Malls are Broadening Appeal

Malls are Broadening Appeal

Original Source: Independent on Saturday

Shopping centres have realised that lower LSM customers tend to cope better with the vicissitudes of tough economic times.

Upmarket shopping malls in which customers browse the aisles and clothing racks in an air-conditioned and exclusive ambiance will no longer only be enjoyed by the rich. Developers are now realising it is lower-income customers who weather tough economic conditions better.

Traditional centres that focus on lower Living Standards Measure LSM customers are being upgraded to offer better shopping experiences, while chic malls catering for the more affluent are starting to include offerings for smaller spenders.

This is the view of Smital Rambhai, portfolio manager at Futuregrowth Asset Management, which has invested in township and rural malls in seven of the country’s nine provinces.

“Traditionally in South Africa, developers built shopping centres for different LSM groups. You would often find the quality and design of shopping centres for the lower LSM groups tended to be strip malls in face brick style.

“It was primarily done keep maintenance costs low, with developers not realising shoppers wanted an enjoyable shopping experience.”

However, Rambhai says there is now a move away from strip malls towards fully enclosed malls, where air-conditioning is installed and ambiance is improved to make the shopping experience “more pleasant”.

The group has even seen a trend emerging where shopping centres are designed to focus on low, middle and higher LSM groups under the same roof. This can also be attributed to the integration of residential areas.

“Property owners have realised low to middle LSM retail is critical to the long-term sustainability of a centre as these retailers are quite resilient during tough economic conditions. Shops catering for higher LSM consumers tend to depend on economic booms.”

An example, he says, is the V&A Waterfront which has integrated the likes of Mr Price to the retail offering as people from all LSM groups frequent the centre.

Because retailers in some township and rural malls focus on convenience and provide basic services and goods, they are not hugely impacted by e-commerce. This is one reason why community and neighbourhood centres, which are predominantly where the fund invests, have been the best performing sectors within the retail shopping category over the past three years.

There has been a fundamental shift in consumers’ preference for convenience over distant larger shopping centres because of time constraints, parking costs, distances required to walk in centres and a cutback in discretionary spending.

“Regional and super-regional centres are impacted by e-commerce due to purchase items being largely discretionary items. You won’t buy bread online. You are still going to visit a community or neighbourhood centre to feel how fresh the bread is,” Rambhai says.

The latest JLL South African Retail Market Report, based on figures from the last quarter of 2017, echoes this, revealing that neighbourhood and community shopping centres continued performing better than bigger centres.

In addition, small regional shopping centres saw a decline in vacancy rates while all other sectors saw an increase from the same period in 2016.

“This may be attributable to renovations and efforts by property owners to improve the shopping experience in smaller centres.” JLL also reports that Q3 annualised trading density growth – which indicates sales turnover achieved per square metre and, therefore, profitability – dropped by 5.6% in the super-regional and 0.7% in regional centres, whereas it increased by 0.7% in small regional, 0.1% in community, and 0.9% in neighbourhood centres.

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