Big hardware retailer facing court – blocking competition

by | Dec 20, 2022

The Commerce Commission is calling for bans on the use of anti-competitive restrictions in sale and lease agreements, preventing new retailers from opening petrol stations, supermarkets and hardware stores.

Newsroom reported that the commission is set to file action against one building supplies business. The Commerce Commission’s action is the first step in a crackdown it plans against the anti-competitive use of land covenants and leases exclusivity agreements that it says are used by the big, established retail chains to protect their dominant market positions.

The retailer facing enforcement action is believed to be a big player in the Mitre 10 cooperative. However, the Mitre 10 chain has declined to discuss the matter.

The head of public relations, Lisa Wilson said, “Mitre 10 New Zealand Ltd is not the subject of the Commerce Commission investigation, hence it is not appropriate for us to comment at this stage.”

“As a cooperative of independently owned businesses, we will be reviewing our position in relation to covenants now that the Commission has issued its final report.”

The Commerce Commission confirms it is still investigating and is set to file a statement of claim in court soon.

Dr John Small, who took over as chair of the commission, gave an interview to Newsroom after publishing a report into anti-competitive behaviour in the building supplies sector. He said the company involved is aware it is being investigated and faces court action.

“Doing these one at a time on an individualised basis is extremely resource intensive. We think a broader look across the economy is the way to go here,” Mr Small said.

Previous turf wars in hardware retail have occurred between incumbents such as the Mitre 10 co-ops and Bunnings. In Queenstown, the Environment Court found the Mitre 10 Mega owner had abused the court process in attempts to stop a new 8100 square metre Bunnings store opening 500 metres away. Mitre 10 owner H and J Smith was ordered to pay the maximum $60,000 in legal costs.

In 2011, the Commerce Commission also issued warnings to Mitre 10 and Bunnings over misleading advertising which both claimed to have the lowest prices.

Fuel retail chains, supermarkets and building supply merchants all use tactics to stop competitors from coming onto their turf. It is such a problem in supermarkets that Parliament passed a law this year nullifying such covenants and the two big supermarket chains agreed to get rid of them.

But the big, established building supplies incumbents like Mitre 10, Carters and PlaceMakers have been slower to change.

The commission’s market study report, commissioned by the Government, said, “Store covenants and exclusive leases are likely to reduce a new or existing merchant’s ability to access suitable sites. In turn, this may hinder entry and expansion. The effect is likely to be greatest in developed urban areas where the cost of land is high or there is less availability of suitable sites.”

“Merchants claim the primary purpose of store covenants is to stop a competitor from establishing itself near a merchant’s planned or existing store. They consider this justified, as it provides them with the necessary confidence that they will make a return on the investment associated with developing a new store. We consider that these claimed benefits for many store covenants and exclusive leases are unlikely to negate the competitive harm caused by the reduced availability of sites,” the report said.