Challenges for the retail entrepreneur

The retail sector in Australia is facing a number of challenges, and not all of them are related to lax consumer spending. Russell Zimmerman spoke at the GAP Productivity Summit about the Australian Retailers Association’s concerns.

Small and medium enterprises in Australia face a lot of challenges. But there are also many opportunities out there for the brave entrepreneur. I have identified some of my top concerns for the retail sector.

Retail tenants in major shopping centres throughout Australia must, under their lease, give their landlords their monthly turnover figures for each of their stores. This in my opinion is akin to giving the PIN number of your bank account to the landlord as they then have an understanding of just how far they are able to push the rent, making it only just viable for a tenant to lease the site they are in.

The view of the Australian Retailers Association (ARA) is that retail tenants should not disclose their turnover directly to the landlord. The turnover should be collated by a third party, (possibly the ABS or an industry association) and the figures should then be returned back to the landlord in categories the same as the ABS uses for its monthly data. Rents should only be set by market value, yet consistently I am informed by retailers that a landlord will tell them “But you can afford that rent”. This shows that the landlord is setting the rent by the turnover of the store and not by market value.

Currently lease legislation varies from state to state. In a retail environment that is showing little to no growth, landlords are living in the past when the model they use is rents set at CPI plus two percent, or an annual increase of five percent. This model is out-dated and broken and retailers will continue to struggle if they keep signing leases that contain these clauses. Landlords must change this model.

In a 24/7 trading environment, along with competition from purchasing online, wages are a large cost of doing business. The consumer rightfully wants retailers to trade seven days a week, 365 days a year, but it is impossible for Australian retailers to compete in a global market with rates on weekends moving through the transition from a state base award from Saturdays at 1.25 percent to 1.5 percent and Sundays from 1.5 percent to double time (or 100 percent penalty rate). Countries such as the USA and Europe in fact have a lower hourly rate than Australia and do not pay the penalty rates that we do in Australia. ARA has requested Fair Work Australia (FWA) cap the Sunday penalty rate at 1.5 percent with an aim to keep Australian retailers competitive to the rest of the world. Currently penalty rates are transitioning to 2.5 percent for public holiday rates.

The Australian Government has stated that no one would be worse off with the modern award. However retailers across the country would say that they are much worse off now than before the modern award. As well as rates that are unstainable in the current retail environment, Unions are seeking casual employees to become part-time employees after 12 months in the job. A part-time employee is far less flexible than a casual employee.

In the workplace retailers will continue to employ casual staff rather than part-time, due to the lack of flexibility and the cost of employing part-time staff.

Nick Xepheon suggested that businesses with less than 20 employees should be able to pay normal wages on weekends instead of penalty rates. This could limit a retail employer expanding his business beyond 20 employees as they would then have to pay penalty rates.

The ARA believes this will be a difficult arrangement to implement. Imagine – two shops next door to each other, one has under 20 employees the other a large retailer with plus 20 employees. The job seeker will want to work for the larger employer to be paid the penalty rate. So, to attract staff the smaller retailer will be forced to pay higher wage rates, defeating the purpose of this idea.

And as for payroll tax, it’s a tax that inhibits retailers from employing more staff. You do not encourage employers to employ more people when you tax them for increasing the size of their payroll and employing more staff.

Retailers are often high users of energy. Shopping centres are also high users of energy and the landlord will pass these costs on to the tenant. The Government should give incentives to encourage business to innovate and save energy and done well it would deliver better results than taxing and incurring a carbon tax.

Cutting company tax is not a solution. Small businesses are often a partnership and company tax reductions do not assist SME’s when they are not incorporated.

The states need to support retailers in their efforts to have the Federal Government reduce the Low Value Import Threshold (LVIT). Most of the state treasurers have come out in support of the lowering of the threshold, thereby giving state governments much need revenue. This issue will not fix the problems of the industry, nor will it level the playing field completely, however as retailers in Australia must collect and remit GST on sales, so to should the consumer pay tax on goods imported to Australia.

In the Low Value Parcel Processing Taskforce final report dated July 2012, recommendation 5.1 states “no recommendation is made as to what threshold should apply with respect to a simplified GST assessment arrangement but it is recommended that due consideration be given to a staged introduction to ensure a smooth and efficient transition”. This will not be the silver bullet for retailers in Australia however it will assist retailers in their struggle to compete in a global market.

Many regulations between states are different. Harmonisation needs to happen in many areas, such as work cover, planning approvals, OHS, and planning laws. The Australian Consumer Laws (ACL), even though they have been made national still have issues from state to state. Many retailers operate across state and territory borders and to help them we need more harmonisation of legislation that affects SME and ultimately assists all retailers no matter what their size.

Russell Zimmerman is the Executive Director of the Australian Retailers Association. Since 1980, Russell Zimmerman has owned and operated the Spark’s Shoes retail chain with his wife Marion. Russell became a Councillor of the Australian Retailers Association, New South Wales in 1995. He held the position of President of the NSW State Division from 2001-03. From 1997 he held the position of state delegate to the Australian Retailers Association National Council. He served as President of the Australian Retailers Association National Council from 2003-04. These positions are held in an honorary capacity.