Mall the troubles of the world
Why have we fallen out of love with shopping malls? And what do retailers need to do to keep us interested?
There is no longer any doubt about it: South African mall owners and retailers are struggling to keep the tills ringing in their brick-and-mortar stores amid reduced consumer spending and rapidly changing shopper behaviour.
Last year’s demise of Stuttafords and the closure of standalone stores by international fashion brands Mango, Nine West, GAP and River Island, as well as many smaller “moms and pops” outlets, have already resulted in a sharp rise in vacant space in malls across South Africa.
In fact, vacancies in super regional shopping centres (malls exceeding 100,000 m²) have more than doubled in the two years ending March — from 2.5% early 2016 to 5.5%, according to the SA Property Owners Association (Sapoa) and IPD's latest retail review. That is the highest vacancy level in 15 years.A further increase in papered-up shopfronts is expected over the coming months as erstwhile retail giant Edcon starts to close underperforming stores. Industry players expect the group to reduce its South African footprint by about one third (up to 500,000m²) over the next 12 to 18 months as leases come up for renewal.
Latest retail sales figures paint an equally worrying picture. IPD’s trading density index (sales/m²), a key metric used to measure the strength of consumer spending, remained in negative territory for the third consecutive quarter for the three months ending March. That’s down from an average 6% achieved between 2013 and 2017.
StatsSA figures confirms that retail sales are under pressure despite the uptick in consumer confidence following the appointment of Cyril Ramaphosa — growth of only 0.5% and 1.9% was recorded resepectively for April and May (year on year), down from 4.6% in March.Yet developers continue to add more retail space to what is now widely regarded as an oversaturated market. At least 50 new shopping centres, spanning a whopping 1.3 million square metres, are set for completion between 2018 and 2020, latest figures from MSCI Real Estate reveal. That is more than eight times the size of Sandton City, one of SA’s largest malls. If all proposed developments go ahead, the number of formal shopping centres in SA exceeding 5,000m² will balloon to more than 2,000 by end 2020. In addition, many existing malls are being expanded and redeveloped.
SA already has the fifth highest number of shopping centres in the world, which prompts the question whether SA, like the US, is heading for a retail landscape dotted with “dead” malls? The latter typically refers to half empty or mothballed centres.
Dirk Prinsloo, MD of property research company Urban Studies, says there is no doubt that competition for consumer spending has become fierce as shopping centres continue to see a decline in weekly footfall (visits). He notes that market cannibalisation — when retailers reduce instead of grow turnovers by opening competing stores in the same catchment area — has led to rising vacancies and pressure on rentals.But Prinsloo does not believe SA faces the same threat as the US, which has about 450 dead malls that he says can be blamed on too much competition, incorrect tenant mixtures, failure to maintain or upgrade centres, and the adoption of online shopping.
Though SA also has its fair share of problem malls, Prinsloo believes there is still room for new retail development in some rural areas, former townships, some of the larger towns, and new growth areas on the outskirts of larger cities. SA’s retail space per capita numbers appear to support Prinsloo’s view. While retail supply has steadily increased from 0.2m²/person in 2001 to 0.43m²/person currently, SA’s ratio is still much lower than that in Australia and the US where retail supply sits at 1.2m²/person and 2.4m²/person respectively.
However, Prinsloo stresses that if retailers and mall owners want to survive and thrive they will have to better understand their customers and find new ways to increase shopper “dwell time”, particularly given the rising adoption of online shopping. “The SA industry will have to embrace an omni-channel strategy, which combines in-store and online experiences,” he believes.Elaine Wilson, divisional director of research for Broll property group, shares this view. She says that the South African retail market is facing a similar scenario as the US where many local and global retailers have filed for bankruptcy or closed brick-and-mortar stores.
In a report titled The Future of Retail, Wilson says it can be argued that some of these retail chains failed to foresee the changes in their consumers’ wants and needs, reacted too late to behavioural changes, or were genuinely overloaded in years’ worth of debt.
Be that as it may, the reality is that retailers and mall owners across the globe have been forced to look at new ways to better meet consumers’ expectations and demands. Wilson says the adoption of new technologies into day-to-day operations will be key to the retail industry's future success.
While traditional brick-and-mortar shopping is likely to remain the backbone of the South African retail industry, Wilson warns that retailers and mall owners will have to become more innovative in their product and service offering to meet the needs of e-commerce, m-commerce (buying and selling via mobile devices), and a-commerce (augmented reality), all of which will fast become standard retail practice.