You cannot unscramble an egg!
This article was featured in the Spectrum Analysis email newsletter sent on 19 June 2020.
Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, a demographic, mapping, franchise territory planning and statistical analysis consultancy. Peter is the Go To person as to how to establish territories in Australia and overseas. Peter runs the FCA courses in this area: Franchise Territory Planning. To contact Peter, email peterb@spectrumanalysis.com.au or visit www.spectrumanalysis.com.au.
We are all extremely aware of the implications of COVID-19 upon our businesses. Some businesses are flying, while some are dying – and everything in between.
I am not going to try and explain JobKeeper, Government assistances, rents etc. The points I wish to make is that you cannot unscramble an egg!
We are a demographic and mapping company who prides ourselves on helping our customers make Better Business Decisions, and use “facts and data – not your wet finger in the air”.
I have lived through many downturns in business over my 20 years at Spectrum Analysis, and before that, 20 years with Caltex. The lessons I
have learned is that you must react for survival in many cases, but quite often you can over react and do things that become irreversible I watch on frustrated when you hear a company has been place in Administration with one of the major liquidators, and you hear words (about 1 – 2 days later) that they have looked at the business and are preparing it for sale – and are closing 30% or 50% of the locations! I have often asked “How are these decisions made”?
I have asked some of these companies, and the normal answer is that if the location is bleeding, a very quick decision is made to close it (obviously to preserve capital and equity – and the fees for the Administrators). The obvious question we must ask in some specific cases is why? Is it just a poor operator? Is it a poor site? Is it some fudged accounting – pocket vs till for some of the sales? The point I make is you cannot expect to go back into a major shopping centre if you have really upset the landlords if that is your business model.
If you give the Leasing Managers at Chadstone the big finger, you do understand that it will be known across the whole Group? If you plan to do a “Hail Mary” approach a la Sumo Salad, and basically commit to walk out of all major shopping centres by placing the companies that held the leases into Administration, then you will have many people with long memories to contend with.
I am NOT a fan of shopping centre leasing policies and have written quite strongly about the increase in rentals compared to the shopping centre performances over quite a few years, which I thank Franchise Buyer for helping us distribute.
White Paper Shopping Centres – Still an Inconvenient Truth
The point is that if you need to close stores (short term or long term), just make sure you (or your Consultants) do it for the right reasons, as you cannot unscramble the egg easily and just come back and reopen. Each time a site is closed there is a major write off of the fit out costs, technically the unpaid proportion of the lease, and any goodwill of the business just to start with. Maybe in some cases it is better to take the pain to come out the other side if there is light at the end of the tunnel – not an oncoming train!
Summary
If you are looking at the closure of sites – just think about life after COVID-19 and where you want to be in 5 or 10 years with your brand. Letting sites go in some Sub Regional or Regional shopping centres may not `have much effect on your brand. Closing stores in the likes of the Super Regional shopping centres may make it impossible to get back in at a later date (maybe as far as the whole Group is concerned), and it is hard to have a major brand without being in the likes of Chadstone, Castle Hill, Bondi Junction and Indooroopilly to say the least.
Think about the long term plans – Strategic Network Planning, and not just the pain – assuming you, your brand and your franchisees
can now survive the next 6 months.