Why the need for the sales reporting code of conductBY Phillip Chapman
There has been a lot of news this week following the announcement of the introduction of The Reporting of Sales and Occupancy Costs-Retail Industry Code of Practice.
Which has resulted in some members asking why the industry needs such a Code?
The underlying issue is that for decades the inclusion of lease clauses which requires a retailer to report their sales to the landlord monthly has become the norm with most retailers not even questioning this contractual arrangement.
Armed with this further data on the performance of a retailer’s business along with all the available rental and lease information, landlords have enjoyed the upper hand when it comes to important events such as a lease renewal or lease option.
Compounding the outcomes has been the further contentious practice of applying or rather how landlords apply GST to a retailer's sales data.
There are numerous examples where property managers will add GST (another 10%) to a retailer's sales with the knowledge that the data already including GST.
The result, the performance of the retailer is overstated on a sales/sqm and occupancy cost ratio basis.
The reasons for doing this are clear, with inflated data a retailers’ occupancy cost ratio reduces upon which future rental increases can then be leveraged, hence placing the lessee negotiating a new lease or market rental review at a distinct disadvantage.
Further this practice is somewhat promoted by the competitiveness of centres to show increased results, take a look at Shopping Centre News Annual Top 100 lists for Big Guns and Little Guns to see why.
One of the Codes main outcomes is to introduce the disclosure by property managers on how they apply GST to a Retailers data thus giving the Lessee the opportunity to make like for like comparisons.
When negotiating a lease renewal and the lessee advises their occupancy cost ratio is 12% and needs to be 10% and the landlord responds saying “the sales you reported to us shows are already on 10%”, you can see quite quickly how easy it becomes for them to leverage the negotiations towards a higher rent.
The other important outcome from the Code is to introduce more transparency with a mutual obligation on the landlord to report results back to retailers (where the lease prescribes they must report sales).
Now this doesn’t mean a retailers sales will be shared directly with others. But when it comes to category comparisons on sales/sqm and specialty store centre results, this data will assist in analysing your performance and benchmarks.
It isn’t a perfect science however with transparency on how landlords apply the sales data and an obligation to share back, the Code takes the first steps in levelling the playing field when it comes to retail rentals.
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