11August 2011 – Comment: The Productivity Commission again took a stick to zoning issues with its draft retail report released last Thursday on 4 August, recommending, among other things, that the retail industry would be more competitive and presumably create lower prices if it relaxed restrictions on where shops could locate.
- See our coverage of the PC handling of planning issues earlier this year here https://thefifthestate.com.au/archives/24083
- See the retail report, Economic Structure and Performance of the Australian Retail Industry, Draft report 2011 here
Why are retail issues so important? In a way the retail sector is one of the biggest elephants in the sustainable property room In truth, it’s still struggling to get its toe in the door.
A key difficulty is that retail not only sells a huge amount of junk, our future landfill, but that it’s set up in centres that are themselves destined for landfill at the rate of 20 per cent or more each year.
On top of that is the un-homogenous nature of retail property and therefore the challenges inherent in applying a rating tool to the sector’s operations. Very few big centres have a NABERS retail energy rating.
Interestingly the PC acknowledged there is some value to retail outlets other than to sell stuff.
“Retailers do more than simply sell goods,” it says.
“The retail industry is a service industry and has many roles — it introduces consumers to new products and assists them to assess products and compare prices. It enables consumers to buy goods at convenient times, in convenient locations and in quantities they find appropriate to their needs.
“It also can provide a range of ancillary services such as arranging financial services or providing after sales services if warranty issues arise.”
That’s a reasonable and broad understanding of the externalities and productivity issues involved in this industry. Pity the PC can’t work a sustainability angle in there somewhere.
Certainly if the retail industry wants to continue to be valuable in a world of diminishing resources, it could do with a major shakeout of the less sustainable practices.
So what did the PC say?
“Major restrictions which require improvements are: planning and zoning regulations which are complex, excessively prescriptive and often exclusionary,” the report said.
Other issues related to trading hours regulations, “which interfere with the industry’s ability to adapt and compete in a more globalised market”, and “constraints on workplace flexibility such as obstacles to the greater use of enterprise bargaining and the adoption of best practice productivity measures.”
It also recommended that low-value imported goods be taxed GST, but only when a method that doesn’t cost more than the tax is found.
Interestingly, it did not blame the Internet for poor retail sales.
Australia appears to lag behind a number of comparable countries in its development of online retailing, it said.
“The Commission’s best estimate is that online retailing represents 6 per cent of total Australian retail sales: made up of 4 per cent domestic online ($8.4 billion) and 2 per cent from overseas ($4.2 billion). In some other countries, online sales figures are higher and seem set to grow further, as will also happen here.”
So we don’t do enough Internet shopping. Gerry Harvey would love to hear that.
It said growth rate of retail sales has “generally trended down over the past two decades, due to long-term or structural changes in the economy and consumer behaviour.
“These changes are lessening the significance of spending on retail goods in consumer budgets. The share of retail spending in overall consumer spending fell from over 35 per cent in the early 1980s to just under 30 per cent currently.
Consumer spending down
“Consumers are increasingly spending a greater share of their rising incomes on services, such as financial services, property and accommodation, education, travel and hospitality.
“A major reason why consumers are spending a smaller share of their incomes on goods sold by retailers is because many retail goods have become cheaper.”
Of course a stronger dollar has also meant imported goods are more attractive, the PC said.
“While this trend spells a challenge for some retailers, consumers are better off: they are buying more retail goods, but at relatively lower prices, and are able to use the additional remaining income to satisfy other preferences, such as for services or savings.”
Which is a good thing, if you are not a retailer. Or a retail property owner.
Which brings us to reactions. Chief and first of these was from the Urban Taskforce, whose chief executive, Aaron Gadiel, pounced on the zoning comments and said, “This is an urgent wake-up call to every level of government.
“The Australian retail industry is in a rut, but government has the power to fix some of its most serious problems.”
Gadiel urged, among other things, a free market approach; that councils be prevented from protecting one set of retailers over another. Giants such as Westfield would love this. However, they are the gorillas who frighten off anyone who wanders into their patch. The famed Orange Grove fiasco in western Sydney was a case in point a few years ago: Westfield pulled out all stops to prove that a factory outlet was illegally approved on industrial land, and should be shut down. It was.
The hilarious thing is that the Shopping Centre Council of Australia, which is heavily influenced by matters important to Westfield, hailed the closure as win for a level playing field. If it was a true level playing field they wanted, they would have lobbied for zoning laws to be liberated to allow any retailer to operate from any location.
After all this, the SCCA supported the PC report, especially the bit about deregulating all opening hours anywhere including Sundays.
Imagine the poor single family retailer in a mall forced to stay open according to hours that suit the supermarket. Which by the way, doesn’t pay rent. These days the deli, the butcher and the fruit shop don’t want to go into a mall because the supermarkets now have their own fresh food and deli.
The Council of Small Business of Australia is certainly worried about liberalising hours.
Executive director Peter Strong told The Australian Financial Review that the cost is on the person running the business.
“They end up working a lot more hours than they should, or they end up paying penalty rates, in which case they make less money.”
“Deregulating trading hours in all states, as the draft report recommended, would benefit big retailers,” he said.
The council is also worried about the call for more liberalised zoning and said it was peddling a “utopia” of open entry that would exclude small retailers.”
“It’s quite simple with town planning,” Strong said. “You should not end up with a retail real estate monopoly, which means the car parks must be designed and streets must be designed in such a way that people can get to the shops they want to get to, Strong said.
“In too many places the car parks all end up under the big mall, so that’s the only place they can get to.”
Gadiel said the opposite was true: that “small business shopping strips that don’t have an anchor tenant are the very ones that are dying.”
In fact he said, “Retail productivity has been suffering for a long time, courtesy of the brutal planning regulations new retailers face.”
What’s brutal, though, is the way big retailers can outgun smaller retailers and force them out of business. This affects not just the retailer, but the community, and in turn, the village square, where people traditionally blended shopping with a social network occasion.
That’s why farmers’ markets are booming. People are delighted to buy direct from the farmer and often happy to pay a higher price for the sheer joy of avoiding the supermarket and being outdoors and chatting to the local community in the meantime. The truth is, they actually get more value for money: produce is fresher and tastes better anything that comes via a series of long trips from factories, or months in cool stores.
One of our retail sources tells us that shopping centre managers are desperate to attract the kind of sellers who go to farmers markets because the delis and the butchers, who do pay rent, are abandoning the malls because supermarkets are offering fresh produce and moving onto the specialty shops’ patch. Interestingly the supermarkets don’t pay rent.
An irony would be if the supermarkets became so strong that they cannabalised the malls, by making it impossible for the rent paying smaller retailers to work alongside.
Maybe everyone will move back to the high street after all. And the farmers markets.
Written submissions to the draft report are due by Friday 2 September 2011. https://www.pc.gov.au/projects/inquiry/retail-industry/draft
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