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Stores face retail apocalypse

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International names head towards financial ruin as internet shopping grows

Growing speculation that international toy giant Toys R Us could file for bankruptcy is just one face of what is being dubbed the “retail apocalypse” in the United States as traditional brick and mortar retailers close their doors amid increased competition from online stores.

About $5billion in debt, and with around $400million of that due next year, the US toy retailer has hired a law firm to assist it in refinancing or restructuring its debt, and one of the options is to file for bankruptcy protection.

Last year, Toys R Us restructured some of its debt, but according to US media, which quoted sources close to the situation, increasing competition from big-box stores like Walmart and online retailer Amazon is putting the toy giant under pressure.

According to CNBC.com, Toys R Us’ baby-centred store, Babies R Us, is seeing sales of nappies falling as parents buy them through online subscription businesses offered by Amazon and other e-retailers.

But it is not just Toys R Us which is facing the onslaught from e-commerce in the US. The New York Post reported last week that more than a dozen retailers have filed for bankruptcy this year as consumers “shift their spending habits to e-commerce competitors”. 

Brick and mortar retailers are under pressure as more consumers move to online purchasing.
Picture: Supplied

Since the start of 2016, more than 4 000 physical stores have been affected by the
“retail apocalypse”. Although Toys R Us Southern Africa operates independently of Toys R Us Inc and is unaffected by its financial difficulties or restructuring decisions, e-commerce generally is having an impact on South African retailers, with statistics showing the only two merchandise outlet categories seeing trading density growth are food and cards, gifts and stationery. 

Presenting statistics from MSCI Real Estate, Erwin Rode of Rode & Associates says, as at March 2017, South African department
stores saw trading declines from 12.2% to 14.7% across all store sizes, including community, small regional, regional and super-regional. Apparel merchandise trading decreased by 1.1% in regional stores and 15.9% in super-regional stores, while food services decreased by 2.3% in super-regional stores. 

According to the Broll Retail Snapshot for Q2, the combination of the country’s
GDP growth, inflation, prime lending rate, household debt to disposable income levels, increased costs of living and a negative
Consumer Confidence Index, meant consumers were under pressure. \

These factors
had spin-off effects on the retail market and store closures, local and international, had been evident, the report stated.“Certain small retailers closed their doors recently, but of greater concern are big-box retailers that closed shop. 

Some reduced
their footprint across the country while others left the country,” it stated. Wilna Savio, portfolio executive at the Broll Property Group, says landlords need to become “more proactive” and focus on tenant retention, flexible leases and improved customer service to retain customers and retailers, and draw feet to centres. 

She says some retailers are struggling
and management teams are discussing leasing strategies with regards to tenantmixes and centre improvements. “They are also looking at viable rent/ space reduction, escalation rates and growth, and innovative leasing deals.”
Savio says some centres increased their each with marketing campaigns through customer engagement on social media.

Mall classifications based on gross leasable area/size of centre:

Community: 12000m² – 25000m²

Small Regional: 25000m² – 50000m²

Regional: 50000m² – 100000m²

Super-regional: > 100000m²

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