Retailer crisis roundtable

So here we are again in survival mode. This year some friends in the government have been found who have indicated their willingness to assist the cause of the small retailer in shopping centres. But what can they really do to assist, asks Brandon Conway.

That they recognise the need to address the issue of high occupancy costs is in itself, encouraging. So, what do we want them to do for us? How are they going to help us achieve a balance between our needs and the aspirations of our collective landlords?

Perhaps the answer lies with Richard Evans who is the Executive Director of The Australian Retail Association (ARA). His organisation has 5000 members and has been around for 104 years. . . before my time, of course.

It is the leading body representing Australia's $292 billion retail sector, employing 1.5 million people. In reference to the Productivity Commission's 'Market for Retail Tenancy Leases final report released in August 2008, Evans claimed "The Rudd Government must step in and take long overdue action. . . to help curb robust behaviour from landlords."

Evans put forward the following suggestions:
* Separating legislation for major shopping centres and suburban high street retail outlets;
* Simplifying retail leasing legislation nationally through harmonisation of state laws;
* Applying a code of conduct to major shopping centres regulated by the Australian Competition and Consumer Commission (ACCC);
* The disclosure of turnover figures to an independent third party to be reported at category level;
* Introduction of gross leases where rent payable is inclusive of all charges; and
* National register detailing all commercial lease terms including inducements.

All of the above makes good sense to me especially when considered in conjunction with the opinions voiced by Craig Kelly of The Southern Retailers' Association (Sydney) when he stated the following in a submission to the Market for Retail Tenancies Leases Inquiry in 2007.

Kelly claimed that by applying a "predatory pricing strategy" shopping centres attracted the major retailers away from the retail shopping strip. According to Kelly, this resulted in the "devastation of the nation's once very prosperous shopping strips and caused a massive transfer of wealth from many independent recipients into the hands of a few developers".

As a result many small retailers were faced with Hobson's choice and forced to enter shopping malls. The action of anti-competitive pricing has split the retail sector into two classes. The creation of "an upper class" means a small group of privileged retailers receive preferential rents and rebates. On the other hand, the small retailers are required to pay vastly higher rentals as well as covering all the landlord's outgoing costs. Kelly asserts "These retailers have become free riders and a burden on the system as they no longer pay their collective share of the economic resource that they use".

It is true rentals have spiralled upwards since 1990, when occupancy costs were a manageable five per cent compared to what is being experienced now at over 20 per cent for many specialty stores. The landlords argue that preferential tenants are responsible for drawing the bulk of the centre traffic and that this, therefore, justifies the rental differential. However, it is hard to imagine our major stores surviving in isolation. The small retailer also attracts customers. One tenant should not benefit at the expense of the other.

The Australian consumers have to be the biggest mugs in the world. We now have the highest food inflation in the developed world. Consumers have been cheated out of lower prices in clothing, footwear and home wares. Tariff reforms should have brought benefits through lower pricing. However, this has been lost, because high retail occupancy costs have led to inflated prices at the till. It seems the consumer can't take a trick.

Over nine million Australians have superannuation funds that hold investments in shopping centres. One wonders what these investors would think if they knew 75 per cent of the area leased in major shopping centres, has been given away at preferential rentals to a handful of privileged retailers on 20 to 25-year leases. On the other hand, you have the small retailers who occupy the remaining area being forced to make up the deficit in rental by paying vastly higher occupancy costs. These circumstances hold risks for both shopkeepers and investors.

We can all take comfort in the fact that at last the plight of small business is making the news. We are constantly mentioned on the breakfast shows with strong support from Alan Jones and Jason Morrison and vocal support in the Senate through Senators Nick Xenophon and Barnaby Joyce.

Indications are that the Minister for Small Business, Craig Emerson, is considering a crisis roundtable conference supported by representation of both retailers and shopping centre owners to try and work out a way of understanding their collective needs.

So best stick around. We may just get a "fair shake of the sauce bottle."