to share information on practical every day retailer issues which I hope may help improve your bottom line, especially when it comes to matters related to your lease. For my first blog I am going to talk about the need to plan for your lease expiry, something which is often left to the last minute, not surprisingly – overworked and exhausted retailers  have so many issues to contend with, so I thought this blog may be helpful.

I hope you enjoy it……

Cheers,
Michael

“A Simple Plan”

I am not referring to the 1998 Hollywood thriller staring Bill Paxton, Billy Bob Thornton and Bridget Fonda. I am referring to the serious business of preparing yourself for when your lease expires. Whether you are exercising an option to renew for a further term or negotiating a fresh new lease, you need to think about how you are going to approach the situation.

If you have never had any experience negotiating a lease, the process can be a little daunting and this is completely understandable, particularly given that lease expiries generally occur only every five years. It is not uncommon for retailers to file their leases away immediately after starting a new business and hardly ever referring to them again during the course of the five year term. In some cases they don’t refer to the document at all until only a few months out from their lease expiry. Running a retail business in today’s challenging economic environment is a full time endeavour, so it is no wonder that some owners struggle to find time to give this matter any thought.

Following a few basic steps could help you create a simple plan of attack when preparing for your next lease negotiation.

One of the first steps I suggest to all retailers is to immediately locate their lease and read it from front to back. Even if you are quite sure that your lease doesn’t expire for sometime, I recommend you familiarise yourself, particularly with the terms & conditions surrounding rent reviews (including market reviews), lease options and mediation & dispute resolution. It is a good idea to diarise key dates and notice periods in which specific actions need to occur, when dealing with the above matters.

The next step is to ensure that you allow enough time to negotiate with the landlord. In addition to the specific terms in your lease, all states and territories have legislation which provide protection to retailers in terms of notice periods landlords need to give when it comes to lease expiries. That said, it has been my experience that it is better to start talking to the landlord sooner rather than later, regardless of what the lease may state. In some cases you may even consider doing this well in advance of the expiry if the situation warrants it. For example you may be thinking of selling your business however only have eighteen months remaining on the lease. Common sense will tell you that after putting the business on the market and sifting through the myriad of tire kickers, you may only have twelve or less months remaining by the time you find a genuine purchaser. Naturally a prudent buyer may consider the short time remaining on the lease a serious issue and either walk away from the sale or try to negotiate down your asking price. In such circumstances it would be advantageous to commence lease negotiations in advance so that you are able to secure a new five year lease, thereby offering better tenure to prospective purchasers. Of course a landlord is not obligated to enter into advanced negotiations if an existing lease is on foot, however it may be worth pursuing in certain circumstances such as the example above.

After this I recommend collating all key metrics of your business in a logical and easy to read summary so that are able to easily analyse and refer to the data at any time. It is important so that when you sit down with the landlord, you are talking from a position of knowledge, not guesswork. I am not suggesting you divulge confidential information such as your last year’s net profit or owners drawings, but more high level numbers such as annual sales, gross profit and rent to turnover ratio.

It’s also advisable to have a good grasp of economic, political and industry related factors that may be having an effect on your business. An example of this may be latest retail trading figures released by the Australian Bureau of Statistics.

A prudent business owner should also have a good understanding of what is happening within their shopping centre (if applicable), CBD and local area from the perspective of comparative rentals and incentives being offered in the marketplace. This will assist you to determine what you believe to be a fair market rent when it comes to negotiating with your landlord. You should also make enquiries with your landlord and local council about whether or not any development activity is planned during the course of your lease term – this includes tenancy mix changes within your shopping centre (if applicable), major construction, car parking and road changes that may impact your business.

Once you have collated all the above information, it is then time to create a specific strategy as to how you are going to tackle your impending negotiations. We’ll talk more about this in our next segment.