When talking to pharmacists about their key acquisition criteria, many often say that they are not interested in any shopping centre opportunities and will instantly dismiss any pharmacy located inside a centre owned by one of the major landlords i.e. Westfield, QIC, Charter Hall etc. While I recognise that shopping centre pharmacies may face some challenges that strip pharmacies do not, they also have advantages that strip pharmacies do not have, and should be assessed on a ‘case by case’ basis like any other opportunity.
There are few key considerations when reviewing a shopping centre opportunity, and I’ve outlined some of these below and offered a few tips that I believe will hold you in good stead.
Location is key: Just being inside a large shopping centre does not mean that you automatically benefit from the foot-traffic. Different areas within the centre will be more desirable than others and understanding customer flows and which sites will offer the greatest exposure is critical. Sites close to major tenants like supermarkets and near the busy entrances will generally out-perform sites tucked away in areas with no complimentary stores nearby.
Size is everything: Shopping centre landlords charge comparatively high rents for each square meter of a tenancy. This means that you simply cannot afford to have any dead space that does not generate revenue. Simple functional shapes like rectangles or squares will provide better sales per m2 than more unusual shapes that will invariably have sections that generate poor retail sales. It is better to reach your sales capacity in a smaller site, than to under trade from a larger one.
Know your market: Each centre is unique. Different suburbs and different tenancy mixes attract different customers and your pharmacy needs to cater to their specific needs. Just because a certain brand has been successful in one centre, does not necessarily mean it will be successful in another. It is also important to understand what customers the other pharmacies in the centre are targeting and whether there is a market segment that is currently not being serviced. Equally, understanding the potential changes to the competitive landscape in a centre is crucial. Being aware of how many pharmacies the centre qualifies to operate and recognising likely future ownership or brand changes will enable you to better assess risk.
Use a professional: Engaging a professional to handle your lease negotiation is a must. Shopping centre landlords will try to achieve the highest rents possible. They are a business with shareholders and growing profits is always their primary objective. That said, they are generally more commercial than people give them credit for and many tenants often just accept the first lease they are offered and are too intimidated to engage in firm negotiation. Having an experienced representative manage this process will undoubtedly result in a much better commercial outcome and will also eliminate the stress and anxiety that tenants experience when managing this process themselves. It is a financial investment that will pay huge dividends.
To be clear, I am not suggesting that shopping centre pharmacies are generally better investments than strip pharmacies. Equally, I am not suggesting that strip pharmacies are better than shopping centres stores. I am simply advocating for each opportunity to be assessed on its individual merits. Understanding some of the considerations that I mentioned above will hopefully enable you to make a more informed decision and better assess the value of shopping centre pharmacies.
Written by Jack Brown, NSW State Manager – AP Group
AP Group are the leading pharmacy experts in Australia, helping hundreds of pharmacists into ownership every year – our team can help with sourcing finance for your purchase, as well as providing the right legal advice to help you navigate the process.
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About the Author:
Don’t let the suit fool you. On the weekends you’ll find Jack fly fishing, camping with his kids, rock pooling or cheering for the Tiges (a shame, we know). And just like you’ll find Jack excelling in several outdoor hobbies, you’ll also find he’s excelled across several industries in various roles. From owning small businesses to running bars to working as a strategic consultant for ING — Jack is a man of many talents.
Having bought, built and sold several small businesses over the last 15 years, Jack knows a thing or two about the mechanics of business — and he draws on this experience to help you buy or sell your pharmacy with confidence.
Business aside, Jack has thrived in several senior roles. He worked as a Strategic Consultant for ING (responsible for assessing the existing asset portfolio, feasibility analysis’ and strategic modelling). He also worked as a Strategist and Project Manager at Right Angle Studios, responsible for strategic insights that would inform the overall business strategy. See we told you, a man of many talents.