Mothballed ‘supermall-ification’
Analysts agree that the country has enough malls and that, post-covid, the convenience of local centres lure customers
The construction of Eastgate began in 1976, the same year the Soweto uprisings roused protests across South Africa. The country’s first super-regional mall opened three years later, despite the economic uncertainty of that period.
In the years since, “mall-ification” in South Africa has been in full swing. The country is among those with the most shopping centres per capita in the world and research shows that after the 1990s its malls are bigger and bigger.
But now, as yet another wave of economic disquiet washes over South Africa, super-regional malls such as Eastgate may no longer be the lodestars of the country’s marketplace — especially now that retailers are embracing the convenience of strip malls and digital shopping.
Last week, The Foschini Group (TFG) announced it would test standalone Jet Home stores as part of its plans to open 1000 new outlets across the group’s brands in the next three years.
The group is planning to open 200 new Jet stores, after acquiring the brand in September 2020. The acquisition, made possible because Jet and Edgars owner Edcon was put under business rescue, gave TFG an anchor into lower income households.
Sites for expansion
TFG’S director of retail Stuart Baird said Jet’s expansion will be aimed outside of super-regional malls, where the brand is already well represented.
“We see that a lot of our growth, and this speaks to all our brands, will come from where the consumer is today,” he said.
Growth in retail is in neighbourhood and township malls, Baird explained. “Obviously post-covid we are seeing real growth back in the super-regionals, but it is coming off a low base.”
Baird said TFG is closely watching how the recovery of the bigger malls, which were disproportionately hit by the Covid-19 pandemic, pans out — especially as online shopping poses another threat to their existence.
“Post-covid, they are coming back. But as e-commerce grows, our expectation is that the super-regionals will be the ones that feel the impact first,” he said.
Ron Klipin, the senior portfolio manager at Cratos Capital, said TFG opening Jet Home standalone stores is “a great idea”.
“It enables them to get economies of scale and expand, perhaps to cheaper premises … It’s a logical idea. It means that they will have lower overheads and they don’t have to be in super-regional malls.”
Makwe Masilela, chief investment officer at Makwe Fund Managers, noted that the Covid-19 pandemic meant fewer people were visiting malls. Neighbourhood complexes have attracted more visitors because people are being more cautious about their health, he said.
“Let’s just be practical. If you have to go to Foschini in one of the big malls you have to make an effort to park, then walk to find it, all the while being exposed to people. But if it’s a standalone, you just stop in front of the store. You get what you want and it is very convenient.”
Masilela recalled a time when people would go to town and shop on the high street. Stores lined the streets and shoppers walked from one destination to the next. But when people had the option to go to the mall, it was considered safer and required less walking.
“But if you think about people who just want to go to one particular store, why should they be forced to go through the whole mall?” he said.
Convenience is king
The shopping mall model is being abandoned — retailers are just trying to accommodate different preferences, Masilela added. “Consumers now are really calling the shots. Whatever you are doing ... make sure that you accommodate them and make it convenient for them.”
Neil Schloss, Growthpoint’s head of retail, agreed that convenience has moved up shoppers’ lists of priorities.
The Jse-listed property company’s retail portfolio includes a number of strip malls.
Growthpoint also owns the V&A Waterfront, which was disproportionately hit by the pandemic compared with the other properties in the firm’s portfolio.
Schloss said the company has seen “a move to convenience in the last decade. This has been driven by supermarket and food retailers rolling out new stores to cater to a shopper that has less time and requires a convenient shopping trip to a smaller format shopping centre that has fewer retailers.”
Veteran retail analyst Syd Vianello said, compared to super-regional and mid-sized regional malls, local shopping centres “are probably doing the best of the lot”.
Referring to TFG’S decision to test standalone Jet Home stores, Vianello said: “Jet’s target market is towards the lower end and they could probably open Jet home stores in some of those community malls. That is probably where they would want to establish a large number of their stores, rather than going into the big regionals.”
‘There are enough malls’
Other retailers will probably have their eyes on expanding to local malls in the future, Vianello added.
“You can only move into a big regional or super-regional, number one, if there is space. And, number two, if you don’t have exposure in that particular mall already and, thirdly, if someone is building a new mall,” he said. “Now, nobody is going to be building new shopping malls. There are enough malls.”
In 2018, South Africa had 24-million square metres of shopping centre floor space, according to research commissioned by the South African Council of Shopping Centres. Between 2001 and 2018, per capita shopping centre retail space increased from 0.2m to 0.43m .
Retailers will probably still find space in Eastgate or Sandton City, Vianello added.
“But that is two shopping malls and that covers a huge area … So if you want to establish 200 stores, you would just naturally want to position yourself in community malls, where the majority of the population would typically be doing their shopping.”
Masilela agreed that South Africa already has enough malls.
“Generally ‘the mall thing’ is getting outdated, because gone are the days where people go to the mall to walk around,” he said. “You go to the mall because you are forced to use malls, because everything moved into the malls,” he said.
But Morné Wilken, chief executive of Hyprop, the Jse-listed retail property that owns Cape Town’s Canal Walk and Hyde Park Corner in Johannesburg, said regional malls have not lost their shine.
“We believe in the long-term future of regional centres and are repositioning all our centres to speak to its unique demographic.”
With a 2.4% vacancy rate, Hyprop’s malls are still in demand, Wilken said, noting “like everything in life, it’s key to keep your malls relevant”. South Africa’s malls “should become real community centres and a real one stop place where all the needs of the consumer can be met”.
The Covid-19 effect
The pandemic hit South Africa’s malls hard. Lockdowns and health concerns kept shoppers from visiting large, sometimes faraway shopping centres.
In April 2020, Eastgate’s foot count fell to 27% of what was recorded at the end of 2019. Sandton City’s foot count dropped to 11% of 2019 levels. But, by the end of 2020, the foot counts in the two malls had shot up to 88% and 72% respectively.
South Africa’s malls do not face the same threats to their existence as they do elsewhere, Vianello said.
Covid-19, which sped up digital adoption by consumers, was the final nail in the coffin for many malls in the United States and the United Kingdom. It also tore through the United Kingdom’s high street, claiming, among others, Topshop and Debenhams.
But online retail has picked up quicker in those markets, Vianello said. In the US, he added, the fate of the country’s malls is tied to its big department stores, which have been dying “an accelerated death”.
“In South Africa, we don’t really have any department stores left … So we don’t really have that problem in this country.”
“Secondly”, Vianello added, “online shopping hasn’t really taken off to the extent that it has in other parts of the world. And it probably isn’t going to, simply because the ability to deliver products to townships I think is many, many years away.”
Doris Viljoen, senior futurist at the Institute for Futures Research at the University of Stellenbosch Business School, said the narrative about online retail’s effect has sometimes led to unrealistic expectations of what malls might look like in the future
But, she said, the nature of malls and why people visit them has been changing for some time now — even before the pandemic seemingly turned retail on its head. “Covid accelerated a lot of trends that were already there and already developing.”
The wall between the online retail and the brick and mortar malls will probably collapse, Viljoen said.
“It doesn’t matter how you found the product or how you engage with it. All of your interactions will be through one channel.
“We won’t have an online and a separate offline business, because that just doesn’t make sense. Because in the mind of the consumer, it is not two things.”
Redefine, the owner of Blue Route Mall and Kenilworth Centre in Cape Town and Benmore Centre in Johannesburg, recently announced it is partnering with Quench, a multilateral digital shopping platform. The property firm will be working on an online platform to take a full mall online.
The mall of the future
Analysts said that malls, even the giants such as Eastgate and Sandton, will continue to exist in some form or another.
David Shapiro, chief equity analyst at Sasfin, said strip malls will continue to house pharmacies, butcheries and coffee shops. The larger malls will become entertainment centres, he said.
“Going to malls will be an experience similar to going to luxury retail stores, which are like palaces,” Shapiro added.
“They [the luxury retail stores] are temples to consumption and you go in there to feel great … It’s almost like Disneyland and that excites you to buy something. You are going to get those kinds of stores that do nothing more than attract you and that’s a different experience than going into Woolworths.”
The social function of malls will likely prevail, Viljoen said. “And that function will probably become more important. It’s a place to meet your friends and to spend time looking at interesting things, or doing interesting things.”
Malls will also continue to serve as showrooms for retailers. “The tactile engagement with products will be retained. People want to see something in real life or try it on,” Viljoen said.
Mall owners will have to rethink their business models and how they charge their tenants, she added.
“What we could see is that you go to a mall, walk past a number of products and identify things that you like. But then you don’t buy it there, you buy it online. That’s going to have a significant influence on how rents are calculated. Because at the moment, a lot of the rents are calculated based on turnover.
“We have a lot of malls. So we will probably see a lot of malls being repurposed. Because if we look at the social and the showroom functions, we don’t need as many very large malls,” she added.
“The small malls, the community malls, have jumped up in significance. That has a big impact on the big malls, because people don’t have to visit them — or they only go to them for the social aspect.”
But Amelia Beattie, the chief executive of Liberty 2 Degrees (L2D), said there are areas in South Africa that are still “under-malled because whatever malls exist in those areas don’t address the needs of customers”.
Aspiration thrives
L2D, Liberty’s real estate investment arm, owns Eastgate and Sandton City. Long before the company’s property outfit was formed, Liberty founder Donald Gordon pioneered South Africa’s “mall-fication”.
He oversaw Eastgate’s construction in the second half of the 1970s. Years earlier Liberty built Sandton City, which transformed the area — a stone’s throw away from Johannesburg’s Alexandra township — from a farming community into the country’s commercial capital.
“I have a very strong view on the notion that super-regionals and regionals don’t work,” Beattie said. “I believe it has nothing to do with the mall format. If you have a good quality asset, in a good area that provides for the needs of the customers, it doesn’t matter what the size of the asset is.”
Convenience is not the be all and end all for mall visitors, they also want an experience, she added.
For that reason, Sandton is unique: “At Sandton, you can shop from Ackermans to Armani, Mr Price to Gucci, Checkers to Louis Vuitton. You can have everything and everything does well. But the key to Sandton’s success is there is enough of a convenience element … So Sandton is a bit of an ‘and and’ strategy rather than an ‘and, or’.”
Sandton City delivered betterthan-expected results earlier this year, off the back of an uptick in luxury sales across L2D’S malls. In March, the mall owner reported that Sandton recorded its best March in five years.
The current economic upheaval has not wiped out the aspirational quality of South Africa’s malls, Beattie said.
“You can find beautiful things at Jet. You can find beautiful things at Ackermans. And you can be inspired by how the people outside Louis Vuitton look. That is the tapestry of people we can cater for, especially at super-regional malls. Covid created so much poverty, but the human spirit is amazing.
'And the human spirit, by its nature, is aspirational.”