How mall owners can beat the retail blues
SA’s shopping centre owners are having to adapt to a tough retail trading landscape and a new consumer culture
A decade ago, just about any developer or listed property fund that owned a mall or built a new one, no matter how big or small, was virtually assured of making a packet. Back then, retail was still the most sought-after investment subsector of the SA real estate market and shopping centres comfortably outperformed offices, warehouses and factories on the total return front.
But times have changed. These days most SA mall owners are grappling with how to convince cash-strapped consumers to continue to visit their centres — and spend more when they do — as declining sales and a rising number of empty stores start to erode profits.
Admittedly, SA malls haven’t been hit by the same level of store culling as their US and UK counterparts. Bloomberg reports that three major US apparel brands — Gap, Victoria’s Secret and JCPenney — have announced the closure of about 300 stores. That is in addition to a number of US retailers such as Sears, Payless Inc, Things Remembered and Brookstone Inc closing shop or drastically reducing their brick-and-mortar footprints.
Still, SA mall owners have had to contend with the demise of Stuttafords in 2017, the closure of the standalone stores of international fashion brands Mango, Topshop and River Island and, more recently, Edcon’s restructuring. The latter has prompted landlords to agree to a two-year rent cut in a bid to prevent the struggling retailer from closing all its 1,350 Edgars, Jet, JetMart and CNA stores.
Results released by several listed property funds in recent weeks underscore just how tough the SA retail trading landscape has become.
Most listed property companies, which own a large chunk of SA’s 2,000-odd shopping centres, have seen sales or trading density (sales per square metre) growth slow to the low single digits (see table). Some are even reporting negative growth. That compares to 6%-8% growth still typically achieved four to five years ago.
Other mall performance metrics such as foot count, spend per basket, rental growth on lease renewals and cost-to-income ratios are also under pressure.
However, the performance of individual shopping centres have become increasingly divergent — some are still achieving double-digit sales growth while sales at others have slumped by 10% or more.
Liberty Two Degrees (L2D) last week reported improved trading density growth numbers in its two flagship Joburg malls — Sandton City and Eastgate — at 3.9% and 2.9% respectively for the year to December.
But trading densities at most of its other malls, including Nelson Mandela Square and Melrose Arch in Joburg and Midlands Mall in Pietermaritzburg, were flat or in negative growth territory.
The performance gap between the best and worst performers in Resilient Reit’s portfolio of 28 malls varies between a high of 19%-20% for i’langa Mall in Mbombela and Mahikeng Mall and a low of -6% for Rivonia Village in Joburg.
Hyprop Investments, which owns landmark shopping centres such as Rosebank Mall in Joburg, Canal Walk in Cape Town and Clearwater Mall on the West Rand, has reported the first dip in trading densities in many years — its portfolio of nine malls recorded an average drop of -0.6% for the six months to December (year on year).
Only Clearwater Mall, CapeGate in the northern suburbs of Cape Town and Atterbury Value Mart in Pretoria managed to increase trading densities for the six-month period.
The traditional factors such as location, size, tenant mix, demographics, design and layout, parking and ease of access are no longer the only considerations that determine the success (or failure) of a mall.
L2D CEO Amelia Beattie says malls can no longer simply be a place to shop. "Retail has become about place making. To be successful, you have to offer an interesting, connected and convenient environment where people want to be, not have to be."
Beattie says Sandton City is a prime example of a mall where people come for the experience and not merely to buy products. "We saw a 10.9% uplift in footfall at Sandton City last year, which confirms that our strategy of creating experiential spaces is paying off." She says retailers are also adapting their product offering to meet changing consumer needs. "It’s no longer about size but rather about impact. The days of retail stores just getting bigger and bigger are over."
New Hyprop CEO Morné Wilken has noticed a similar downsizing trend. He says the rise in online shopping allows retailers to carry less stock in smaller stores. It’s not necessarily a bad thing. Wilken says the trend will potentially translate into the average regional shopping centre increasing its offering from about 200 to 300 tenants.
"The benefit for mall owners is that you won’t have to spend money extending your centre, but you will have an improved tenant offering."
He believes that malls will have to become more creative in their product offering, and tweak layout and design if they want to continue to lure people back. Technology is also becoming more important.
"Instead of seeing online shopping as a threat, malls need to embrace it by, for instance, introducing dedicated click-and-collect stations."
He says the size and quality of the entertainment, food and beverage component also need to be extended in most malls.
"People may have cut back on buying products but they still want to go out and mingle." Hyprop will upgrade the food court at Canal Walk and link it to a new children’s amusement park (by relocating a portion of the now defunct Ratanga Junction), which Wilken hopes will increase family dwell time and spend in the centre.
While luxury top-end brands are generally still faring well, the average consumer is buying down, which is creating an opportunity for mall owners to bring in more retailers aimed at value-conscious shoppers.
Resilient Reit MD Des de Beer says the trend is evident from the "bewilderingly" good trading figures achieved by Pick n Pay Clothing stores.
But the performance of malls has also become increasingly sensitive to local economic factors that affect the catchment area they operate in. De Beer refers to the underperfomance of Resilient’s Northern Cape shopping centres, which he ascribes to subdued mining activity, particularly in Kimberley and surrounds where Resilient’s Diamond Pavilion shopping centre is located.
In contrast, the company’s Mpumalanga malls have outperformed, not only because they tend to be the dominant offering in their respective nodes but also because of strong growth in local industries.
De Beer believes Secunda Mall’s healthy 8.2% sales growth in the six months to December comes on the back of a strong uptick in the area’s gas and petrochemical industry. And sales growth of a hefty 19% at i’langa Mall has seemingly been supported by the improved fortunes of the region’s farmers due to increased macadamia nut and avocado exports.
Ultimately, shopping centres that don’t take heed of a changing consumer culture risk becoming obsolete.
Belinda Clur, a retail specialist and MD of Clur Research International, says the modern consumer values community engagement, personal brand experience and expression, connectivity and technology, and health and wellness, among others.
This has supported growth in retail categories such as speciality foods represented by delis, artisanal and craft product outlets, gyms, sportswear, health, beauty and wellness, travel, restaurants and fast food. She says there is also a strong trend towards a social, sustainable and ethical conscience.
"This is not a culture that will easily part with their money, especially as millennials value experience above material goods. We now see the advent of an extremely fussy customer expecting the best of everything to motivate spending their hard-earned cash."