Location is crucial for any new optometry business. The shopping centre and high street are the two main options, with each offering differences in leasing arrangements, fit out requirements, foot traffic and marketing that entrepreneurial eyecare professionals may need to account for.
Optometrist Mr Brett Parsons knows better than most that lease renewals are an inevitable and uncomfortable part of running a practice. With a mix of locations across eastern Melbourne, it requires a nuanced approach with each landlord to ensure he gets the best outcome for the business.
Parsons is the longest-serving current partner of Harris Blake & Parsons Optometrists (HBP), an independent optometry business with a high street practice in Croydon, two practices within medical centres in Yarram and Healesville, and its flagship store in Eastland shopping centre, Ringwood.
Having diversity across practice locations has served the business well since its inception in 1958, and means Parsons and his business partners are well-versed in the pros and cons of high street vs shopping centre practice locations. Taking into account matters like leasing arrangements, fit out requirements, capturing foot traffic and marketing, he’s learned valuable lessons that other entrepreneurial optometrists might want to keep in mind when determining the location of their new practice.
For instance, HBP is a foundation tenant of Eastland when it was developed 58 years ago and, alongside Myer, is the only continuous leaseholder in the mall. One would think the practice has earned some loyalty, but in reality the landlord-tenant relationship remains business-like.
“Location is important in any scenario – and there’s a cost to a good position,” he says, noting that practice owners need to be assertive tenants, especially in shopping centres.
“Shopping centres tend now to have a separate corporate leasing specialist area that’s quite intentionally separate from day-to-day arrangements with the centre manager, which means they can be purposely more hard-nosed about offers. Whereas, with your local agent or high street landlord, the person you’re working with is often the one that does the deal with you, so it’s a more personal relationship.”
In a shopping centre, he says traders need to come to the negotiation table having done their homework. Finding out what other tenants are paying, investigating the market rate high street rent, and taking note of empty shops in the centre can all help the business to leverage a better agreement.
Ultimately, for HBP occupancy costs per square meter are much cheaper in its high street location, with less hoops to jump through in general. In the shopping centre, there’s usually other requirements such as refitting every five years or so (at a higher cost than a high street refit), rules around opening hours and generally higher bills to pay. But there are many up sides too, especially if the practice is located near major retailers like Woolworths and Myer.
“You need to be aware of traffic zones, and we have been in this corridor for a long time and know it’s one of the best,” he says.
There’s also many other factors that can influence the performance of a practice depending on its location. With this in mind, three business-savvy Australian optical industry figures sit down with Insight in an effort to get to the bottom of which location is better: the shopping centre or the high street?
Budgets, leasing, rent
As one of the masterminds behind Specsavers’ entrance into the Australian and New Zealand market in 2008, Mr Charles Hornor has been involved with a spectrum of landlords over the years – and notes there are some fundamental figures to be aware of before committing to a practice acquisition or establishing a greenfield optometry business.
After leaving Specsavers in 2022 after 16 years, he’s now a director at the new Chemist Warehouse-backed venture, Optometrist Warehouse, which recently opened its first practice on Glenferrie Rd in Malvern, Melbourne, with plans for a national rollout.
Hornor says some basic metrics to run a profitable optometry business include: occupancy costs (rent, bills, etc) not exceeding 10% of total sales/revenue, and staffing costs, including the nominated salary of the owner, not exceeding 30% of revenue.
“Of course, these percentages will decrease as volume goes up, but these are some important benchmarks to remind yourself of, especially if you’re setting up a new store as an independent or as anyone else to be honest. If you’re not hitting these, then you’re probably not going to be making a profit,” he says.
When it comes to rent and leasing costs, Hornor says there are several ways practices can set themselves up for success in the negotiation phase, but there are some key differences between how this happens with a high street landlord and a shopping centre.
A “three by three” lease is ideal to negotiate in a high street scenario, he says, meaning the practice has an initial three-year term that has the option to be extended another two times, if the tenant wishes, equating to nine years. “Some may be more confident and go for a longer term lease, but I think you want to be careful not to overdo it. And indeed, you might have expanded and need more room to grow, which isn’t ideal if you’re stuck with a lease,” he says.
“In a shopping centre, the landlord will readily help you to expand into a larger premises, but if you’ve got a private landlord on the strip and you want to break the lease, then they will be seeking rent from you until they’ve found a new tenant unless they have agreed a clear break clause in your lease at the outset.”
According to Mr Mark Corduff, business services manager at the ProVision independent optometry network, practices renting in the high street typically pay a market rate, while those in shopping centres generally pay a percentage of their turnover. This commonly translates to a much higher rent in shopping centres.
“For high street locations, it’s much easier to ascertain what the rent might be. When I negotiate rents for ProVision members, I’ll complete a market review on the area and call the agents to find out what the current going rate is per square metre. It’s quite simple, whereas in a shopping centre they are privy to your turnover, and you essentially pay your rent based on your occupancy cost – there’s also other costs involved,” he says.
At ProVision, which supports 450 independents across the country, Corduff supports members with their business endeavours to improve their profitability and the value of their businesses. Property and leasing are a major part of this, and he often advises members negotiating commercial lease terms to optimise their outcomes.
Around 15-20% of ProVision’s practices are in shopping centres, with the majority on the high street, and a small percentage embedded in medical centres.
Typically, he says a shopping centre lease is five years, but after this initial term they may offer shorter terms, and they generally don’t provide options, which can make it challenging for a practice to formulate longer term plans.
“Often when you look at a shopping centre lease there’ll be a requirement to make upgrades to your fit out. Recently, we’ve seen some of these requirements passed on to members – and they have been expensive. Often at this point, they don’t contribute financially towards it. Generally speaking, that means after one or two lease terms, there’ll be another significant investment to make, whereas in a strip, you have the flexibility to update and do what you want when you’re ready,” he says.
Another clause to be vigilant of is exclusivity in a shopping centre. This is particularly important for independents who can suffer if the centre is over-indexed with optometry practices, or if a corporate store moves in nearby.
There are also other outgoing costs in shopping centres that Corduff says practices needs to be aware of. For instance, ideally one needs to avoid paying for the lights and air conditioning when they are closed while other shops like supermarkets are open. There’s usually a marketing levy of around 5% of the base rent baked into the contract.
“With the marketing levy, you really need to be knocking on the door of the centre to make sure that you’re maximising that otherwise it’s just a lost expense,” Corduff says.
“It’s also important to remember at the end of each lease term, there’ll be a market review and we are typically seeing the increases come in lower in shopping strips than shopping centres at the moment.
“Overall, we spell out the importance of maintaining a favourable business relationship with landlords, which can be challenging sometimes, but can go a long way to ensuring stability and optimal commercial outcomes for practice.”
Fit outs and expansion
The practice fit-out is another area where there are significant differences for new practice owners.
Hornor says in the high street, optometry businesses effectively have carte blanche with their practice design, configuration and shopfront. In a shopping centre, however, there are standards that the landlord will require to be met, covering all sorts of areas like the quality of fixtures and fitting, all the way through to the look and feel of the premises.
“On the flipside, it can be helpful because it means you’ve got that quality built-in, it’s a really good solid way of making sure you’re fit-for-purpose in the marketplace because that’s what shopping centres demand,” he says.
While there’s more flexibility in the high street, Corduff says it does require approval from the landlord, it’s generally much easier and comes in at a lower cost compared with a shopping centre.
A key challenge in shopping centres is that fitouts can only be conducted outside of regular operating hours, but the centre usually works to accommodate that. If negotiated well, shopping centres may also contribute to the initial fit out (but not subsequent renovations), anywhere from six to 12 months of the base rent as a benchmark.
“They can also guide you through the process and will have preferred shop fitters and designers available to use,” Corduff adds.
When it comes to expanding or relocating a practice, Corduff agrees that a shopping centre can facilitate this more easily. In the high street, a practice may need to wait until the shop next door becomes available to knock a wall out, and/or seek an entirely new location and landlord.
In saying that, shopping centres have the power to dictate where the practice will be located, which can be daunting if the practice is placed in a less favourable position, away from the big retailers or tucked away near the car park.
“After the term expires, or even mid-term, if they look at relocating a practice, they will typically financially incentivise you to do that – but this takes careful negotiation,” he says.
“In the shopping strip, there’ll often be a demolition clause or another clause that allows the landlord to enact that and you could potentially have nowhere to go. So, it’s always about understanding that you’re leasing the space and it’s not forever, and you need to always keep in the back of your mind what your options might be if anything ever turned untoward.”
Foot traffic
Given the notably higher occupancy costs, potentially less stability and restrictions around opening hours and even marketing activities, it may prompt one to ask why a practice would set up in a shopping centre?
Hornor says the key benefit is that shopping centres are a destination where people intend to shop. They also tend to be unaffected by weather events. In fact, people often seek refuge in shopping centres to escape intense heat, wind or heavy rain. This means that ‘no shows’ are often lower in shopping centre environments.
For high street practice, this means they need to be prepared to capture foot traffic that comes in off the street, and local area marketing such as flyers and promotions need to be optimised. Flyers can be more challenging in a shopping centre and will require approval and a fee if it’s to be done outside the shop perimeter.
“On the high street, practices need to hone their short term recalls. You’ve got to follow people up, make sure they come in – whether you’re capturing them off the street or at home once they’re part of your customer database,” he says.
“In the shopping centre, a customer may shop around if they haven’t made a long term choice about the optometrist they see. That hones everyone’s competitive instincts, and that’s really important, but
that’s probably why it becomes more of a retail than a healthcare promotion. On the high street, you can really make the most of your healthcare credentials.”
Although high street businesses may need to consider seasonal factors, Corduff says practices can reap the rewards if they choose their location carefully. Since COVID, ProVision has recognised a significant shift in consumers preferring to shop on the locally.
“When you’re looking at opening on a strip, I always keep a close eye on accessibility. Parking is important as well as visibility – also being able to precinct yourself near other health services to benefit from similar types of customers or patients walking past.”
In saying that, Corduff says there are ProVision practices that perform very well in shopping centres: “You’ve got to know your numbers and be really focused on growing your business.
“These practices understand their target market. You need to be maximising the fact that customers would go to that centre anyway. They have the luxury of ticking off the bakery, chemist, supermarket and optometrist in one hit. It’s a nice warm environment and a relatively seamless experience.”
Saleability and ownership
At the other end of the business lifecycle, Corduff says the location can also influence the practice’s saleability. High street practices are more favourable to this for several reasons.
“Typically, because they’ve got a lower occupancy cost. If you’re looking to sell your practice in a shopping centre, you want to make sure that your base rent is as low as possible and there are no incentives tacked on. Often when they are offering a lease term, shopping centres will say the rent is $100,000 for example, but we’re going to provide you with an ‘incentive’ of$25,000 a year to bring it down to $75,000. When someone’s purchasing that, the bank will look at that and say the rent is $100,000, so you want to prepare and ensure that you’ve negotiated well so that it’s in a good place to sell.”
The best-case scenario would be for the practice to eventually purchase the premises if the landlord is seeking to sell.
Many independents have this arrangement.
“A lot of optometrists purchase a premises and manage it through their super fund or purchase it outright so they are then benefiting from the additional income that comes as a result of that – you can control the rent etc. Whenever we’ve had practices sell with the business owner as the landlord, it’s a far more seamless process.”
The verdict
All in all, Parsons, from HBP Optometrists, says there are ups and downsides to each location, and none is better than the other.
Although his high street practice in Croydon is more cost effective to run, it can occasionally be impacted by the vagaries of the weather, meaning patients will seek the comfort and convenience of a shopping centre.
On the up side, it means HBP has all its bases covered, with the diversity of the business serving it well.
“It also makes things interesting from a business and professional perspective. They’re all slightly different challenges, slightly different patients with different needs. But the variety keeps things interesting,” he says.
“The way you run a business, your professional care and quality service, builds your patient base. When convenience comes into it – and certainly shopping centres offer this – you’re building a bigger business within for several reasons. We’ve got plenty of opposition, so for us, it’s a case of doing what we do really well and not trying to be all things to all people.
“My advice when looking at where to establish your practice would be that you’ve got to balance your risk and reward and sometimes take a bit of a risk for that reward.”
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