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Retailers Association says its members are being driven out of business by rising rents and costs; expects the fair trading inquiry to deliver some relief.

MONICA ATTARD: Well, the Government has been called upon to change legislation to save small retailers from annihilation at the hands of unscrupulous and greedy shopping centre owners. Those strong words from the Retailers Association are aimed at getting the action its members say is long overdue. They want protection from rising rents and other costs they claim are driving them out of business, and they say legislative change is their only hope.

These latest claims bring to a head a long-running battle between small retailers and the owners and managers of shopping centres, as Karon Snowdon reports.

KARON SNOWDON: For many years, smaller retailers have complained their rents are too high, that they're lumbered unfairly with the other costs of running shopping centres and that, often, bigger department stores and supermarkets pay lower rents because of their bargaining power as the centre drawcard. Now their Association has accused shopping centre owners of inflating rents by as much as 35 per cent, threatening their ability to survive and even the stability of the entire sector.

Phil Naylor, Executive Officer of the Retailers Association, says the problem is a massive one.

PHIL NAYLOR: It's been going for a long time, but it's got so bad at the moment, for most specialty retailers in shopping centres, they have almost reached the level of unsustainability.

KARON SNOWDON: Is it worse now than in previous years?

PHIL NAYLOR: Yes, it is worse. To give an example: ten years ago the average retailer was paying about 10 per cent of their sales in rent, it's now 15 per cent of their sales.

KARON SNOWDON: Is that unsustainable for most?

PHIL NAYLOR: Well, it is. The average specialty retailer makes a gross profit of around 38 per cent of sales, about 12 to 14 per cent go on wages, 15 per cent goes on rent, another eight or so per cent goes on admin expenses, so there's virtually nothing left for profit. So the 15 per cent - the move from 10 per cent to 15 per cent - has really wiped away their whole profit.

IKE BAIN: One of the shops at the moment that I am negotiating on, they have just sent me a letter saying: 'We like to renew your lease, but we want to put your rent up 71 per cent.' So the rent has gone up 71 per cent, and the most incredible thing about this is that if I don't agree within 21 days - on this particular rental - they are going to put it up even more. It will be an 88 per cent increase.

KARON SNOWDON: What are you going to do with that particular store facing increases like that?

IKE BAIN: I'll just have to shut it down.

KARON SNOWDON: Ike Bain is Chief Executive of Australian Geographic which operates 29 stores around the country. He objects, in particular, to the manager's power to sight his sales figures and the disadvantage he suffers as a result in any negotiations.

IKE BAIN: Often these things are used against me when a rent review comes up. And in one particular situation where I had to do a negotiation, the landlord got a computer list out and said to me: 'Look, your rent to sales are only 7 per cent. The average rent to sales in this particular centre is 15 per cent, so we're putting your rent up.' And my rent went up from $90,000 a year to $158,000.

KARON SNOWDON: The Property Council, representing building owners and managers, dismisses claims that rents are too high. Manager of Retail Policy, Jeff Deakin.

JEFF DEAKIN: We refer to an independent retail research firm, Jepp Hollander De Macey(?), with a census of over 14,000 retailers, show rental figures for the two years from June 94 to June 1996, of an increase of around 5 per cent in regional shopping centres. This compares favourably with the CPI during that time of 6.6 per cent and an actual decrease of 1.7 per cent in the smaller shopping centres known as the discount department store shopping centres.

KARON SNOWDON: So are you saying that the smaller business operators shouldn't be complaining, that they have got nothing to complain about?

JEFF DEAKIN: No, the retail market at the moment - and everyone accepts this - is incredibly difficult for all sides, both owners, managers and retailers. But I would refer to the statement made by the Australian Institute of Valuers and Land Economists. They claim that the statements by the Australian Retailers Association were gross overstatements and not supported by market evidence.

KARON SNOWDON: But according to a number of small retailers, who wouldn't go public for fear of commercial retribution, they are facing a crisis not seen in the industry for 20 years. If nothing is done to balance their relationship with centre owners, they say they'll be decimated with the loss of many jobs. And the urban decay now seen on many high streets, will extend to shopping centres themselves.

Phil Naylor adds that part of the blame lies with government regulations, which have the effect of delivering a virtual monopoly to centre owners. He still maintains that rents, as a result, are 35 per cent higher than a free market would dictate, with implications far beyond the immediate retail sector.

PHIL NAYLOR: The Government regulations say that you can't build a shopping centre on every street corner. They are given a protected position so that because of town planning situations they can only build shopping centres in certain areas - and that means they are in a privileged position - and a retailer just can't walk from that shopping centre across the road to another one because there isn't another one there.

KARON SNOWDON: What's driving this? You would say, I presume, that it's just the shopping centre manager's greed.

PHIL NAYLOR: Well, it's a notion that shopping centre managers have that they are always entitled to the best possible return on their investments.

KARON SNOWDON: Well, that's fair enough.

PHIL NAYLOR: It is, providing that the return they are getting their return from is sustainable. Our concern is that, in the long run, the people who invest in the shopping centres - that's the mums and dads in property trusts - are putting their savings at risk because we think they are putting them into an investment, that whilst it's returning fairly well now, it's in an unsustainable position.

JEFF DEAKIN: The members of the Property Council are very well aware of the difficult trading times faced by retailers, however, they would point out that the vacancy rates in major shopping centres are still around one to 2 per cent. Furthermore, about 98 per cent of leases are renewed, but I would add that the retail industry - there is no more dynamic industry. It is the consumer that's driving the demands for change of retailers and of shopping centre owners and managers. It's not change driven by the industry itself.

KARON SNOWDON: Jeff Deakin from the Property Council. Phil Naylor says the onus is now on government and he's hoping the fair trading inquiry delivers some relief.

PHIL NAYLOR: We're hoping that they will come down with recommendations that will enhance legislation around Australia. We're hoping that we can see some national uniform legislation in each of the States that deals with some of the key issues we've raised.

MONICA ATTARD: Phillip Naylor, the Chief Executive of the Australian Retailers Association, in that report from Karon Snowdon.