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Major shopping malls and national retailers are allegedly engaging in “loose cartel” behaviour that is “cannibalising” small township businesses.
Major shopping malls and national retailers are allegedly engaging in “loose cartel” behaviour that is “cannibalising” small township businesses.

Malls, retailers 'cannibalising' township business


By Lyse Comins - Jul 10th 2017, 13:49

Major shopping malls and national retailers are allegedly engaging in “loose cartel” behaviour that is “cannibalising” small township businesses, the Competition Commission’s Grocery Retail Market Inquiry panel heard at its public hearings in Durban this week. 

The SA Traders’ Association, which represents 60 small and medium-sized enterprise (SME) retailers in KwaZulu-Natal, together with the Chatsworth Centre Tenants’ Association, presented its grievances regarding the effect of national supermarket chains in townships, peri-urban and rural areas, alleging that “loose cartels” had been formed in the retail property sector, damaging SME livelihoods.

Laven Pillay, a lawyer representing the two associations, said more than 80% of the country’s prime shopping malls were owned by five listed JSE companies – Old Mutual Properties, Sanlam Properties, Liberty Properties, Vukile Property Fund and Redefine Properties.

These companies have “cross shareholdings” with national retailers Pick n Pay, Checkers, Spar, Massmart and Woolworths, which are allegedly granted more favourable lease agreements than small retailers.

“The supermanagement company JHI manages the Old Mutual, Sanlam, Liberty and Vukile property groups. Redefine manages its own properties,” Pillay said.

“It is therefore our submission that loose cartels have been formed.”

Pillay said there was almost 300 000m2 of shopping mall space in township and rural shopping centres, with 160 shopping malls larger than 30 000m2 nationally across all areas, compared with just 36 in 1994.

“Today, there is more than 23 million squared metres of institutionalised shopping centres in South Africa ... Super and large retailers, most of which are listed on the JSE, superfranchises and national retailers occupy between 80% and 90% of floor space,” Pillay said.

He claimed that mall owners holding shares in national retailers that were “dominant” in shopping centres was “contrary” to the Competition Act.

Pillay said super-retailers were granted long-term leases of five to 20 years at beneficial rates and, in some cases, were granted “tenant installation” allowances ranging from R100 000 to millions of rands to set up shop, while SMEs were given three-year leases with no guarantee of renewal.

“Super-retailers are given low escalations, which range from as low as 1% to the consumer price index. The SMEs’ escalations start from 8% and go up to 12%. This creates a compounded negative effect on SMEs,” Pillay said.

He said super-retailers were not affected by “deal creep”, which is when landlords unilaterally change lease conditions.

Pillay added that landlords could change or cancel SME leases with short notice for revamps and they were often relocated to make way for super retailers.

“Bullying within the industry is in the form of cancellation of leases or nonrenewal of leases – the majority of SMEs are of the opinion that problems are caused by management agencies that, from time to time, would not allow renewal of leases to force SMEs into higher rates of lease,”Pillay said.

“SMEs are concerned that, in the absence of regulation, if the trends continue, SMEs would potentially lose their livelihood to the larger retailers,” he said.

Pillay called for the commission not to fine players if cartel behaviour could be proved.

“Force the guilty parties, namely the landlords, to relinquish land ownership to SMEs and equitably redistribute the land and property. The cartel’s self-regulation by way of contracts of lease have cannibalised SMEs,” Pillay said.

Sanlam came under fire at the inquiry from tenants of the Chatsworth Centre in Durban.

Chatsworth Centre Tenants’ Association chair Arthur Pallium said SMEs that had been in the centre for many years had been “victimised”, had unilateral changes made to leases and some had been forced out to make way for national retailers that were charged rent of R80 per square metre, while SMEs paid up to R900 per square metre.

SMEs were also prohibited in their leases from adapting their businesses to supply new goods and services, such as cellphone contracts, but national retailers had no such restrictions.

Sanlam Properties CEO André Rheeder declined to comment.

Mumtaz Moola, legal consultant for the SA Property Owners’ Association, which, according to its website, represents 90% of the country’s commercial and industrial property companies, said the association had committed to “a more vibrant globally competitive industry”, and referred questions to individual property owners and retailers.

Grocery Retail Market Inquiry panel chair Professor Halton Cheadle said complaints about major retailers affecting smaller retailers in townships had been raised countrywide. However, he said the purpose of the inquiry was to find out how the market worked and not to investigate any alleged contraventions, although matters could be referred to the commission for investigation as they arose. 

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