New Instructions in Turkish Retail Business: Law On Regulation Of Retail Trade

February 2015 Özgür Kocabaşoğlu
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Introduction

The Law on Regulation of Retail Trade (“LRRT” or “Law”) numbered 6585, which entered into force through its publication in the Official Gazette dated 29.01.2015, and numbered 29251, aims to simplify the procedure regarding the opening and commencement of activities in retail businesses, to provide retail trade in compliance with efficient and sustainable competition conditions, to protect consumers, to procure balanced growth and development for retail businesses, and to regulate the activities of retail businesses, producers and suppliers. The new Law introduces certain obligations for these businesses, such as shopping malls, outlet stores, and other retail businesses that were not previously regulated or defined under any legislation.

The Law aims to establish legal grounds for the retail trade market, and is comprised of regulations that govern both conventional and organized retailing.

Retail Information System (PERBIS)

The Law envisages an information system that allows retail businesses to make applications a rend perform other necessary operations regarding their openings and closings, as well as other activities. This system transmits these applications to the necessary authorities or institutions, executes the evaluation and finalization of these applications, forms a database for the retail businesses, and provides the exchange of information.

The Retail Information System (“PERBIS”) will be established by the Ministry of Customs and Trade (“Ministry”) and the access to PERBIS will be granted to other relevant authorities and institutions, as well. PERBIS shall have an on-line connection with the electronic registration systems of the above-stated authorities and institutions. According to LRRT Art. 5, PERBIS will also be able to grant retail business place and work permits. These businesses may choose to submit their applications for these permits either directly to the authorized/related institutions, or through PERBIS. The applications directed to the authorized institutions will be forwarded to PERBIS, accordingly. The institutions authorized to grant permits will conduct a pre-assessment.

Following the pre-assessment procedure, affirmatively assessed applications will be transferred to the relevant institutions within three days from the date of application, in order for the incorporation and opening operations to be initiated. In conjunction with this transfer, necessary applications shall be deemed to have been made before the related authorities and institutions. Businesses that are deemed to be inadequate will be informed of this decision within thirty days, and will include the grounds for this decision.

According to Provisional Article 1 adopted by the LRRT, current business licenses will remain valid under the new system. However, information concerning these businesses will be transferred to PERBIS by the authorized institutions within one year following its establishment. The Ministry may extend this period twice, for periods of one year, each time.

This provision enables the incorporation operations of retail businesses to be less complicated and less costly. Additionally, this new registration system will expedite traceability functions amongst the businesses. Pursuant to the LRRT, Art. 4/4 and Art. 5, the procedures and principles of the information to be processed and accessed through PERBIS, as well as the operation procedures of this system, will be promulgated by regulations.

Claims of Premiums and Consideration, Store Branded Products

The LRRT Art. 6 prevents large stores, chain stores, and franchise businesses to claim premiums, or other similar claims, from producers and suppliers of products. The stated provision prohibits premiums or other claims that are not directly connected to the demand of the products, such as the consideration to open or alter the stores, turnover deficit charges, and contribution fees of banks and credit cards. As this article and its preamble state, premiums and considerations provided for in the provision are not listed using the numerous clausus approach. Therefore, all of the retail businesses’ premium or consideration claims that are not directly connected to the demand of products may be precluded within the context of this provision. In addition, the retail businesses (shopping malls, chain stores, etc.) may be entitled to premiums or consideration regarding advertisements, announcements, or shelving-space allocations that are directly connected to the demand of the products, only if the type and ratio of these premiums or considerations are specified in the agreements that are concluded between the retail businesses and producers or suppliers. These considerations can only be claimed within the duration of the agreement, and on the condition that the relevant product shall be displayed for sale on shelves until the expiration of the agreement. Upon any non-compliance with this provision, an administrative fine that is equal to the amount of the unjustly applied premium or consideration will be imposed upon the business according to the LRRT Art. 18/a.

With the intent to procure protection for small businesses, LRRT Art. 7 stipulates that payments made to the suppliers or producers by the retail businesses must be fulfilled on the date provided in the agreement. The period for payments of fast-moving consumer goods, whose shelf life is limited to 30 days, cannot exceed 30 days following the delivery of the goods. This provision will be applied in cases where the producer or the supplier is a small business[1] and the debtor is a large-scaled business[2].

Within this framework, the LRRT Art. 8 states that the name, trade name, or brand name of the producers is to be printed on fast-moving consumer goods (food, beverages, cleaning and personal care products) that are produced in Turkey, along with the name, trade name or brand name of the retailer.

Sales Campaigns and Shopping Festivals

LRRT Art. 8 allows retail businesses to organize discounts and promotional sales, providing that the start and end dates of these sales are predetermined. Additionally, these sales shall not constitute breaches of the Law on the Protection of the Consumer (“LPC”) numbered 6502 and other related legislation. The duration of these sales must last up to six months in the event of liquidation, and three months in the event of business openings, closings, transfers, or alterations to activities or addresses.

In addition, local administrations, professional organizations with public institution status, as well as companies and other legal entities that these administrations and organizations are connected with, will be able to organize shopping festivals within certain periods of time within a year, on provincial, regional or national scales. These activities were conducted beforehand; however, along with this regulation, the legal grounds and conditions of these activities are introduced. According to the preamble of the provision in question, the provision aims to prevent unjust practices by referring to the LCP. It has also intended to prevent businesses from creating unjust circumstances for both their competitors and consumers, by alleging non-existent reasons, such as liquidation or going out of business.

Continuous Discount Sales

LRRT Art. 10 has introduced the definition of outlet stores for the first time under the term of “continuous discount sales.” According to the definition, continuous discount sales concern end of the line products, end of season products, export surplus products, faulty products, and similar products, by retail businesses, at a discounted price, or at ex-factory cost, throughout the year. Currently, some businesses tend to misguide consumers and create unfair competition by making sales through the use of “outlet” terminology, even though discounted products do not constitute a high percentage of the products being sold in their stores. In order to avoid such practices, certain thresholds and obligations are stipulated under this provision. In order for retail businesses that are engaged in permanent discount sales to use such terminology (outlet, outlet store, etc.) at least 70% of their products must be sold pursuant to the definition of the continuous discount sale. In order for a shopping mall to use the above-mentioned terminology, all of the stores therein must qualify as businesses that conduct continuous discount sales.

On the other hand, retail businesses that are engaged in permanent discount sales must place signs that are easily read, and seen, on the front of the business, and inside of their stores, stating that discount sales are being offered in their stores.

According to Provisional Article 1/6 of the Law, retail businesses that conduct continuous discount sales must comply with Art. 10 within two years from the effective date of the Law. In the event of non-compliance or a breach of Art. 10, an administrative fine of 5,000 TL, pursuant to LRRT Art. 18/c will be imposed.

Obligations of the Shopping Malls

Shopping malls are defined under the article titled “Definitions”; hence shopping malls, “Malls,” as they are commonly referred to, obtained legal status. According to the definition, shopping malls are “businesses having an entirety either within a building or any other area, with a central management and communal areas, as well as other qualities determined by the regulation, that contain large stores and/or business complexes where nourishment, clothing, entertainment, recreation, cultural and other needs are addressed.

LRRT Art. 11/1 necessitates that 5% of the sale space must be allocated to social and cultural activities. According to the second subparagraph of the same provision, communal areas, such as emergency medical intervention units, prayer rooms, baby changing units, and playgrounds must be provided. In accordance with Provisional Article 1/7 of the Law, businesses that obtained the necessary permits prior to the effective date of the Law must establish these stated communal areas within one year starting from the effective date of the Law. It has been envisaged that in the event of non-compliance, or upon a breach of the first and second subparagraphs, administrative fines between 20,000 TL and 50,000 TL that corresponds to each square meter that has not been duly allocated, will be, respectively, imposed.

Another innovation regarding shopping malls is that at least 5% of the space of sale must be allocated to tradesmen and craftsmen, and at least 3% of the sale space must be allocated to persons who conduct rare businesses. It is stipulated that the stated spaces must be rented to those persons provided for, above. According to subparagraphs 8 and 9 of Provisional Article 1 of the Law, upon a vacancy of sale spaces, these spaces must be rented to tradesmen, craftsmen, and to persons who conduct rare businesses until the stipulated percentage is reached. According to LRRT Art. 18/e, in the event of a breach of the stated provisions, administrative fines corresponding to the current market value of each square meter that has not been duly allocated, will be imposed. Additionally, it is stipulated that large stores or chain stores in which fast-moving consumer goods are being sold must allocate a certain amount of shelves for local products. According to LRRT Art. 18/f, an administrative fine of 20,000 TL for each store or branch of the business that is in breach will be imposed upon the non-conformity to this provision.

Conclusion

The Law on Regulation of Retail Trade constitutes legal grounds for retail businesses, and in particular, for shopping malls and outlet stores. The Law sets forth provisions and obligations on both the protection of consumers, and on unfair competition. In accordance with Provisional Article 1 of the Law, certain regulations will be promulgated within nine months, by the Ministry of Customs and Trade.

[1] Regulation on the Definition, Qualities and Classification of Small and Medium Scaled Enterprises Art. 5/b defines small businesses. Pursuant to the definition, a small business is a business in which less than fifty persons are employed, and that either of its annual net sales revenue or financial statement does not exceed eight million Turkish Liras. For the Regulation, please see: http://www.mevzuat.gov.tr/Metin.Aspx?MevzuatKod=3.5.20059617&MevzuatIliski=0&sourceXmlSearch=K%C3%BC%C3%A7%C3%BCk%20ve%20Orta%20B%C3%BCy%C3%BCkl%C3%BCkteki%20%C4%B0%C5%9Fletmelerin%20Tan%C4%B1m%C4%B1,%20Nitelikleri%20ve%20S%C4%B1n%C4%B1fland%C4%B1r%C4%B1lmas%C4%B1%20Hakk%C4%B1nda%20Y%C3%B6netmelik.

[2] Regulation on the Procedures and Principals of the Efficiency Project Awards Art. 3/c defines large-scale businesses. Pursuant to the definition, large scale-businesses are not considered as micro, small or medium-scaled businesses. For the Regulation, please see: http://www.mevzuat.gov.tr/Metin.Aspx?MevzuatKod=7.5.19415&MevzuatIliski=0&sourceXmlSearch=Verimlilik%20Proje%20%C3%96d%C3%BClleri%20Usul%20Ve%20Esaslar%C4%B1%20Hakk%C4%B1nda%20Y%C3%B6netmelik.

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