Imagine paying $280,000 a year rent for a 100sqm shop after spending $400,000 on a fitout. How the hell do you make any money? The answer is you don’t.
The above figures are behind the demise of one Sydney travel business in a major northern suburbs shopping centre. No doubt there are many others like it.
“It’s pretty fierce and we got stuck with the lease because the travel agency didn’t make it,” says the owner, who transitioned to a currency exchange before getting slammed by Covid and and an increasing number of rivals.
Mind-numbing amounts like this are also the major reason Flight Centre is cutting another 91 of its branded stores from its Australian network, which was 740 pre-Covid.
The company had already announced the closure of 330 leisure shops, meaning more than half its Australia stores will have closed in less than 12 months.
It’s carnage and echoes what Flight Centre has done globally. Their stores are costing money not making it.
Fact is profits in the FLT leisure stores have been stagnant for at least four years.
It says another 600 staff will be cut, bringing total staff numbers for the business to around 6000, compared with 10,000 in early 2020.
Many Flight Centre stores are/were in major shopping centres, sometimes with multiple outlets in a single complex.
As much a branding as a sales move with the shops inevitably impacting each other’s business.
Flighties were about the only major agency left in the shopping centres, dominated by the Westfield brand, although it’s worth noting the failed STA Travel chain, recently placed in liquidation, also had a presence.
Rents are much less in suburban and regional shopping strips but the numbers still don’t add up.
According to Scott Stephens from Ray White retail in northern Sydney, annual rent for a 60sqm shop that could accommodate three to four staff in a good area such as Mosman would typically cost between $50,000 to $100,000 depending on position.
So that’s between $1000 and $2000 a week, before staff, marketing and utilities costs, which probably add another $3000 a week assuming three employees, meaning that the business needs to make $4000 to $5000 every week just to break even.
On a generous average commission of 15% that equates to around $33,000 in sales each week, which had been feasible during Australia’s cruise boom over the past five years, when older customers wanting to set sail became the foundation revenue driver for many agencies.
But now that international borders have been closed since March and will remain so indefinitely?
Many of those shops shut and the owners either leave the business or cut employees.
Some will probably take their database and move to one of the home-based networks, where rent is taken out of the occasion.
AFTA Chairman Tom Manwaring told the ABC in August that up to 50% of of its 3000 members could go under by Christmas if they don’t receive targetted government assistance in addition to JobKeeper.
At the time it could be seen as a lobbying tactic for government help, but now it’s looking like a sound prophecy unless something remarkable happens in the Federal Budget on October 6.
Just a few days the Federal Government announced $150 million in funding for regional tourism – $50 million for for marketing, $100 million for infrastructure.
Agents has so far been left out in the cold, receiving just $3 million from the WA government for agents in the state.
Will it change? We shall see.