OPINION: Community pharmacies should seek rent reduction

By Reece Samani

Lloyds pharmacy recently insisted on a 25 per cent rent reduction across 300 stores. This follows similar negotiations by Well Pharmacy, who asked landlords for a rent reduction and to change quarterly rent payments to monthly rent payments to improve cash flow. Boots have also withheld rent payments for some of their stores.

That’s no surprise given that footfall along our nation’s high streets has taken an alarming tumble. Even before the coronavirus pandemic, retail sales on UK high streets were down year-on-year. Before Covid, the UK already had one of the highest online retail sales as a proportion of total sales of any country in the world.

Since the coronavirus forced so many shops to shut, that trend has accelerated. In April, during the first lockdown, footfall on UK high streets was down 83.3 per cent year-on-year, and in the current lockdown, it has predictably suffered again, down by 59.8 per cent in England in the week beginning November 15, compared to the same week in 2019, according to Springboard.

Meanwhile, figures from the Centre for Retail Research show that online sales as a proportion of total retail sales are expected to jump from 19.4 per cent in 2019 to 26.2 per cent in 2020.

That has a knock-on effect for our community pharmacies. Though pharmacies are allowed to stay open, fewer customers passing by means an inevitable drop-off in sales of over-the-counter products.

Many services provided prior to the pandemic have also been put on hold. With greater margins on services and over-the-counter products, the reduction in footfall on high streets severely affects profits.

With this in mind, negotiating rent prices with landlords – whether you are a chain like Lloyds or Well, or a local, family-run pharmacy – appears a sensible move.

Shops in city centres are unfortunately being forced to shut across the country, which will necessarily have an impact on the price of commercial property. Lower demand and stable supply mean lower prices.

In July, the Office for Budget Responsibility predicted a 13.8 per cent fall in commercial property prices this year, owing to the effects of the pandemic.

That drop should be reflected in rental costs for both new and existing tenants. If a pharmacy is forced to shut because of reduced footfall, there is no guarantee that the landlord will be able to let the property subsequently.

In the long-term, pharmacies represent stable, reliable tenants, so landlords would do well to reduce rent now to protect future earnings.

Government regulation introduced in March precludes landlords from evicting tenants for non-payment of rent until at least December 31, 2020.

Consequently, in the last week of June retailers paid just 14 per cent of the £2.5bn due in rent, compared to 77 the previous year.

Whilst it is perhaps best to avoid withholding payments where at all possible, that suggests pharmacies hold a strong negotiating position – for landlords, reduced rent is better than no rent.

When the lease is next up for review, that is something worth bearing in mind.

Reece Samani is founder of Signature Pharmacy and The Locum App.