Since the early days of our industry, the issue of turnover figures supplied by retailers to landlords has always been contentious. Whenever the issue was tabled, there was always an ‘us and them’ separation, a stand-off, a polarisation between the parties. Late last year, a Sales Reporting Code of Practice was finalised and signed off by all parties. It’s a major leap forward by our industry affecting all stakeholders.

Late last year, the retail industry finalised a code of practice dealing with issues relating to the provision and use of turnover information, including a new landlord obligation.

The industry-led code, the Retail Industry Code of Practice – The Reporting and Sales and Occupancy Costs, was developed between the leading national retailer groups – the Australian Retailers Association (ARA), National Retail Association (NRA) and Pharmacy Guild – and ourselves.

The code (available at scca.org.au) came into effect on 1 January this year and has a six-month transition to an effective commencement date of 1 July 2019.

Before I talk about the context and detail of the code, I acknowledge the optimistic and collective engagement of the above groups in what I believe is a positive and model approach.

I also acknowledge my colleagues and fellow signatories to the code at these groups: Russell Zimmerman (ARA), Dominique Lamb (NRA) and David Quilty (Pharmacy Guild).

I also acknowledge the NSW Deputy Premier and Minister for Small Business, John Barilaro, who supported the development of the code.

SCN readers may recall that I’ve previously mentioned the code, and on this basis may note that it has taken some time to develop and finalise.

I first wrote about the prospect of the code in these pages a couple of years ago, including that it was an outcome agreed by industry in the context of the review of the NSW Retail Leases Act 1994.

Deputy Premier Barilaro noted the code at the time of tabling the 24-page Retail Leases Amendment (Review) Bill 2016 into Parliament; the outcome of a formal review process that commenced in 2013.

In his second reading speech to Parliament in November 2016, the Deputy Premier noted: “I’m pleased to update the House on an industry first development. The major retail industry stakeholders have reached agreement without the heavy hand of Government on a voluntary code of conduct…”

From a Government perspective, the positive and sensible signal in this respect, was that amidst more than 90 separate proposed amendments outlined in the Bill, support was given for an ‘industry first development’, and ‘without the heavy hand of Government’.

From a retail industry perspective, the code stands as a positive model and contemporary example of the industry working together, finding common ground (including the principle of ‘mutual obligation’ under the code) and codifying a practical solution.

In a media release issued when the code was finalised late last year, the ARA referred to the code as a ‘landmark achievement’ for retailers, that it marks a ‘major power shift’ back to retailers, and noted that the code will improve transparency and accountability.

Given its link to the NSW legislative review, the code applies to NSW, but there is an intention of the signatories that the code will be adopted nationally.

The driver for the code was an issue raised by the key retailer groups that when retailers provide turnover information to shopping centre landlords, not all landlords provide (or such retailers receive) benchmarking data that can be for the retailer’s benefit.

While some landlords were already doing so, an obligation on landlords to provide benchmarking information back to retailers, where retailers provide them with turnover information, is now codified. In addition, it is noted that landlords could provide other relevant data (eg. demographic).

The baseline ‘categories’ used to provide retailers with benchmarking information will be the longstanding SCCA sales reporting categories.

Benchmarking data (as aggregated, so it doesn’t identify the performance of an individual retailer) for a retailer enables them to compare the performance of their store to the performance of their retail category (eg. clothing and apparel), and performance of all specialty shops in that centre. This can alert them to the need for particular action.

It’s no secret that retailers providing turnover data to landlords has been a contentious policy issue.

It’s been debated and scrutinised to death under various retail tenancy and other reviews and inquiries.

To cite a few of these as a reminder, the 1997 Federal Parliamentary inquiry on fair trading, known as the Reid Report, looked at the issue.

The 2008 Productivity Commission report on the inquiry into the market for retail leases covered the issue also, noting it as a ‘tension’ in the landlord-tenant relationship.

In 2013, the discussion paper on the NSW review of the Retail Leases Act noted above, asked the question:

“What, if anything, should be done about the collection of turnover data by landlords?”

In 2015, the issue was again touched on by the Senate Economic Reference Committee’s 2015 inquiry into the Need for a national approach to retail leasing arrangements, established by then South Australian Senator Nick Xenophon.

These various inquiries ultimately drove no substantial or agreed change.

The 2008 Productivity Commission inquiry found that the provision of turnover data and its use by landlords is a matter for commercial negotiation.

The Commission also noted that prohibiting the reporting of turnover information – as some stakeholders were seeking – would reduce the flexibility of parties to negotiate a mutually beneficial lease and would be unlikely to lower average occupancy costs.

The 2015 Senate inquiry didn’t make any formal recommendation on the issue.

Senator Xenophon, however, noted that a “code of practice that incorporates the broad reporting of sales and occupancy costs in Australian shopping centres be finalised and implemented as soon as practicable”.

The Government’s response to the inquiry noted that: “The Australian Government understands the need for shopping centre landlords to have the right tenancy mix and sales and occupancy data is required to ensure viability of the shopping centre.”

These words flowed from the Government also supporting an industry-led code of practice governing the provision of turnover information by retailers and it viewed the finalisation of such a code as a mechanism to relieve the “associated tensions between shopping centre landlords and tenants”.

In the context of these various reviews and inquiries, the industry-led and agreed code is a breath of fresh air, landing on a productive and common-sense approach”.

To (re)quote the NSW Deputy Premier, the approach of the code also avoids the ‘heavy hand’ of Government intervening on the issue.

The code is, nonetheless, honest about the context of the above issues, noting as follows:

The practice of reporting sales results by retailers to landlords (mostly in shopping centres) has been considered the norm for some decades now.

Over time the way sales are collated and reported (including reported back to retailers) has created some long-running issues of contention for retailers.

This Code has been formulated by industry stakeholders to further the transparency and integrity of the commercial relationship between the parties to a retail lease where they have negotiated a contractual obligation to report sales data.

Further, in the industry’s own words, the code notes the benefits of the provision of turnover data across various parties, as follows:

Landlords need sales information for a number of management reasons. This includes determining the overall financial performance of the shopping centre and evaluating the strengths and weaknesses of the centre’s retail offer. Sales information is also necessary to make decisions about redevelopments of shopping centres; to guide decisions on tenancy mix; and to effectively target shopping centre marketing and promotional expenditures. Retailers also have an interest in ensuring optimum targeting of marketing and promotional expenditure.

Comprehensive and accurate sales information is also important to retailers to enable them to benchmark their performance against competitors and to highlight the need for corrective action.

Sales information is also vital to third parties, including retail tenancy advisers, industry researchers and industry publications, to enable an assessment of the comparative performance of shopping centres and to inform location decisions by retailers.

The next phase of the code is ensuring that the industry is prepared for the ‘effective’ commencement date of 1 July 2019 in NSW.

In addition, under the governance arrangement in the Code, the ‘Code Administration Committee’ comprising the Code’s signatories, will become enacted to oversee the Code.

The Committee’s role is to help promote and publicise the Code to raise awareness and understanding of the Code among retailers, landlords and relevant stakeholders; monitor the operation of the Code; regularly review the Code, regularly report to the signatories of the Code on its operation and effectiveness, and consider requests from other organisations that seek to become a signatory to the Code.

The committee will also monitor the general approach to any complaints alleging a breach of the Code, which in the first instance should be resolved in good faith between the landlord and retailer.

In summary, I encourage everyone in the shopping centre and retail industry to be aware of the key details including the spirit of the Code, and its mutual obligations.

The Code stands as a positive model for the industry to reach common ground and practical solutions. I again acknowledge my colleagues at the ARA, NRA and Pharmacy Guild for their positive engagement, and look forward to working with them on the roll-out of the Code.