Retail disputes rise as stores fret over rising rents

Disputes between landlords and tenants dominated enquiries to the Victorian Small Business Commissioner, its annual report shows, but the body representing shopping centre owners and managers says the pain cuts both ways.

The report shows that of the 1,553 matters dealt with by the commissioner, about 70% related to retail leasing disputes, such as rental increases, non-payment of rent, the state of a premises at the end of a lease and minimum exclusivity periods for renewing leases.

The figures are a dramatic increase on the 2009-2010 year, when 995 retail tenancy matters were submitted.

While the figures are just for Victoria, they tap into complaints raised across the country about Australia’s rental prices.

Mark McInnes, head of clothing group Premier Retail, said yesterday that there was a “disconnect between the CPI-plus rent increases and centre performance at the moment, and all retailers are having this argument with landlords.”

”It’s not in our shareholders’ interest to run a loss-making store where the only person making profit out of our sales is the landlord,” he said.

“‘We don’t come to work every day just to make money for the landlord, we are trying to find a balance in the relationship with landlords where our shareholders make money and they get a return on their equity.”

McInnes’s comments were this morning backed by the Australian Retailers Association, which said smaller retailers don’t have as much clout as large retailers when negotiating with landlords.

“Rents are growing at a greater rate than retail turnover,” ARA executive director Russell Zimmerman says.

“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.”

Milton Cockburn, executive director of the Shopping Centre Council, says the Small Business Commissioner’s report is no surprise given the tough retail climate.

“When things are going well in the retail world, these issues fall away substantially,” Cockburn says.

He adds that while “it’s obviously a pity that anyone is in trouble” the dispute numbers account for less than 1% of retail leases on foot, and are not simply made by tenants.

“There’s a lot of posturing going on at the present time, which is exactly what you’d expect in the present climate.”

“But at the end of the day, it’s a commercial negotiation.”

“Landlords are in a situation where they’re already taking some pain. Their overwhelming motivation is to ensure vacancies don’t grow.”

Cockburn adds that several big retailers, including Collins Booksellers and Premier, have conceded that they have managed to secure substantial rent decreases from landlords.

The Franchise Council of Australia is currently preparing a code of conduct that will cover retail leasing, although the Shopping Centre Council has opposed the creation of the code.

In June, Morgan Stanley concluded that “in all categories it costs Australian retailers more per square metres than offshore retailers,” with retail zoning laws, consolidation, slow take-up of internet strategies by local retailers and higher sales densities contributing to higher costs.

This article first appeared on SmartCompany.