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Buzz words like "mall-ageddon" and "retail apocalypse" were already entrenched in the lexicon of the UK and US real estate industry before the coronavirus pandemic hit the world in March.
For years, mall owners and retailers across the globe have been grappling with changing consumer patterns as e-commerce has taken off. The upshot has been falling foot count and lower sales growth in traditional malls.
Big-box department stores have been the biggest casualty. Last year alone, a record 9,300 bricks-and-mortar stores closed in the US, according to The Economist.
Century-old department-store chain JCPenney went bust in May. And Inditex, one of the world’s largest fashion retailers, with brands including Zara, Bershka and Massimo Dutti, has announced it will close up to 1,200 stores globally.
The move to new patterns of consumption is clear in Starbucks’ plan to close 400 of its locations in the US over the next 18 months while speeding up the expansion of "convenience-led formats", such as curbside pickup, drive-thru and mobile-only pickup locations.
Bloomberg reports that as many as 25,000 stores across US malls could be shuttered permanently this year as the pandemic continues to wreak havoc in an already struggling industry. A third of the US’s malls are now on the chopping block.
A similar trend is evident in the UK, where Covid-induced lockdowns have accelerated the shift to online shopping.
SA — which, at 2,000, has among the most shopping centres in the world — faces a similar threat. Online shopping in SA hasn’t yet reached the penetration levels of the UK and US, but local mall-owners’ profits have been eroded on multiple fronts over the past two to three years.
The stuttering economy and consumer spending cutbacks have already led to the demise of Stuttafords, one of SA’s oldest department stores, and a host of international fashion store closures, including Topshop, Victoria’s Secret, Forever 21 and River Island.
Rising utility costs and municipal rates, coupled with last year’s trading interruptions due to load-shedding, added to the woes of landlords and retailers. Earlier this year, Massmart — owner of Game, Makro, DionWired, Cambridge Food and Builders Warehouse — closed 34 DionWired and former Masscash stores to stem losses.
The Edcon group, traditionally the largest tenant in terms of floor space in SA, is now in business rescue, and though the private-equity backed Retailability this week emerged as a buyer of some Edgars stores, it’s unclear how many will be left standing by August.
As a result, most SA mall owners were already reporting a fall in rentals and a rise in vacancies — even before SA went into lockdown in late March. At the time, the general view was that the rental relief packages offered to struggling tenants during the April and May lockdowns would be the last straw for landlords.
But early indications suggest the outcome for retail landlords may be less gloomy than expected.
Nedbank CIB analyst Ridwaan Loonat says it appears malls have made a faster-than-expected recovery in foot count numbers since trading restrictions were eased from May 1.
JSE-listed property stocks with sizeable mall portfolios have already seen foot count recover to between 70% and 80% of pre-Covid levels. And Loonat says rental collections have been encouraging, averaging 77% in April and 70% in May for the listed property sector as a whole.
More importantly, retail vacancies have been largely contained.
Laurence Rapp, CEO of Vukile Property Fund, which owns stakes in 46 shopping centres in SA, says its average vacancy rate still sits below 3%. And he doesn’t foresee further major store closures and rental defaults over the coming months.
"Doomsday predictions of a retail apocalypse are overdramatic," says Rapp. "We don’t believe the pandemic will spell the end of shopping centres."
Most of Vukile’s SA malls are located in rural areas and townships, which he believes are more resilient than their urban counterparts. "These centres cater mostly for essential daily shopping as opposed to larger malls in higher-income urban areas, where consumers are more inclined to switch to online shopping."
While some tenants — mostly smaller mom-and-pop stores, hairdressers and restaurants — are no doubt labouring under working capital constraints, Rapp says Vukile is looking at creative ways to help keep smaller tenants with cash-flow problems afloat. For instance, deposits may be used in lieu of rent to tide struggling tenants over until turnovers recover.
Meanwhile, 19 of Vukile’s top 20 SA retail tenants resumed full rental payments from May. Moreover, trading densities (sales/m²) at Vukile’s local malls were 4% higher in May and June than in the same period last year.
Rapp ascribes this to shoppers being more focused when they visit malls these days, which has led to a higher spend per head.
But he concedes that the retail landscape will continue to evolve. "The pandemic will increase the rate of change and landlords will have to focus more on customer analytics to reach consumers through niche marketing and advertising campaigns," he says.
"But it’s no longer about on-or offline shopping. It’s becoming all about omni-channel retail, where one has to offer consumers the best of both worlds."
Melt Hamman, CEO of Attacq, the owner of, among others, Mall of Africa at Waterfall City near Midrand, echoes the sentiment. He says it’s uncertain what the retail landscape will look like post-Covid, but new business models are already proving successful in bringing online and physical retail together.
Click-and-collect options, for instance, have gained strong traction at Attacq’s shopping centres in recent weeks.
Like Vukile, Attacq hasn’t had any major lease cancellations due to Covid, with less than 4% of its retail space standing empty.
The size and location of shopping centres is likely to be crucial for their survival
— What it means:
Hamman says foot count at the 130,000m² Mall of Africa has bounced back to 85% of June 2019 levels. Turnover, on the other hand, is still down 20% year on year — but that’s despite restaurants, beauty salons and hairdressers only reopening in the last week of June.
Hamman says Mall of Africa has also had a marked uptick in spend per head. "Visitors may well be making less frequent visits to large malls, but they are spending more on bigger baskets," he says.
However, Redefine Properties COO David Rice believes large shopping centres with a sizeable leisure component will be hardest hit by changing consumer behaviour. Speaking at the company’s recent results presentation, Rice said if social distancing becomes the norm, entertainment offerings will no longer be a driver of foot count at super-regional shopping centres (centres usually exceeding 100,000m²).
Rice believes cinemas, restaurants and gyms are likely to take strain for at least the next six to nine months. In future, he says, "smaller, convenience-type centres anchored by a Woolies or Clicks will be where people go for shopping instead."
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