A ridiculous story hit the news a week or so back re supermarkets making it a condition of their occupancy in shopping centres, not to allow competitors. As a result of the Commerce Commission’s naïve intervention this has now been made illegal, in the purported interest of competition.
I say it’s naïve as supermarkets, like everyone else, pursue their own interest. They’re a critical base tenant in a shopping centre and know it, but if forced to accept competition, will pay a lesser rent. To make the development viable then necessitates the developer charging higher rents to the other non-supermarket tenancies, which added costs will be reflected in their pricing. Ergo; no net benefit to consumers.
I bought my first block of shops sixty years back. Such monopolistic clauses were in every retail lease back then. Today my company owns the most CBD retail premises in Wellington and such clauses no longer appear, nor are sought in retail leases. Here’s why.
Most retailers have learnt the value of being amidst their competitors. Take jewellers.
One of our city buildings has four of the major jewellery chains with shops in it. If a retail vacancy arose it would quickly be snapped up by another jewellery store, to everyone’s advantage. Why? Because jewellery is expensive and varied and customers want to see everything available, thus they will gravitate to the location housing lots of stores in one spot. So too with clothing, specially women’s with its greater variety and likewise used car yard operators who learnt decades back, the merits of being clustered together.
This factor has so much merit whole towns have been devoted to a single retail activity, a classic example being Hay on Wye thriving as a used book mecca.
If you want to buy art in Paris look no further than the flea market, Europe’s biggest. There must be a hundred or so dealers clustered in three parallel streets.
I actually think the same cluster factor applies to supermarkets. Some are costlier than others but compensate in different ways. That’s certainly the case in Australia and Britain.
Public servants and politicians intervening in the market for ostensibly virtuous reasons, are invariably talking nonsense. Their proposals have face-value appeal but reflect their shallow cautious approach to life, as evidenced by their career choices.
Clustering occurs in other non-retail activities as well, albeit for non-commercial reasons. For example, my company has two office buildings in respectively, Auckland and Wellington, each predominantly filled with barristers. Being handy to the courts is a factor but primarily it’s because they like being with “the chaps”, another natural human tendency.
That’s a point loss on unworldly politicians and public servants. We’ve seen a clamour in recent years by these naïfs for state housing to be built amidst upper income locations. That simply makes both factions uncomfortable, each understandably, being human beings with normal impulses, happiest when with folk like themselves, whether rich or poor, Martians or Eskimos.