SA mall owners are bracing themselves for a sharp rise in vacancies because of the possibility of the Edcon group slashing its retail footprint by up to 500,000m² — a third of its existing space.
That’s more than three times the size of Sandton City, one of SA’s largest malls at 147,940m².
As it stands, Edcon occupies around 1.5mm² through its Edgars, Jet, CNA and Boardmans brands, making it one of SA’s largest occupiers of retail space.
Redefine Properties chief operating officer David Rice said at the company’s interim results presentation last week that Edcon would vacate around 20,000m² in Redefine’s retail portfolio this year.
Redefine is one of SA’s largest landlords and owns 80 retail centres across SA, including Centurion Mall and Maponya Mall in Gauteng and Blue Route Mall and Kenilworth Centre in Cape Town.
Rice said the market expected Edcon to reduce its SA footprint by a third, potentially closing up to 500,000m² of retail space as leases come up for renewal.
That would no doubt further increase vacancies, which have risen sharply over the past 12 months, in malls across SA.
Redefine’s retail vacancy is up from 3.3% to 4.4% in the year ending February. A similar trend has been reported by fellow listed mall owners Growthpoint Properties, Hyprop Investments and Liberty Two Degrees following last year’s demise of Stuttafords as well as the closure of standalone stores by international fashion brands Mango, Nine West and River Island.
Mall owners have also experienced a marked slowdown in trading density growth (sales/m²), another important metric used to measure the strength of consumer spending.
"Retailers are no longer afraid to give up space," Rice said.
"There’s definitely ... a big pushback from tenants against rental increases and annual escalations, especially from the national retailers."
However, he said some of the vacancies might well be mopped up by international retailers, who are still keen to enter SA.
They include French-based DIY brand Leroy Merlin and sports brand Decathlon, both of which have recently signed leases with Redefine.
In response to questions from the FM, Vannie Pillay, Edcon Group corporate affairs executive, confirmed that the group had embarked on a "store portfolio rationalisation strategy". But Pillay did not provide details about specific store closures and timelines.
Edcon’s downsizing comes in the wake of the group’s latest rescue efforts under the leadership of new CEO Grant Pattison, who is expected to provide details about the group’s turnaround strategy at the end of May.
At present Edgars makes up 40% of sales, Jet 35% and CNA 7%.
SBG Securities says in a recent research note that Edcon could make a comeback if Pattison’s turnaround strategy works. Edcon is expected to focus on a decentralised model, which SBG believes will enable Edcon to sell each of its four major business units (Edgars, Jet, CNA and financial services) independently.
"Edcon has lost substantial market share within key retailing categories," say SBG’s analysts. This is confirmed by the group’s latest sales growth figures, which show that Edgars and Jet have underperformed their peers, with sales falling by 6.7% and 6.3% respectively in the year ending March 2017. That can be compared with the 16.5% growth in sales at Pep and Ackermans, the 1.4% increase at Woolworths and the 0.5% decline at Mr Price last year.
Craig Smith, head of research at Anchor Stockbrokers, says the possible reduction of Edcon’s footprint is negative for the retail sector as a whole. "However, the impact on the listed property sector will vary depending on the exposure respective companies have to the group," he says.
But it’s not necessarily all bad news. Smith says it also creates an opportunity for high-performing shopping centres with strong tenant demand to improve the tenant mix. "The reverse will be true for weaker retail locations, as they will be on the back foot because [the vacancies] will most likely result in loss of income or replacement with an inferior tenant," Smith says.
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