Sustaining large shopping malls through phased approach

Marius Muller

The success of a shopping centre has as much to do with site selection, as it does with execution from its developer. Right now, the listed property sector is hungry for chunky retail development, but cannot find high quality stock in the market. Therefore, it is dipping into the next tier and creating demand for B-grade retail property at keener yields than found previously. Developers are aware of this demand and putting it out there.

The result is some developers delivering shopping centres that are oversized or too far ahead of market support, which brings the long-term sustainability of some of these malls into question.

Shopping centres are usually brought to market some degree ahead of consumer support. This model, although not without early challenges, has resulted in some of the country's most successful malls. These include Canal Walk Shopping Centre in Cape Town and Gateway Theatre of Shopping in Umhlanga, as centres that entered their markets well ahead of consumer support and at sizes that were not sustainable when they first opened. As a result, they had challenging trading in their early days but, as their markets grew, these centres were right-sized. Now, they are growing with their markets and are star performers.

I believe the massive 120,000m2 Mall of Africa, which is due to open in Waterfall City, Midrand, in 2016, may experience a similar pattern as its shopper market grows, but ultimately will be successful.

Faltering support

However, some South African malls are being brought to market way ahead of their time in terms of market support. There are cases where delivery to market is far too early, because there does need to be some market demand. There are malls being built too far ahead of time and too big. In one case, a significant portion of one such development has had to be mothballed, with large retail developments in the Eastern Cape being of particular concern in this regard.

Most new retail developments would be better off taking a more cautious approach in the current economic climate, starting around the right size for the available market and then growing in a phased approach, as market support grows. This phased development strategy has proved highly successful at a number of local malls, and mitigates the risk of early slow trading.

Retailer expansion affecting mix

National retailer expansion strategies are also affecting the wave of new retail space coming to market.

While some retailers, such as Shoprite, have made it clear that its growth will not see it cannibalising its own stores, others are less defensive of their existing outlets. As profit margins are being squeezed, they are hoping to offset this with greater turnover. This is resulting in retailers expanding their footprints because their competitors have, or to shut out competitors, which does not always make sense. More stores are not always the answer and can sometimes result in little gain.