Economy

Small retailers fear collective bargaining backlash… Hocking & Stuart off the market… Franchisees win support… No crisis rerun, says Brain… US mortgage worries… National debt register on way… Economy roundup…

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Small retailers fear collective bargaining backlash

Small retailers are shunning laws that allow them to collectively bargain with shopping centre landlords because they fear retribution, a leading industry group says.

There is widespread concern among small retailers about the bargaining inequality they face in lease negotiations with shopping centre lessors. Retailers have been reluctant to follow the example of other small businesses in the agricultural and hospitality sectors that have taken the opportunity to engage in collective bargaining.

The Federal Government introduced new laws in January that it hoped would entice more small business to engage in collective bargaining by making it cheaper and faster to do so.

Despite a substantial advertising campaign, however, the ACCC has yet to receive a single application under the new laws, a failure that ACCC chairman Graeme Samuel described as “frustrating” and “bewildering” in a speech to the Council of Small Businesses of Australia Summit last week.

“I remain perplexed at the unwillingness of centre tenants to engage in some form of collective bargaining with centre landlords; surely this approach would offer a strengthened negotiating hand to tenants in their lease dealings,” he said.

But the executive director of the National Independent Retailers Association, John Brownsea, says while many small retailers are being pushed to the wall by landlords’ demands for rent increases of up to 30%, they fear being punished if they resort to collective bargaining.

“The unwritten rule of leasing is that the landlord can always get even: they control whether or not your business survives, and if you stick your head up and say, ‘We want to bargain together’, when you get to the end of your lease they just won’t renew it,” Brownsea says.

The ACCC’s Samuel rejects this view. “If there is any sense of intimidation or harsh conduct directed towards an individual tenant, they only need approach us and we’ll deal with it under unconscionable conduct provisions.”

The reality, Samuel says, is that most small business owners don’t want to work in a group, even if they are being squeezed. “Many tenants will simply say they think they can do a better deal on their own,” he says.

– Mike Preston

Going, going, gone!

Melburnians hated buying from houses them. But real estate agents Hocking Stuart were a favourite when it came to flogging property. The two entrepreneurs behind the brand, Greg Hocking and Andrew Stuart, have sold their share of the business to eight franchisees for an amount believed to be more than $10 million.

The business that started in 1985 grew to a network of 40 franchises with sales of $2.4 billion last financial year.

Hocking will focus on a business he co-owns, Alliance Property Finance, while Stuart will stay on as an adviser.

– Amanda Gome

Disgruntled franchisees win more support

A growing number of disgruntled franchisees lobbying for change in franchising law have won the support of Nationals Senator Barnaby Joyce.

Joyce has recently met several disgruntled franchisees from big chains and hopes the franchisees and other small business people’s struggles with big business will become an election issue. “I think that they have a very reasonable position that needs to be pursued.” he says.

Disgruntled franchisees have also gathered support from MP Don Randall, who named chicken franchise Lenard’s in Parliament in connection with allegations of unconscionable conduct by three Bakers Delight franchisees. Labor Senator Graham Edwards joined him in meeting with disgruntled franchisees.

Last year Small Business Minister Fran Bailey ordered an inquiry into regulation into the franchising industry. The Government accepted some of the recommendations for change earlier this year but there has been no indication about whether they will be made law.

Last week Craig Emerson, the Opposition spokesman for small business, told SmartCompany.com.au he will support the Government changes to the franchising code when it comes before Parliament. Emerson says there are bound to be some unhappy franchisees. “It’s not the role of government to ensure happiness for everyone. It is not for the Government to insert themselves in every commercial relationship in Australia.”

Joyce believes that if the Trade Practices Act is strengthened franchisees will be protected. “We need the act that is supposed to protect the rights of small business in the market against the power of the major market players to be tilted far more than it currently is.”

Joyce wants to see a better definition of unconscionable conduct in the Trade Practices Act. “The current Trade Practices Act defines what ‘may’ be unconscionable; we need a definitive statement of what is unconscionable. And the threshold needs to be lowered.”

He likens franchisees to rent-takers in shopping centres, suppliers to the big grocery retailers, and fuel retailers supplied by companies that are also their competitors. “Once they have got you on their hook, they have got you over a barrel.”

Joyce says that he is reserving his right to cross the floor in the Senate to push for greater changes than those in the Government’s bill that is currently under consideration.

ACCC chief Graeme Samuel recently announced the ACCC would be taking a more aggressive approach to taking action against unconscionable conduct but there has been a growing chorus of complaints against the regulator. Many small business people believe it is ineffective.

Joyce says criticism of the ACCC is misguided because the regulator needs stronger laws to take action. “The ACCC needs stronger laws to work with otherwise you create a strawman that can make every one feel good but fix nothing.”

– Jacqui Walker

No crisis rerun, says Brain

Economic forecaster Peter Brain, who predicted the Asian financial crisis in 1997, has rejected predictions that an asset bubble in Asia could cause another financial crisis. Yesterday, the former deputy governor of the Reserve Bank of Australia, Stephen Grenville, said Asia’s financial sector was still fragile and that volatile capital flows, fragile financial markets and a less anchored exchange rates added to the risk of an Asian financial meltdown.

But Brain, the executive director of the National Institute of Economic and Industry Research, says the trigger for the next financial crisis will come from the US not Asia, provided China keeps surging ahead.

The weakness in the US would push other currencies higher. “The financial crisis in Asia in 1997 was centered on the devaluation of the Asian currency and reflected the imbalances of the Asian economies at the time.

But the US is far greater economic and political risk. “We don’t know how far the problems in the sub-prime mortgage market in the US have to run. They may not go much further but they reflect other underlying weaknesses in the US that might trigger other meltdowns.”

He believes the US is entering a low-growth crisis that has already started and will have three years to run. “We’re not looking at Asia for the next financial crisis,” he says.

– Amanda Gome

US mortgage worries

Concerns are growing about the integrity of the US mortgage market after two credit ratings agencies signalled they would downgrade $US17 billion worth of bonds backed by sub-prime mortgages.

On Tuesday international ratings agency Moody’s downgraded its ratings of $5.2 billion worth of sub-prime backed bonds, while Standard & Poor’s warned it might cut ratings on up to $US12 billion in bonds, the Australian Financial Review reports today.

The news pushed the Australian dollar higher against the greenback in overnight trading to a new 18 year high of US86.40c.

The exposure of US mortgage lenders and investment funds to the sub-prime mortgages – housing loans to people with poor credit histories – has been a constant source of instability to the US economy this year, with each new sign about rising default rates fuelling speculation about the risk of housing market crash.

Such a crash would shatter market and consumer confidence in the US economy and could trigger a downturn.

Australia does not have a substantial sub-prime market, but defaults and arrears in the conventional mortgage market are likely to increase in the years ahead, according to a new report by Standard & Poors Australia.

The strong likelihood of an interest rate rise and record levels of household debt are key factors that could drive an increase in defaults, the report says.

Standard & Poor’s downgraded its rating of 12 of the 47 conventional mortgage funds on the basis of this risk, the Australian Financial Review reports.

– Mike Preston

National debt register on way

Lenders will be able to find out if consumers have borrowed against goods and assets such as cars under a $113 million Federal Government plan to build an online national property security register, the Australian Financial Review reports.

Although information on debts secured against land has long been easily accessible, the availability of information on borrowing against personal assets such as cars or shares has been highly variable from state to state.

Business could benefit from the establishment of such as register because it will be easier to use non-land assets as security for debt, especially when establishing offices interstate.

– Mike Preston

Economy roundup

The Australian dollar was trading strongly this morning because of fears about the US sub-prime mortgage market. It came back from a fresh 18-year high overnight of US86.40¢ to a still impressive US86.15¢ at 12.45 pm.

Australia’s unemployment rate increased slightly in June, to 4.3%, according to Australian Bureau of Statistics data released today. Although the 2500 new jobs created fell short of the 15,000 expected by the market, the 4.3% unemployment figure shows the job market remains extremely tight.

Unemployment increased because a gain in part-time employment of 36,900 was offset by a fall of 34,300 in full-time employment, partly retracing the huge 68,700 gain in May this year.

The strong condition of the Australian economy is also reflected in results from the Melbourne Institute inflationary expectations survey released today that show people increasingly believe inflation will not stay within the Reserve Bank’s 2–3% target band.

Just 15.9% of those surveyed in July believe that inflation will stay below 3%, down from 17.4% in June and the 12-month average of 18.1%.

At 12.40 pm the S&P 200 was up 0.3% from yesterday’s close, to 6343.4 points.

– Mike Preston

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