Retail Law In South Africa & Africa: Recent Trends

By Lawrence Helman

Posted: 7th May 2014 11:42

One of the key features of the South African legal landscape in recent times has been the inbound investment from major retail players including Walmart, H&M, Ben Sherman, Burger King and General Nutrition Centre, to mention but a few.  Many of these international retailers now entering the South African market are presenting new competitive challenges to the well-established retail brands that have long dominated the South African retail landscape. 
 
These investments often take the form of the establishment of corporate businesses but may also occur through franchising and similar distribution formats.  Franchising is often perceived as a low risk opportunity to combine local expertise with international branding and best business practice retail models.  The increased popularity of this format of inbound investment can primarily be ascribed to the fact that the cost of expansion of the franchisor’s business is shifted to the franchisee, as well as its ability to serve as a vehicle to expedite growth of the franchisor’s business and facilitate broader access to various economies.  Franchising also has the potential to stimulate the growth of the small to medium enterprise sector of the economy, increasing employment and ensuring sustainable economic growth.
 
We are currently also experiencing an increased expansion by many international retail brands into the African continent, with South Africa (with its well established, mature market) being identified, in many instances, as the springboard or stepping stone for investment into other African jurisdictions.  “The big story is Africa” noted one of the speakers at the recent annual research conference of the South African Council of Shopping Centres.  It has been reported by bizcommunity.com that the majority of African youths prefer quality above price and are also brand conscious, equating popular brands with quality, which explains inbound investment by certain major clothing retailers.
 
South Africa has its own legislative regime regulating inbound investment and retail operations generally, including in relation to competition and employment law, tax and exchange control.  Two important pieces of consumer protection legislation, namely the Consumer Protection Act, No. 68 of 2008 (the “CPA”) and the National Credit Act, No. 34 of 2005 (the “NCA”), have a bearing on the establishment and operation of retail businesses in South Africa.
 
This legislation is part of the South African government’s initiative to promote and advance the social and economic welfare of consumers in South Africa by establishing a legal framework for the achievement and maintenance of a consumer and credit market that is fair, transparent, accessible, efficient, sustainable and responsible for the benefit of consumers generally.
 
The CPA is of general application and imposes a wide range of restrictions to ensure, inter alia, the promotion offairness, openness and good business practice between the suppliers of goods or services and consumers; the improvement of consumer awareness and information and the encouragement of responsible and informed consumer behaviour; and the provision of an accessible, effective and efficient system of redress for consumers.  Consumers are protected from unconscionable, unfair, unjust or otherwise improper trade and practices, as well as deceptive, misleading, or fraudulent conduct. 

Two key ways in which the CPA achieves these objectives are by prohibiting provisions in agreements which are excessively one-sided against the consumer and restricting the extent to which a supplier may limit product liability.  Provision is also made for the compulsory disclosure of provisions which may have adverse implications for consumers.  The CPA also regulates the marketing of goods and services (including direct marketing to consumers), lay-bys, loyalty programmes, prepaid vouchers, as well as product recalls.  A further meaningful protection to consumers is the provision that ambiguous provisions of the CPA or in any contract must be interpreted in a way that will best improve the realisation and enjoyment of consumer rights generally.
 
The franchise industry is now also regulated by the CPA, which has brought about significant changes to the drafting as well as the implementation of franchise agreements.  Unlike the general position that the CPA will not apply where the consumer is a juristic person with an asset value or annual turnover exceeding a specified threshold, no such threshold or limitation applies in respect of the franchise requirements which apply “across the board”, regardless of the size or level of sophistication of the franchisee in question.

The NCA applies predominately in relation to credit transactions where the credit consumer is a natural person or where the credit consumer is a juristic person with an asset value or annual turnover below a particular value threshold.  The NCA aims to, inter alia, promote the development of an accessible credit market; ensure consistent treatment of different credit products and credit providers; prevent over-indebtedness and provide mechanisms for resolving over-indebtedness; and promote responsibility in the credit market by encouraging responsible borrowing, fulfilment of financial obligations by consumers and by discouraging reckless credit granting by credit providers and default by consumers.  The NCA must not, as opposed to the CPA, be interpreted in a one-sided manner in favour of the consumer, since credit providers also have rightful interests that call for protection and the courts have decided that the interpretation of the NCA calls for a well-balanced approach thereto.
 
As will always be the case, retail investors looking to establish and operate retail operations in South Africa will need to be advised on the implications of all applicable legislation and, in particular, the CPA and the NCA which are relatively new and have extensive implications for retail businesses in South Africa. 
 
Lawrence Helman is a director at ENSafrica in the corporate commercial department.  He is recognised as a leading lawyer by the following reputable rating agencies and their publications:

 - The International Who’s Who of Franchise Lawyers
 - Legal Experts: Corporate and Mergers and Acquisitions (RSA)
 - Best Lawyers South Africa: Corporate; Health Care; Mergers and Acquisitions
 - FLR 1000: Mergers and Acquisitions (RSA)

As a law firm based in Africa, with established offices and a growing footprint throughout Africa, ENSafrica has easy access to clients and their markets, and understands the many political, cultural, linguistic and regulatory contexts of African countries. 

For more information visit: www.ensafrica.com

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