A new Productivity Commission report has found the cost of doing business in the Australian retail sector is inflated by inefficient red tape and a number of anti-competitive restrictions.
The retail sector is comprised of about 133,000 businesses — 95 per cent of which are small businesses — and contributes about 5 per cent of GDP.
The PC report makes a number of observations around the deregulation of trading hours, zoning regulations, occupancy costs and workplace relations.
It finds that labour and tenancy costs have been rising faster than retail prices, although retail profits have remained relatively stable. Profits have been protected by the lower cost of some goods, the appreciation of the dollar and productivity gains in the retail sector.
However, the PC finds that since its 2011 report into the economic structure and performance of the retail sector many businesses continue to operate under a number of onerous regulatory regimes and reform has been piecemeal and incomplete across jurisdictions.
1) Trading hours:
The PC report notes that restrictions on trading hours are decades and in some cases even centuries old and carry an opportunity cost for operators in the from of forgone sales.
In addition, they also lead to other operational and capital costs by reducing the time needed for stock management and the prospect of a business spreading its fixed costs over a wider volume of sales.
The deregulation of trading hours in some segments of the retail sector may also be likely to increase employment.
Trading hours have been effectively deregulated in Victoria, Tasmania, the NT and the ACT and largely unrestricted in NSW. But inflexible conditions still remain in place in QLD, SA and WA with broad inconsistencies between jurisdictions.
The emergence of different trading restrictions within and between various jurisdictions leads to increased compliance costs for those trading in more than one area. In Queensland, for example, there are more than 30 separate trading zones
The PC report finds that the “root” cause of problems in the retail tenancy market arises from restrictive planning and zoning legislation that hampers competition and limits space, particularly in shopping centres.
It notes that reforms are needed to ensure zones where retailers locate are large enough (in floor space terms) and broad enough (in terms of business type). It also suggests removing the need to consider the commercial impact on existing businesses when new development applications are lodged.
It finds that inadequate resourcing and skills at a local government level can negatively impact zoning outcomes and recommends that state governments address this issue.
The PC also found that, since its 2011 report, Victoria had proved more successful in proceeding with reforms to its planning and zoning system than had other jurisdictions.
3) Occupancy costs:
Occupancy costs include rent, fit out, energy, security and insurance. The PC found that rent as a share of revenue was higher in Australia than in either the US or the UK.
However, other costs were making a significant difference too. For example, the Shopping Centre Council of Australia found that from 2009 to 2013, (per square metre of shop space), electricity costs had increased by 36 per cent, air-conditioning by 21 per cent, cleaning by 19 per cent and repairs and maintenance by 13 per cent.
This has triggered innovation with more businesses now having self-service checkouts and some businesses moving more of their functions online.
4) Labour Costs:
Labour costs are the largest expense for most retailers. For the 2012-13 year, labour costs comprised about 47 per cent of the total cost of doing business in the retail sector.
Retail employees earn less on average than those in most other industries, with average weekly earnings coming in at around 70 per cent of the average across all industries.
It is also more “award reliant” with nearly 26 per cent of workers covered by the General Retail Industry Award as compared to the “award reliant” average across other industries of about 16 per cent. Around 42 per cent of retail workers are covered by an enterprise agreement.
Between 2008 and 2012, annual average growth in retail wages was 3.8 per cent as compared to 4.3 per cent for the average across other industries. Nevertheless, the PC finds that labour costs as a share of revenue are higher in Australia than in the United Kingdom and the United States.
5) Other regulatory restrictions – delivery times, labelling:
Many retailers feel hostage to heavy-handed regulation that has hampered their ability to operate effectively and pushed up operating costs.
One example is the restriction on delivery and pick-up times arising from concerns over excessive noise near residential premises.
One large retailer informed the PC that heavy vehicle movements were only allowed between 8am to 5pm (Monday to Friday) and 9am to 1pm (Saturday). No heavy vehicle movement is to be tolerated on Sunday or public holidays.
Yet this means deliveries cannot be made between made between Saturday lunch to Monday morning (Tuesday morning on a long weekend), preventing the availability of fresh milk, fair and bread products to customers.
On product labelling and safety warnings, concerns were also raised over the excessive costs of achieving compliance with signage requirements with some states stipulating the font size of in-store sign writing creative significant administrative expenses.