By Kyle Swain, Retail Director Aust & NZ, Lpc Cresa
Last week’s announcement by NSW Minister for Finance and Small Business Damien Tudehope of a new voluntary Code of Practice for the NSW retail sector promises greater transparency, certainty and fairness for tenants and shopping centre landlords.
The new Code of Practice – Reporting of Sales and Occupancy Costs means that NSW retailers now have access to the same sales and occupancy cost data previously available only to landlords – levelling the playing field when negotiating a new lease or lease renewal.
This new Code of Practice actually came into effect on January 1 this year, but landlords were given six-month’s grace to upgrade their systems so the data can be extracted and supplied to retailers.
What is the new Code of Practice?
Landlords accept that where shopping centres collect sales information, they have an obligation to provide that information to retailers who request it.
The Code of Practice is essentially an agreement between the major shopping centre landlords to provide sales data to retailers who request it. It is not prescriptive on the format in which the information is to be supplied, rather it states that this should be a matter for discussion and agreement between the landlord and retailer.
The Code does however state that the information should allow the retailer to benchmark their performance against other retailers in the same sales group within the shopping centre and, where relevant, within the landlord’s portfolio of centres.
How did the Code come about?
The new Code was formulated by the Shopping Centre Council of Australia (SCCA) in consultation with its members and other leading national retail groups including the National Retail Association, Australian Retail Association and Pharmacy Guild.
Part of the SCCA’s mission is to encourage best practice across the industry, and its 26 members including all the major retail shopping centre landlords have agreed to enter into and abide by the voluntary new Code.
What are the practical benefits of the Code for retailers?
Benchmarking store performance is a critical component of managing a retail business. Whether its benchmarking ‘forecast’ performance to decide whether to enter into a new lease at a particular location or benchmarking actual performance to be able to make sound business decisions for your business operationally, and in managing your lease.
Occupancy Costs as a percentage of your turnover (OCR), and sales per square meter are critical measures of performance but its only truly valuable when you are able to directly compare your own store’s performance against others in the same category and preferably in the same shopping centre and across a number of other centres.
This new Code of Practice allows retailers in NSW to now do that, and it is extremely powerful information to have when used correctly and at the right times.
Example 1: Thinking of opening a new store
- When thinking of opening a new shop, access to sales data can provide increased leverage in negotiations. The data can be used to determine performance of other retailers within your centre in the same category and therefore the likely performance of your store. When you determine the likely performance, you can then determine what rent will be affordable for your business to pay. If the landlord won’t agree to that rent, look elsewhere.
Example 2: Renewing the lease on your existing store
- Retailers have always had data on their own store’s performance when it comes time to negotiate lease renewals. Now they have access to comparative data for the first time. This makes a huge difference at the negotiating table. Firstly, it helps you with the ‘stay/go’ analysis, then it provides real data to justify what rent can be agreed to.
Example 3: Having trouble paying your rent?
- When your rent is too high as a percentage of overall turnover, and you’re falling behind in rent, it is possible to negotiate reduced rent from the landlord – sometimes as a short- term solution, sometimes as a permanent realignment. Many of the good shopping centre landlords are prepared to ‘share the responsibility’ with their retailers when things aren’t going well, so being able to show that your store’s underperformance is a Centre wide issue, or an issue across the category either within your Centre or across the landlord’s whole portfolio, is vitally important to putting together a strong case for what the rent should be adjusted to.
Accessing and using the data.
To benefit from the new Code, you will have to specifically ask for the information from your landlord who has to be a member of the SCCA – as participation and compliance to the Code is voluntary.
If you’re unsure how to interpret and leverage the data in negotiations with your landlord, tenant-side retail leasing specialists such as Lpc Cresa can help. We’ll request the data, analyse and use it to ensure you get the best outcome for your lease – and business.
While it is hoped that the Code will be adopted by other States over time, it is likely that this will be a retail tenant driven take-up. So, if you are a retailer outside of NSW it is worth taking the time to ask your landlord for access to this data – particularly if your existing lease is coming up for renewal or you’re looking to enter a new lease.
Lpc Cresa is the tenancy and leasing partner to the National Retail Association. We provide specialist leasing and property services to independent, multi-site and franchise retailers across Australia and New Zealand | www.lpc.com.au | 07 3121 3367.