ARA: Small retailers at mercy of big landords

September 26, 2011: Retail industry body, the Australian Retailers Association (ARA) has backed comments from Premier Retail chief executive Mark McInnes’ on shopping centres gouging smaller retailers.

Mark McInnes, whose company includes retail chains Portmans and Just Jeans, was reported in Fairfax media last week as saying, ‘We don’t come to work every day just to make money for the landlord’ and ‘landlords need to lower their base rent.’

He said that an increasingly ‘adversarial’ relationship had seen Premier win a 30 percent rent reduction for its Portmans chain after threatening to close one of its stores.

He has already closed 19 Portmans stores this year and has indicated he will close more if rents aren’t brought into line with ‘the weakest trading environment in 30 years’.

ARA executive director Russell Zimmerman said retailers are struggling with excessive tenancy costs as they contend with falling sales due to low consumer sentiment, and they are often left defenceless at the negotiation table due to the imbalance of power between landlord and tenant.

‘…Premier Retail has used the threat of closing stores as a tactic for negotiating a fairer lease. However, it would be unthinkable for a smaller retailer to use this same tool, which leaves them with even less power to keep their rental costs manageable.

‘Smaller retailers often have superannuation invested in their business and they risk losing their livelihood if they threaten to walk away from a retail tenancy. But if they stay and pay too much rent they may lose everything anyway. They really are caught in a Catch-22 position.

‘Rents are growing at a greater rate than retail turnover. Rent is typically based on CPI (Consumer Price Index) plus two percent, however retail trade figures are consistently showing either negative growth, or growth well below the current CPI.

‘The oligopolistic nature of shopping centre ownership often means, especially for smaller retailers, signing leases which are unsustainable and cannot be absorbed through sales, as already price sensitive consumers stay away from the shopping centre.

‘The Productivity Commission’s draft report acknowledged the need for review of zoning and property laws, giving retailers more flexibility in where they set up shop and therefore giving a bit more balance to the bargaining process.

‘However, the ARA is still calling for reforms such as third party reporting of turnovers, first and last right of refusal, independent market rental valuation and national registration of leases to make for more transparency in the negotiation process and ensure retailers stay competitive and viable,’ said Mr Zimmerman.


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