Exclusivity clause under fire again

Exclusivity clauses are provisions within a lease agreement, at the behest and for the benefit of entrenched anchor retailers, to prevent direct competitors from trading at the same mall. They can extend for very long periods and in some instances for perpetuity.

4 Nov 2014

Massmart has lodged its complaint against Pick n Pay, Spar and Shoprite with the Competition Commission. The company is of the opinion that exclusive lease agreements are intuitively anti-competitive and prevent it from developing an offering that can compete effectively with the entrenched, national retail chains.

Commenting, Massmart said, "These clauses have the effect of enabling an entrenched clutch of anchor retailers to decide who they will compete against in the malls. Sadly, the traditional reliance placed on exclusivity clauses, by anchor retailers, appears to have created a form of 'contractual entitlement' - it's an easy option that enables the entrenched anchor retailers to contract out of competition with new entrants."

In its submission to the Commission, Massmart said customers have welcomed the introduction of fresh food into Game stores. Food sales growth, general merchandise sales growth and sales density growth have all been higher on average in stores in which it has introduced fresh food compared with stores that do not have the offering. The restrictions on Game reduce the competitive threat it poses to the entrenched anchor retailers, thereby reducing their incentive to improve their consumer offering.

Massmart is confident that it has a compelling case that will undermine the reliance that the entrenched anchor retailers place on exclusivity clauses to reduce competition in shopping malls and ultimately countrywide. The company has indicated that it is open to collaborating closely with the Competition Commission in its investigation.