Are planning regulations making retailing uncompetitive?

City of Darebin's draft Vision for Northland

I agree with Australia’s retailers and the Productivity Commission that imported internet purchases valued at less than $1,000 should be subject to GST. But I only agree in-principle.

The trouble is, as the Productivity Commission’s report on retailing released last week shows, the administrative effort required to levy the GST would cost more than the tax would raise in revenue.

But the GST is really just a distraction – the underlying malaise of Australia’s retail sector runs far deeper. The Commission says retailers operate under several regulatory regimes that reduce their competitiveness. It nominates three major restrictions which require improvement:

Planning and zoning regulations which are complex, excessively prescriptive and often exclusionary

Trading hours regulations (in some States) which interfere with the industry’s ability to adapt and compete in a more globalised market

Constraints on workplace flexibility such as obstacles to the greater use of enterprise bargaining and the adoption of best practice productivity measures

Retail hasn’t historically been trade-exposed, so it hasn’t had to work hard at being competitive. Up until now, international suppliers have even been able to practice blatant price discrimination. But the internet has changed the game. Consumers can now compare what they’re paying for many products locally with what it costs to import them from overseas markets.

The impact of planning regulations on the viability of domestic retailing is of course of particular interest to The Melbourne Urbanist. The Commission notes that the ability to maintain a competitive and healthy retail sector is vitally dependent on the ability of new retail formats to gain entry to Activity Centres. A number of studies have shown that preventing the development of new retail formats lowers productivity, reduces employment and raises prices to consumers.

The Commission finds a number of barriers to entry, including limits on the size and scope of centres, prescriptive planning requirements and excessive scope for firms to establish local monopolies and maintain them by excluding new entrants, either with the implicit cooperation of planning agencies or through the courts. The Commission recommends that:

Activity Centres should be large enough in terms of total retail floor space and broad enough in terms of allowable uses to facilitate new retail formats locating in existing business zones

Prescriptive planning requirements should be significantly reduced to ensure competition is not needlessly restricted

The impact of new entrants on the viability of existing retail businesses should not be considered at any stage in the rezoning or development assessment process. This issue should only be considered at the strategic planning stage

The focus should shift to “as-of-right” development processes to reduce uncertainty and minimise the scope for gaming of the system by commercial rivals

Courts should be able to award costs against parties who are found to be appealing for non planning reasons

It’s interesting and illuminating to read the Commission’s report and at the same time look at what the City of Darebin is proposing in this report for the future development of Northland, a “hard-top” shopping centre (mall) with nearby “big-box” retail facilities at Preston, about 11 km north of Melbourne’s CBD. The exhibit above shows Council’s proposed vision for the centre and surrounding uses.

Astonishingly, there’s little of substance in Council’s report about Northland’s function as a place for selling and buying goods and services, much less anything about trends in retailing and the opportunities and/or problems this might present. But what’s perhaps most bizarre is the fate of precinct No. 3, the existing Homemaker Centre opposite the hard-top, which currently accommodates a range of mostly ‘big box’ or ‘category killer’ furniture stores set around a central car park.

Council’s vision does not include any space for large format retailing. It simply ignores consumers’ evident interest in this form of retailing which, as the Productivity Commission points out, has been the primary direction of retailing change over the last twenty years. In fact without any assessment or even apparent awareness of what the consequences might be, Council envisages the existing Homemaker Centre will simply disappear and be replaced by a mixed use precinct with retail, office and higher density housing. Council even foresees (page 14) the existing Bunnings’ site could be redeveloped in the future with “a greater mix of land uses”.

Council’s vision shows the ascendency of “urban design” over more prosaic matters like the economic and social welfare of the community. It’s not that the former doesn’t matter – it does – the problem is this sort of jejeune “designer” vision isn’t underpinned by any economic or social analysis, or a genuine appreciation of real people’s lives or preferences.

Planners and policy-makers should understand that their policies usually also have implications for mundane things like jobs, prices and consumer choice.


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20 Comments on “Are planning regulations making retailing uncompetitive?”

  1. T says:

    I agree with everything you’re saying here, except the part about GST on internet purchases. I would go as far as saying I don’t think there should be any GST on any goods purchased overseas for personal use. I don’t see why, if I buy something in another country, I should pay Australia anything. But I digress. Retailers definitely seem to be having trouble competing in today’s market and I’m really surprised that restrictions on trading and penalty rates for weekend trade is still in place. Plus, wages are ridiculously high – most other countries work on mostly commission, which is why staff are more helpful. Here, staff don’t do anything in most cases, and still expect to get $20+ per hour and they’re too precious to work on Sundays (or at least they are here in WA where Sunday trading is still highly restricted, I don’t really know why…). Add that to all the Council restrictions, and very high commercial rents and of course they’re having a tough time. And while I feel bad, I don’t think the solution is making consumers pay more, through extra GST or otherwise. We need to find a way to make it feasible for business compete. I think overall, all things being equal, most people would rather buy something in a store than online. But not if it costs them 250% more!

  2. Daniel says:

    Alan, I agree with your point. The other reason that bricks and mortar retail is struggling in Australia is the very high cost of real estate. I’d argue that the very high cost of real estate is caused, in most part, by residential planning restrictions. Or to put it in NIMBY terms, preventing all “inappropriate” development. So it all comes back to urban planning.

  3. Simon says:

    I think it’s jejeune to assume that current consumer preferences are anything but the product of the built environment. To change that built environment is to change those preferences. Catering to current preferences simply entrenches the results caused by historical urban design decisions.

  4. Russ says:

    Alan, completely agree. There may be something to redeveloping the Bunnings site or the adjacent carparks to a higher density. And it probably will happen if land-cost is an issue and the centre tries to expand. To the extent the planners ought to be worrying about that, it is to note that the council is amenable to higher retail densities.

    On a similar note over preferences, I wonder if they actually consulted the local sports clubs before planning to reduce the size of TW Blake Reserve and replace the lost open space with small landscaped parks? The satellite photo shows 4 junior cricket pitches on the oval, equivalent to 4 junior footy/full size soccer grounds in winter. The plan aims to make a single oval. That’s about 120 people playing organised sports per week that are being displaced – not to mention that they’ve landscaped out the secondary college oval. Maybe housing 100 people is a better option for the space, and maybe they are grossly under-used; but I get the impression people writing reports like this don’t understand that there is a difference between an “open-space opportunity” and a functioning sports oval.

  5. Mike says:

    Hmmm. Think you miss the point. Productivity Commission also guilty. USA has the most competitive retail market in the world, the Commission would love it. It is a case study in market failure with retail becoming so specialised that they travel twice the distance as us to shop (and three times that of Europe), despite having the highest retail floorspace per capita in the world. As a consequence many of their towns and cities are failing.

    Retail is at the lowest point of the economic pyramid (and LFR the lowest of the low) and should be tasked with delivering more than just homogeneous shopping malls or boxes in a car park – which is what the industry wants.

    Retail when it activates streets inspires additional economic activity, which increases economic performance and infrastructure efficiency. The external costs of single-issue competition policy regarding retail far outweigh the benefits. Hence the need for retail to behave itself and not merely operate from boxes that drop their pants at the street. The solution is not to provide unfettered opportunity for retail to operate wherever it wants.

    Haven’t read the Northland study but assume they are not mandating the LFR to move somewhere else, but are seeing the site as more intensively used going forward. That enables the market to do its thing. Sounds good to me.

    • Alan Davies says:

      “The solution is not to provide unfettered opportunity for retail to operate wherever it wants”

      That’s a straw man, Mike. It’s very clear from the PC’s report that they’re not advocating “anywhere goes”. The PC explictly acknowledges in the report the economic rationale for planning. The issue is how well Activity Centres work.

      • Mike says:

        OK then, maybe I read your article as leaning too heavy on accommodating the “retail trends” aspect. I for one am not sure that they’re helping improve our activity centres. We therefore need to also make them behave if we believe (and I don’t necessarily) that their benefits outweigh their costs. This is because the trends are mainly to bigger boxes (such as LFR and Costco and the like).

        The interesting thing with these “trend retailers” is that they are price-point based. That market position places them at risk of the other price-point medium which is the internet. The same goes for the malls. Activity centres that give us a wider value set (such as art, architecture, culture and yes even local retailers that recognise us), and where the operators must focus on service and quality to survive are not those that are under threat from the internet. Interesting times……

  6. I’m sympathetic to where Mike is coming from here. I think Big Box retailers (to generalise) are very poor corporate citizens when it comes to planning and urban design. As a planner I have had arguments with them where they refused point blank to do things such as provide windows and active frontage to streets.

    I’d also note that in Victoria at least such retailers have had an unfair leg-up through the flexibility allowed to so-called “restricted retail” to locate out of centres. Which, of course, reinforces the point about the need to better accommodate them in centres.

    The dilemma facing planners seems to me to be that the whole sector has restructured so heavily around the big box model – a shift not caused by urban planners, but which we have been complicit in – that to be anti-big box is now akin to being anti-retail or anti-commerce. I’m not sure how we resolve that dilemma, although I wonder if Borders is something of a canary in the coal mine, hinting that in the future smaller retailers might regain an edge over the larger, more floorspace-heavy business models.

    Finally, it’s worth noting that Victoria has a retail policy review that is still on hold following release of a discussion paper nearly three years ago (See here). The massive changes to the retail sector since that time – notably the collapse of Borders and the implications it has about the role of the internet – are a reminder that in a fast-changing world government needs to be far nimbler in its policy development.

    • Alan Davies says:

      In my view a good retail-based activity centre must start with meeting the needs of the users. Australian shoppers have pretty well shown that, for certain kinds of transactions, they like hardtops and they like big box. They like the ease (parking) and they like the economies of scale (price and choice). In fact I think many people like the ambience of Costco (even though many planners don’t)! Planners and designers who want to encourage good centres need to start with the reality of consumers’ preferences and work from there.

      • It’s an interesting debate. A statement like “planners and designers who want to encourage good centres need to start with the reality of consumers’ preferences and work from there” on the face of it seems inarguable, and I’m loathe to become one of those planners who argues we know better than the community.

        Perhaps my hesitation is that I’m not sure how much of a genuine choice is offered. If retail form genuinely reflected what people liked and wanted I’m not sure so much of it would look so wretched. Playing the “it’s successful, so people obviously like this” card overlooks the many other factors that create our retail built form: the increased political and economic influence of large corporations vs small business; the commercial advantages created by building on cheap land out of centres; perverse regulatory mechanisms such as minimum parking standards; and so on. Our retail form is a product of those and many other factors, rather than simply expressing the preferences of customers. I know planners often project their own desires onto the public, but I’m not sure it’s completely wrong to assume that people might like other formats were they facilitated by policy. People love retail strip centres where our previous planning practices built them and our current planning practices haven’t managed to kill them off.

        I would be interested in your views on the State government’s approach to retail planning, incidentally – after all, poor Darebin is just one Council.

        • Russ says:

          It is probably worth adding Rybczynski’s contention on this point. That malls are what strip shopping centres were before the imposition of the automobile: pedestrianised spaces. Externally they are anything but pedestrianised obviously, but the up-side advantages of strip shopping centres are often offset by private mall advantages. There isn’t a massive difference between driving and parking in a mall carpark and driving to a strip shopping centre and parking in a private garage.

          The only significant, non-aesthetic difference between a strip and a mall is the diversity of retail rental opportunities offered by a diverse land market over a private mall arrangement. But neither Darebin’s nor any other plan I’ve ever seen attempt to promote that kind of diversity. If anything, they tend to chase the opposite.

        • Mike says:

          In support of Stephen, remember that consumers always “wanted” single family housing on quarter acre blocks. Their wants are influenced as much by the supply effect as “demand”.

          The relationship between parking and proximity is directly related to the quality of the built environment. The higher the quality the less important proximate parking. For instance if we mandated that all parking for town and village centres was outside the centre then the developers would work extremely hard to make the walk-in enjoyable, safe and attractive. What a great outcome! Sounds like a continental European village. If you can park directly outside where you want to go then where’s the incentive to make the building contribute to walkability, when all you want to do is attract the car?

          Also should we not be endeavouring to create the environments where people want to walk? A two level mall requires half the walking of a street with the same amount of shops. A three level mall requires a quarter of the walking. Europeans walk far more to hunt and gather than Americans, which in part reflects in different levels of obesity. Obesity levels are positively correlated to time spent in the car, hence why Americans are 5 times fatter than the French.

          Accepting that boxes are the right way simply because consumers use them is lazy thinking. Furthermore the price or cost of a building is a fixed cost. The incremental cost of a decent building is minor in the lifecycle of a retail business. Developers/retailers have an ability to pay for decent buildings without affecting check out price. We simply fall for the line that to get cheap we must accept cheap. The cost of a mall per sq metre is three times the cost of a street shop – yet these developers convince us that we get better prices and more choice of we have a mall. It’s simply nonsense.

      • Simon says:

        Again, those “needs of users” are a result of past planning decisions. What planners made they can unmake.

  7. Afterthought: I’d also add that Victoria’s car parking controls actively encourage big-box, car-oriented models, while hindering the ability of established small strip centres to compete. The review of those controls has been going more than seven years, as I have noted on my own site today.

  8. Johnyboy says:

    I disagree with the whole problem. The retailers can get huge discounts for buying in bulk. Alot of the problems is the structure of there businesses make them uncompetitive. They have high cost structures. Thes structures are again to do with the way public transport moves people to the center of the city. I think if you fix the congestion , you will kill two stones with one rock.

    I do compare goods on the internet to goods I find in stores. I find less then 10% difference in most cases. The delay in getting goods from overseas is a factor in determining a purchase. After all the trouble I find it more convienent to buy stuff i find in the store. It fits well and I am sure of the qaulity. The people trying to save a few dollars on shoes or clothes usually find out the costs is not much different. The only reason people really buy stuff on the internet is because they cant find things in the local stores. The stuff they have has emblems on the clothing that I think most people do not really want.

    I think the people like to overate the internet as the source of the problems for the retail sector. I think the problem stems from the renumeration that is going to executives and non executives renumeration that the average person can only dream off for little or no real work.. This eats into the profit. I suspect alot of these companies are top heavy. This pushes down the margins. Then they push down the wages on the people. They can pay the employees less in a variety of ways.

    I also think that the ABS statistics are incorrect and this bias is due to the government interferring with the them. I also think that there are other unseen people contributing to rosey picture of australia.

    Yea i believe in conspiracies. I think they are here and are not easy to get rid off. The slump in the retail is due to the fact that housing prices reduce the disposable income. There is always cause and effect. If you are trying to just pay the basic living expenses and rent. Then you have all these inflationary pressures. I do not think you are going to be thinking about making white good purchases. The people not having full time work adds to this.

  9. Brodie says:

    To me, what the commission has produced is another document geared at impressing an outside agency’s own agenda upon the VPPs – these documents are a dime a dozen!

    I think it’s important to acknowledge that whilst Victoria’s planning system isn’t perfect, the level of prescription that does exist within the VPPs balances a myriad of competing interests – of which the facilitation of retail development is but one of a spectrum of considerations that constitutes the very nature of planning.

  10. Oz says:

    The numbers are not at my fingertips any more, but several years ago I heard a lecture in which the non-sustainability of retail expansion was highlighted by the fact that retail floor space was growing at three to four, and in some locations even more times than the rate of population growth.

  11. […] Are planning regulations making retailing uncompetitive? […]

  12. […] to function in the future as a retail, services and business node. There’s nothing on the emerging challenges to retailing or what sort of centre it will be. Will it be more of the same, will it have a […]

  13. […] existing holdings are in diverse ownership, values are often high and lots may be small. Moreover, Planning restrictions mean suitable sites are in short supply or have constrained redevelopment potential. But perhaps […]

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