Monday, October 22

Malls must adapt, or struggle

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Centres must make changes to compete with eCommerce market

The majority of South Africans still prefer brick and mortar stores, so by keeping abreast of their needs, well-run centres will always have the edge.

This is according to Sean Paul, executive director of Spire Property Management, which holds management contracts for many retail centres across South Africa.

A 2017 report released by Visa showed the value of online sales in 2016 was estimated at R9billion, but this was still only 1% of total retail sales.

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Many shopping malls struggle because they do not evolve. Not adapting tenant mixes according to changing community needs, lack of access to public transport and outdated or crumbling infrastructure are among the reasons why some centres may have many vacancies.

“A well-run centre servicing its surrounding community effectively with a fresh tenant mix is not going anywhere,” Paul says.

He says even though a tough 2017 saw the closure of many stores, and despite a number of shopping centres currently failing, there are many performing well.

“We are seeing the rise of fresh concept stores and innovative success stories about physical stores. We’ve also seen an influx of international brands providing a plethora of choices for consumers.”

Abbeygate Shopping Centre in the UK recently sold for R74.7m, a fraction of the R290m it fetched 13 years ago. Picture: Green & Partners, UK

Another challenge in today’s retail and shopping centre landscape is increased competition for consumers’ attention. However, Steven Burnstone, chief executive and head of analytics for Eighty 20 Consulting, says standing out and being attractive to consumers is not impossible, and takes understanding their needs.

“The way businesses communicate to customers is one of many areas that needs focus. Businesses must shift away from traditional, product-focused advertising models and focus instead on delivering advertising and promotional messages that are customer-focused and tailored to specific individuals.”

While keeping customers and being flexible to adapt will help brick and mortar retailers survive the online onslaught, there is no guarantee the value of traditional malls will hold up as well.

If the results of a recent London auction are anything to go by, these values could be in danger of dropping. The auction showed how much internet retailers and slowing spending growth are hurting the value of some British bricks-and-mortar stores.

Abbeygate Shopping Centre near Birmingham was auctioned off in March for $6million (about R74.6m), a fraction of the £17m (about R290m) it fetched 13 years ago.

It’s already been a brutal year for UK retailers, with chains including Toys “R” Us and Maplin going into administration. Others, including House of Fraser, have sought to shutter stores or reduce rent bills.

This is adding to the woes of smaller malls that were already struggling to compete with large shopping centres and online retailers.

About 90% of space in the Abbeygate mall is occupied. However, the lease of anchor tenant Argos, which accounts for almost 13% of the rent, is due to expire next year. That means the new owner will have to negotiate an extension or be forced to find an alternative tenant. The mall currently generates rental income of about £768000 a year.

“These kinds of shopping centres have shown a dramatic drop in value over the last 10 to 15 years,” Acuitus auctioneer Richard Auterac said before the sale. “It has taken some owners a long time, but we’re now seeing more acknowledgement that it’s a difficult market to be in,” prompting them to accept lower prices. – additional reporting by Bloomberg

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