OVERVIEW OF THE CHANGING AUSTRALIAN RETAIL LANDSCAPE
Until relatively recently, the Australian retail market was occupied in the main by domestic retailers. Many such retailers are long standing and are considered national icons, but gone now are the days when those local retailers were the sole drawcard to our major shopping centres. Now customers are flocking to the new players – overseas brands like Zara and Topshop, who have recognised that the time has come to tap into the Australian market.
THE WINDS OF CHANGE
In the last few years we have observed two main changes to the Australian retail landscape. First, we are seeing an explosion of luxury brand presence: no longer just the domain of flagship CBD or casino sites, luxury brands are setting up shop in dedicated high end precincts in our suburban shopping centres. Second, we are seeing the arrival of numerous overseas high street brands, particularly in the fast fashion and general apparel sectors.
Australians have long been familiar with both of these sets of brands, having been introduced to them in the course of overseas travel and more recently as a result of online shopping sites extending delivery services to this part of the world. But now these international retailers are more formally entering our market, with their own bricks and mortar stores, and bringing their experience and competitive pricing achieved through economies of scale.
We cannot yet know the longer term effect on our local retailers. Are these overseas retailers taking the consumer dollar at the expense of home-grown traders or are they injecting much needed renewal and confidence into a market that is at the mercy of economic fluctuations?
Vacancy rates in major Australian shopping centres are at the lowest levels in years and owners continue to have a healthy appetite for renewal and redevelopment of those centres. Development of brand-new centres has slowed in recent years due to the economic climate, but we are seeing a revival of CBD retailing with Westfield Sydney and the soon to be completed Melbourne Emporium.
CHALLENGES FACED WHEN ENTERING THE AUSTRALIAN RETAIL MARKET PLACE
Australia is an obvious market for US, UK and European brands. There are few of the language or cultural barriers that are faced in entering other markets. But supply chain and reverse season issues are challenging, and several companies have faced difficulties with local distribution and licensing relationships.
Another challenge – unique to Australia – is its regulatory framework for retail leases. Since the 1980s, attempts have been made by state governments to redress the perceived imbalance in bargaining power between landlords and small retail tenants. Each state and territory now has its own retail tenancy legislation, which is in the nature of consumer protection legislation, designed to ensure small business owners are informed and equipped to enter into formal leases which are equitable and conducive to the success of their proposed enterprise.
Unfortunately, the fact that the legislation differs across internal Australian states combined with anomalies of drafting, means that protection is distributed inconsistently. For example, a retailer that is either listed in Australia on a public exchange or is a subsidiary of a listed company will not be protected in Victoria, but will be subject to the legislation in NSW. The same quirks apply for an overseas retailer, with bodies corporate whose securities are listed on a World Federation of Exchanges stock exchange outside Australia, and their subsidiaries, being excluded in Victoria, but not in NSW. There have been recommendations for uniform national retail tenancy legislation around Australia. It would appear that achieving this is some way off, with state and territory governments continuing to turn their attention to other issues.
Where the legislation does apply, it prescribes landlord disclosure before the lease is entered into, minimum lease terms of five years, compensation to tenants for disturbance and redevelopments, rent review, operating expense and sinking fund limitations, use of tenant's sales information, procedures for landlord consent to assignments of lease, relocation requirements and dispute resolution processes. It is important to realise that this regime is more than just a code of conduct and, for the most part, it is not possible to contract out.
The regulatory overlay can make negotiating retail leases somewhat complex in Australia because of the need to understand how the statutes interact with and affect the common law rights and obligations, both in contract and tort, which govern commercial leases generally. It also can be more expensive for both landlords and tenants because of the need for state specific lease documentation and lease advice. On top of that and quite apart from the retail leases legislation, each state and territory in Australia has differing land title regimes, meaning sometimes leases are registered and sometimes they are not.
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