Growing opportunities in township retail
Township retail could be a growth area for formal retailers. Property funds are reporting continued demand for shop space in these areas, according to a note by asset manager Stanlib.
Stanlib head of property Nesi Chetty and property analyst Ahmed Motara wrote in December that as township residents become richer, they desire retail options beyond traditional spazas, barbers and taverns.
“The spending power of the residents of SA’s townships can no longer be ignored by formal retailers, and the performance of the listed Real Estate Investment Trusts [Reits] with exposure to these areas confirms the opportunity, particularly for the supermarket operators.”
Chetty and Motara said rental growth recorded by property fund Exemplar, which focuses on commercial property in townships and rural areas, shows how resilient the sector is. The idea that townships are poor is completely out of date.
Exemplar is achieving 5% rental growth on renewals, while vacancies across the portfolio are below 3%, Chetty and Motara wrote. Exemplar’s shopping centres include Diepkloof Mall in Soweto, Alex Mall in Alexandra and Bizana Mall in the Eastern Cape and Mandeni Mall in KwaZulu Natal.
Formal retailers have already started expanding into the township economy. Pick n Pay’s lower-income Boxer chain is outperforming its traditional stores in middle-class areas.
The chain grew 16.1% in its half-year to August 27, driven by new stores in peri-urban areas and townships, the group lauding this as “outstanding”.
Shoprite, which has the widest footprint of grocery stores in SA aimed at lower income groups, is SA’s best performing supermarket chain.
Woolworths said last year it planned to open 100 smaller clothing stores in township areas over the medium term with a goal to open 20 in the present financial year.
The 300m² Woolworths fashion shops are almost 10 times smaller than the traditional 2,000m² stores in shopping malls, and have highly engaged shop assistants who encourage customers to try on clothes.
By the end of its 2023 financial year, Woolworths had 10 existing clothing stores in township areas such as Gugulethu, Thembisa and Giyani.
Expansion into the township market through the opening of smaller stores is a growing trend among retailers and restaurateurs as they seek to access the untapped spending potential of the informal economy.
The Stanlib analysts wrote that even though little of the informal economy is captured by official data “it is widely accepted that township GDP has grown at a staggering rate over the last decade”.
“SA listed property companies with retail assets serving lower-income communities can confirm that their retail tenants have better weathered the economic difficulties that have followed Covid-19 than higherincome competitors.”
For the 2023 Township CX Report marketing agency RogerWilco and research outfit Survey 54 questioned 1,000 township residents and found they prefer to shop close to where they live, with 23% of respondents reporting they spent 25%-50% of their income in the township. A further 25% of respondents said they spent more than 50% of their earnings in the township.
“With food prices constantly on the rise, township residents tend to stretch their rand by buying smaller items closer to home, rather than spending on travel,” the report said.
However, the Township CX Report reported a growing demand for township clothing and fashion brands.
There also continues to be demand for spaza shops. The report said that 51% of respondents said that they shop at these daily in 2023.
Food producer Tiger Brands, owner of Jungle Oats, Oros, Beacon, Black Cat, Tastic and Koo, said that in 2023 it was trying to sell more of its goods directly to spaza stores. Its objective is to reach 130,000 spaza stores in the next five years — it had products in 46,500 stores as at August last year.
Tiger Brands said SA’s informal independent traders, such as spazas, contribute 26% or R184bn of the R716bn fastmoving consumer goods market. More than 70% of SA households buy from informal traders, it said, quoting research agency Trade Intelligence 2022.
Spazas are popular as they often offer credit to local customers, and sell goods in smaller, more affordable quantities.
But Stanlib’s note says many township retailers struggle to get bank loans to expand. This makes it easier for traditional retail enterprises to expand into the townships.
Stanlib says the Reits with greatest exposure to township retail and rural areas are Vukile, Resilient, Fairvest, Fortress and Exemplar. It said that expanding formal retail in townships would create jobs and lead to lower prices being offered.