What’s trending now
According to the South African Shopping Council, South Africa has the sixth most shopping centres in the world – and we are still building malls. The Fourways mega-mall complex currently under construction is set to be even bigger than the gigantic Mall of Africa.
This makes South Africa one of the most saturated, and most competitive, environments to try and set up shop.
However, while South Africa is building malls and escalating rental rates at record pace, the retail apocalypse has begun.
Why it is important
The retail apocalypse refers to the record number of stores and malls closing down across the globe.
According to Bloomberg, retailers are “filing for bankruptcy at a record rate”. Clark.com is keeping a running post on the growing number of major retail closures across the USA in 2017. There are already scores of big listed companies, with thousands of store closures between them, on the list.
In South Africa, Stuttafords financial woes are making headlines. Edcon is facing bankruptcy. Mango and Nine West have closed doors; undercut by their own online offerings.
The global trend of consumers moving away from shopping malls is being fuelled from two directions.
Firstly, online retail has reached a critical tipping point. Thanks to improved mobile payment gateways and door-to-door delivery services, such as Amazon’s drones, consumers are now comfortable to use online retailers for even luxury and big ticket items.
Globally, e-commerce is “eating” its brick and mortar competitors. Since 2010 and last year, Amazon’s sales – in North America alone – quintupled from $16 billion to $80 billion; this at the same time as mall visits declined 50% between 2010 and 2013, and they have kept declining ever since.
In South Africa, which has a 51.9% internet penetration, Pay Pal’s 2017 research report shows that 58% of online adults in South Africa have shopped online in the past 12 months, amounting to an estimated total spend of 37.1 billion rand. Furthermore, Pay Pal estimates mobile spend in South Africa is projected to increase by 123% by 2018. These statistics show the speed with which money is moving from offline to online.
Even township residents are discovering the benefits of non-retail shopping and home delivery.
Lakheni, is a social group-buying concept that allows Cape Town township residents to buy groceries as a community and have them delivered to local crèches for easy collection by individuals. The initiative is a manual online-offline hybrid at the moment but the founders have plans to develop an app to extend the service to wider communities. This is a compelling example of how retailers – that is middle men- are getting cut out of cost-sensitive consumer’s buying cycles.
The second driver behind what Derek Thomson of The Atlantic called “extinction level event” for retail is the demise of the middle class . Middle class incomes are falling in real terms as more and more middle class jobs are threatened by automation and robotics. Retail sales, of course, are directly linked to consumer confidence.
Millennials are simply not spending as much of their income on stuff as their predecessors.
In South Africa, where youth unemployment is estimated to be as high as 48% this second driver, that of declining consumer buying power, is by far the more important trend leading towards an inevitable local formal retail shopping centre decline, as economic growth fails to match population growth. Poverty-stricken consumers purchase their food from informal traders. Deloitte estimates 90% of African retail purchases take place in the informal sector – and this is unlikely to change soon, since informal market participants do not tend to have the necessary disposable income with which to support the high rents and markups of formal shopping mall retailers.
The butterfly effect
The future of retail is online.
In a world where you can get your shopping and fresh produce delivered to your door within hours, middle-men retailers who add price without adding convenience cannot compete with direct-from-source-to-consumer online retailers, or with online mega-retailers like Amazon.
The future of the malls that survive the current extinction event is in hospitality and entertainment – not in retail.
The anchor tenants of the future will not be grocery stores, but rather places where people can meet with each other and be entertained: i.e. restaurants, bars, gyms, farmers markets, art galleries, and theatres.
To confirm this, “food services and drinking places” sales in the USA have grown twice as fast as general retail sales since 2005. Americans now spend more money in restaurants and bars than at grocery stores.
We can expect this same trend away from consumer goods and towards social spending to carry over to South Africa in the coming months and years as cash-strapped consumers chose to spend more of their disposable incomes on necessary food and drink; rather than on increasingly unaffordable big-ticket purchases. Euromonitor statistics show that over 80% of South African adults already purchase fast-food at least once a month, their research also indicates the South African fast-food sector is expected to grow 9% a year until 2019 – far above South Africa’s expected GDP growth in the same period.
Forward-looking malls are converting themselves into entertainment destinations, offering health, experience and lifestyle facilities in addition to shops.
The Madrid Xanadu Mall in Spain is positioning itself as a destination for family fun. The mall has a ski-slope, a go-kart rink and a 3D cinema and also offers hot air balloon rides.
In the East, instead of trying to compete with online retailers, shopping centres are bringing the internet into the mall.
The upmarket Grand Front retail and office complex in Osaka, Japan only allows leases to retailers that offer an innovative, futuristic or high tech experience for customers. For example, The Grand Front Subway location grows its own salad greens in a greenhouse in the mall which also houses a tech start-up innovation hub.
By: Bronwyn Williams
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Image credit: A.Palu