Shopping malls re-think tenant mix to survive weak economy - report

South Africa's weak economy, low consumer confidence and high levels of retail centre competition have all caused landlords to re-examine their tenant mix in order for their malls to remain relevant within their catchment areas, according to a new report released by the SA Council of Shopping Centres.

Data from more than 100 malls indicated that malls larger than 25 000m² have an increasing emphasis on "experiential retail", according to the report, compiled for the SACSC by global analytics firm MSCI.

The report emphasises that a successful tenant mix strategy is one of many factors that could influence a mall's long-term sustainability.

"There is definitely a buzz around the experiential retail and shopping centre experience globally, so we wanted to have more insight and data on what's happening in the experiential retail space in SA," says SACSC CEO Amanda Stops.

According to the report, as more and more retail trade takes place online, one could expect a shift in how malls approach their tenant mix and rent-to-turnover ratios.

Experience focus

Anecdotal feedback, given in the report, indicates that managers of larger retail centres have been placing more emphasis on creating an experiential shopping experience to attract shoppers, lengthen dwell time and differentiate themselves from competing malls located within its catchment area.

At the same time, managers of smaller retail centres seem to have been focusing their efforts on positioning their centres as convenience destinations in a "crowded, competitive market".

Convenience retailers include service-focused tenants and retailers of hardware and food. Experiential categories include apparel, food services and health and beauty offerings.

"While it is crucial for centres to remain relevant, it is also important for tenant mix shifts to translate into improved trading and investment performance to ensure long-term sustainability," states the report.

"The small regional retail segment saw the most benefit from increasing experiential space...Increasingly, malls in this size bracket have been adding features such as ice rinks, family entertainment centres and new age theatre cinemas to complement their food service offerings."

Convenience stops

In contrast, community centres (12 000m²-25 000m²) showed that experiential retail categories under-performed, which, according to the report, highlights the fact that consumers view these as convenience stops rather than an experiential destination.

"Given the challenging and competitive operating environment, it is currently harder for retail centres to deliver benchmark beating total returns – even more so for the larger retail formats," the report states.

The data suggests that convenience-focused categories in larger retail centres may have benefited from the additional consumers attracted due to an improved experiential offering.

Phil Barttram, MSCI's executive director commented that, when it's all said and done, property owners want to ensure that the space they own remains relevant to the community it serves.

"There has been a lot written on the value of data in a fast changing retail world. Much of this discussion has centered on innovative ways to measure the shopper, whether its determining a catchment area, measuring mall dwell times or predicting consumer spending patterns," he said.   

"In a fast changing environment, where the future is uncertain and previous paradigms are questioned, making effective decisions becomes an enormous challenge."

In his view, the latest research, commissioned by the SACSC is a small step on the journey to informing mall owner decisions regarding future tenant and category mix and the efficacy of their transition to experiential and convenient retail space.

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