The Australian Retailer's Association (ARA) has been particularly busy over the past month or so, steadily releasing media statements scrutinising the Australian government and its lack of consideration for struggling retailers.
True to form, the organisation’s recent submission to the government’s Productivity Commission Inquiry into the Economic Structure and Performance of the Australian Retail Industry includes a number of stinging criticisms across various topics – one of which is retail tenancy.
The critique zones in on landlord bias and the oligopolistic nature of major shopping centres, as well as the abuse of the ‘Turnover Rent’ provision and a lack of transparency in the market – a situation which ARA executive director Russell Zimmerman says needs to stop.
“Retail tenancy and the imbalance between landlords and retailers has been an issue for many years, but it’s getting worse,” he says.
“And part of the problem with retail tenancy is that knowledge is power. And quite often I think that the landlord has a lot of knowledge with a lot of power and the retailer has somewhat limited knowledge.”
This upper hand is, in part, due to the abuse of the ‘Turnover Rent’ provision. The ARA notes this in their submission as a loophole by which, “landlords are able to determine a rent increase which is geared within what a retailer ‘can afford to pay’ rather than a common and transparent market rate mechanism, thanks to accrued data provided under the ‘Turnover Rent’ clauses”.
“We’re not saying that you shouldn’t hand over turnover figures, but there might be a market value for the premises, but if the landlord actually knows what you’re doing and you’re doing miles more than you would be expected to do in that centre, you’re paying because of your ability to be a good retailer – so we think that’s a really unfair area,” Zimmermann says.
This, combined with the lack of an effective mechanism to accurately determine the market rate of commercial tenancies, makes the issue a “grave concern” for the ARA. The fact that under current New South Wales legislation, no mechanism exists for mandating the registration of retail leases with an independent, government-auspiced body, further entrenches the imbalance between retailer and landlord.
“The problem I have is that under the current NSW legislation, not everything is reported, and we would like to see all of that information registered, so it becomes a matter of public knowledge and then other retailers can find out how they should be paying their lease compared to their competitor/s, because part of the problem is that they [smaller retailers] don’t know any better,” he says.
This isn’t the case for Brooke Daniels, owner of her eponymous fashion boutique – but she agrees there is often a power imbalance between landlords and retailers.
“I do agree with Zimmermann’s comments. Retail growth is fairly stagnant at the moment, yet the general goal of the landlord is to not only extract the maximum financial return from their properties, but to also lock the tenant into terms that increase the value of their investment. CPI increases are activated each year despite the growing economic challenges that retailers face.
“There is little recourse for the retailers to renegotiate terms, and simply moving premises at the end of a lease is so difficult given the fit-out and relocation costs. As a consequence, the retailers’ fate is in the hands of the landlord’s discretion,” she says.
Her outlet, which stocks her in-house label Brooke Daniels, has been operating on the Bondi Beach shopping strip of Gould Street for five years, and in all that time, she’s never been seriously tempted by the thought of switching to a centre.
“I would never open a store in a centre, the rates and terms imposed by the centres are just too risky to commit to,” she said.
Daniels has developed a respectful relationship with her landlord since her store launched in 2006, and her rent was held at an introductory rate for the first two years of trade to allow her to establish the business. However, Daniels can relate to the lure of larger complexes.
“Of course, the foot traffic within centres is incredibly attractive. I often find myself wishing I was based in Bondi Junction Westfield on raining or peak season days where clients can park easily for hours. However, the per square metre charges and strict leasing terms of the majors rule out any temptation whatsoever.”
As a retailer who has been operating at said Bondi Westfield since it opened, owner of Scoop boutique Angelo Grasso gets the perks, but also speaks on the challenges of working within a larger shopping complex.
“When a small company, like myself, comes up against something like a Westfield, there’s always going to be a power imbalance. But then, I didn’t go into it lightly, I knew what to expect. There’s a high level of standard for your store, and negotiating your lease depends on how well you negotiate your rate and what you get with it. When they contact me to renew my lease [every five years], I get someone to negotiate for me, because that’s not my forte, and that’s it. They are smart operators, they know which stores do well in the centre – but once all [the above] is done you generally don’t hear from them again. You pay your rent and they leave you alone to operate,” he says.
“Of course, lots of people complain, so I can’t speak for other stores in the centre, but that’s my experience. As small retailers, also, at the end of the day, sometimes we just have to cop what we get.”
Zimmerman may dispute this fact, if his earlier comments are anything to go by. However, one thing the industry can agree on from every angle, is that retailers, fashion-related operators in particular, are in trouble, and more needs to be done to soften the blow.
“We’re seeing horrific increases in rent, but we’re not seeing wonderful increases in spend to match – and I just don’t think it can go on honestly,” Zimmerman says. “Retailers are all going to be sitting, waiting to see what comes out of the Productivity Commission Inquiry. And I think something has to happen from that, because I just don’t think retailers can keep going on in the same way.”