Whether bricks-and-mortar retail will survive the e-commerce onslaught is a debate that was raging long before 2020. But when Covid arrived and shoppers around the globe were forced online, many believed the end of the mall was finally nigh.
The fear of empty shopping centres was of particular concern in SA, given the relatively large amount of retail space. The country has about 2,300 shopping centres, and the second-highest oversupply in the world after the US, based on gross lettable area to GDP, according to MSCI Real Estate.
Yet latest industry data suggests South Africans have returned to their old stomping grounds, and are shopping merrily again. In fact, it seems the local retail property sector has weathered the storm better than many predicted.
The SA Property Owners Association’s latest “Retail Trends Report”, compiled quarterly by MSCI Real Estate, shows that annualised trading density in SA malls breached R36,000/m² for the first time ever in the second quarter.
Trading density, which measures sales turnover/m² and reflects the number of shoppers that visit a mall as well as how much they spend, is a key metric to gauge trading performance.
Trading density has now recovered 25% from the seven-year lows of early 2021, when average levels tumbled to about R29,000/m².
MSCI Real Estate’s trading density index sample consists of more than 100 shopping centres across SA, spanning 5.2-million square metres.
Niel Harmse, vice-president of MSCI Real Estate in SA, says the R36,300/m² recorded in the second quarter is now well ahead of the pre-pandemic marker of R35,000/m².
Super-regional centres — mega-malls of more than 100,000m² — gained the most market share in the past year, after losing the most ground during Covid. These malls are now trading 6.4% above their pre-pandemic level, says Harmse.
A recovery in foot count — the number of shoppers visiting malls — was the main driver of the index’s improved annualised trading density.
Harmse says foot count has recovered markedly since mid-2021, with an 18.6% year-on-year increase in the 12 months to June. However, while shoppers are spending more per visit than they did pre-Covid — an average R152 vs R110 — overall foot count per square metre remains about 25% below pre-pandemic levels.
Physical stores are alive and well, but boring retail is dead
— Ian Scott
He ascribes this to people making less frequent visits to malls, but spending more when they do go.
The vacancy rate, an important performance metric reflecting demand for space and landlords’ ability to find tenants to fill empty stores, has also improved steadily since March 2021.
The average vacancy in the malls tracked by the MSCI index dropped to 5.8% in June 2022, down from a peak of 7.1% in March 2021 (the highest vacancy on record since the index’s inception in 2004).
In terms of vacancy rate, the best-performing retail segment is that of regional centres (50,000m²-100,000m²) at 4.4%, while occupancy rates at smaller-format malls are under pressure.
Neighbourhood centres, sized between 5,000m² and 12,000m², have seen vacancy rates rise 130 basis points to 10.2% — the highest level since 2014.
Harmse says that’s because certain retail categories are taking up significantly less space in smaller centres now than in the pre-Covid period. These include luggage, electronics, jewellery and book stores.
He says June’s average 5.8% vacancy rate is still ahead of the 4% average recorded before the pandemic. But he believes vacancies are likely to stabilise around current levels, given muted economic growth forecasts for this year and next.
“In many ways, the current state of the retail occupancy market is mirroring that experienced in previous economic cycles, where landlords were able to make several quick wins and fill space equivalent to 1%-1.5% of total stock during the first six months post-peak,” he says.
“Thereafter it seemingly becomes more time and capital intensive to put deals together and configure space to further reduce the vacancy.”
The upside is that there’s little new retail development under construction or in the pipeline, which should help keep a lid on vacancies. FNB property strategist John Loos says SA is unlikely to see any new large-scale retail development or expansion of existing centres over the next two years.
He refers to the latest Stats SA figures, which show a 40% drop in building plans passed for new retail space in terms of square metres for the 12 months to June. That’s the fifth consecutive year of decline.
With higher interest rates likely to start dampening retail sales over the next 12 months, building activity could be further limited, he adds.
Malls need to find a way to blend the convenience of online shopping with customers’ desire for an in-store experience. To do this successfully, they need to invest in behavioural data
— What it means:
Industry players who gathered at the SA Council of Shopping Centres annual conference at Sun City last week expressed similar sentiments.
The general view is that physical retail centres have bounced back better than expected from the widespread losses incurred as a result of Covid-induced trading restrictions and the surge in online shopping.
And it seems the exuberance with which consumers have returned to in-person shopping has put paid to the recurring question of whether bricks-and-mortar retail is dying. If anything, the pandemic has heightened shoppers’ craving for the “human touch”.
At the same time, consumers have become more discerning. That means retailers and mall owners have to up their game if they want shoppers to continue returning to their stores, delegates were told.
As Ian Scott, a UK-based retail consultant, put it: “Physical stores are alive and well, but boring retail is dead.”
Scott said retailers have no choice but to merge their online and physical offerings to provide a truly symbiotic shopping experience. It’s all about “phygital” and “omnichannel” retail — blending digital shopping tools with in-store browsing and buying.
In the UK, some retailers are no longer closing their underperforming stores. Instead, they are optimising their physical footprints to boost omnichannel offerings, said Scott. Apparel retailer Next, for example, recently decided to keep 195 loss-making stores open to serve as online sales collection and return locations.
Others are reconfiguring their store formats, designs and layouts to offer shoppers a more visually interesting, sensory and engaging experience.
Scott said many are also adopting tech-enabled tools to make it easier for shoppers to browse and try out goods in store before making a purchase. These include virtual try-on lists to automatically send items to a change room.
Zeyad Davids, who heads Deloitte’s Africa consumer risk advisory division, agreed that the accelerated adoption of “phygital” opportunities is a major post-Covid retail trend.
“It’s a consumer-led drive to merge the convenience of online browsing and shopping with the desire to have a real-world experience in store,” he said.
According to Davids, there is a definite shift back to in-store shopping as the world comes out of the pandemic. “Shoppers don’t only want to transact online. They want human, face-to-face interaction and they want to touch and feel a product before buying.”
However, he said retailers have had to find unexpected ways to capture an increasing share of customers’ wallets to ensure they shift the dial on their bottom and top lines.
“We are seeing retailers increasingly expanding their product categories and entering new consumer markets,” Davids said, citing traditional value retailer Mr Price, which has moved into the higher-LSM consumer market by buying premium kitchen and home store Yuppiechef.
Retailers and mall owners are also investing more in behavioural data to better understand their shoppers.
Given how competitive the retail landscape has become, tracking and analysing shoppers’ behaviour is the only way retailers can get more shoppers into more stores, said Adrian Maguire, CEO of SA-based consumer analytics firm Fatti.
In Maguire’s view, foot count alone is no longer a reliable metric of retail performance; the challenge is to convert that into additional revenue.
“The only way for landlords and retailers to do this is to understand why people are in malls, where they are going and how to get them back. It’s not enough to just know they are there,” he said.
Maguire believes retailers can significantly boost earnings by drilling down deeper into the shopping needs and wants of individual market segments.
He referred to the rise of the “after 5pm” and “gym” shopper, both of which have become more prominent in the post-Covid period. Despite this, “few shopping centres and retailers are fully capitalising on these segments”, he said.
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