It is a fact that retail and shopping patterns are continuously changing. What has happened during the period of the previous Shopping Centre Directory (2004/5) and what will be the main changes and trends during the shelf life of this directory? To answer these two major questions this article will highlight South African retail market trends and changes in shopping patterns and behaviour.
Lifestyle changes have a very important impact on retail sales and shopping behaviour. New retail formats have been developed to cater for these changing needs. Lifestyle centres are developed mainly to offer the shopper a different tenant mix and shopping experience. Lifestyle centres in the USA mainly offer an attractive complex with a relaxed atmosphere and a variety of facilities/activities as part of the whole development. This can include offices, residential units, hotels, theatres, conference facilities and retail. Melrose Arch is the best example of a mixed use development in South Africa and there are a number of these developments in the pipeline.
Modern consumers seek a shopping experience. Shopping is not only about consumption, but also about an experience. Traditionally, larger centres fulfilled the expectations of consumers with ‘a shopping experience’. To meet such expectations and be sustainable in the longer-term, shopping centres have to offer good quality public space, ease of movement as well as places where people can meet, relax or be entertained like coffee shops, restaurants and theatres. These facilities must utilise both indoor and outdoor spaces. The increasing demand for ‘a shopping experience’ is one of the major reasons for the growth in the number of lifestyle centres. Interactive shopping is a new key word associated with lifestyle centres. Interactive shops include golf shops where shoppers can experiment with golf clubs, coffee shops combined with bookshops, and shops where shoppers build their own toys, etc. Smaller centres also focus more on a unique tenant mix and a very positive shopping experience. One of the latest examples is the new Athol Square in Sandton.
The youth of today has considerable spending power and exerts a major influence on spending patterns. The importance of brands and branding should not be underestimated in retailing, particularly within this segment of the market. This segment of the market is also called the ‘one universal market’ because these trends are set and followed world-wide. There is a strong influence on parents on what they would like to have and wear and they even influence what parents buy for themselves.
There is a definite trend emerging towards the implementation of longer shopping hours. Longer shopping hours has been the norm in convenience stores for some time, and are being implemented in the larger and regional shopping centres as well. There are two critical components in this regard namely that each centre must adhere to the needs of the market they serve and consistency is very important from a customer point of view. Too many centres have flexible hours, confusing the shoppers. The trend is to stay open later, but this varies from centre to centre.
The homeware sector of the retail market has grown exponentially over the last seven years. This resulted in the opening of more homeware stores including Mr Price Home, @ Home, Home Etc., the expansion of Boardmans, Wetherleys, Weylands, Woolworths Homeware Department, and others. The drivers behind the growth in the homeware product sector are the following:
- the growing affluence of the South African population, more specifically the upper end of the black market. The most affluent sector of the market has doubled from 3% in 1994 to 6% in 2005;
- increase in home ownership;
- mass housing and electrification (the number of households with electricity has increased from 58% in 1994 to 85% in 2005);
- the international trend towards a shorter life span of homeware products resulting in more rapid replacements.
Because of the success of the existing homeware stores, most of the retailers in this sector are considering major expansions in the near future. These retailers are also investigating different retail formats, ranging from strip/value centres, small and large centres as well as free-standing big box retail outlets. The latest addition to this fast developing sector of the retail market is Designers Courtiers in Johannesburg and Willow Bridge in Cape Town. These homeware stores should in future anchor the new lifestyle centres proposed for various parts of our affluent areas in metropolitan areas.
At present retailers are generally far less concerned about the impact of e-commerce than during 1999. Currently world-wide e-tailing is responsible for 1% – 2% of total retail sales. More and more centres are using Internet to promote the centre rather than to drive sales. Most shopping centres use websites as one of their marketing tools. Currently South Africa has 4,7 million internet users (30, the largest internet market in the world). The impact on shopping is estimated at less than 0,5%.
Population growth is a key driver of retail development. South Africa’s total population grew at 2% per annum during 1996 to 2001. South Africa’s population growth in future will largely depend on the growth in HIV/AIDS cases and the general consensus is that growth is expected to slow down as a result thereof. The current population estimate is 47 million, already growing at a rate of 1,67%, which is much lower than the growth rate of 2%, 5 years ago. The World Bank predicts that in 2015 the total South African population will be 44,3 million, indicating a negative growth as a result of AIDS. Depending on the target market and style of a particular shopping centre, the effect of AIDS could possibly have a more significant impact on one type of centre, rather than on the retail industry as a whole.
The provinces of Gauteng and the Western Cape are the only two provinces with a nett increase in migration figures compared to the decrease (or outflow) experienced by the seven other provinces. South Africa is almost 60% urbanised and a major inflow to the urban areas is experienced. This migration is mainly by individuals of the LSM Segments 1 to 5 and is putting tremendous pressure on the supply of housing facilities, job creation and infrastructure in and around urban areas.
The contribution towards and the demand for retail by the rapidly urbanising population will be mainly on basic food products and clothing. This will, in turn, stimulate the demand for more township centres, CBD shopping and small spaza shops. All this will create opportunities for retail development, but the target markets need to be clearly identified and specified.
According to recent research, the upper end of the market, LSM segment 8+, is showing rapid growth (21% p.a. since 1996), whilst the lower end of the market LSM segments 1 to 5 (<R3 000 per month) is growing at only 1% per annum. Since 2001 the middle market consumers earning between R3 000 and R12 000 per month is now growing at ±10% per annum. The total LSM 5 to 10 segments have increased from 35% to 55% of the total market. This has resulted in almost 300 000 to 400 000 additional households in the middle and upper income brackets.
The latest LSM (Living Standards Measurement) figures indicate a decrease in LSM 1 and 2 from 31% of the total population in 1994 to only 12% in 2005. The largest increase has taken place in LSM 6 – 7 where the increase was almost 10% from 26% in 1994 to 35,7% in 2005. This also confirms the changes mentioned earlier.
The impact of all this on shopping centres is that most, if not all centres currently, serve a broader customer profile than in the past. Most regional centres currently cater for the broader LSM 6 – 10 markets compared to LSM 8 – 10 previously.
Statistics show that a substantial portion of the black market is already supporting the formal retail sector. The importance of emerging black markets is clearly shown by the following graphs.
The expenditure on consumer goods for whites has dropped from 53% of the total expenditure in 1993 to 42% in 2003, while black expenditure grew from 35% of the total in 1993 to 45% in 2003 and expected to reach the 50% mark in 2005/6.
Growth of shopping centre development in the traditionally black urban areas is expected to accelerate rapidly in future. It is expected that the growth in retailing there will further be stimulated once the right tenant mix and centre size have been determined. There is also a strong commitment from the national grocery retailers to be better represented in these areas.
Centres that currently being planned/developed in the Township areas vary between 15 000m² and 57 000m². These areas will always experience outflows of disposable income to the suburban centres and the CBDs mainly because of work and transport opportunities, variety of stock as well as the fact that people like to socialise and browse.
Retail in the CBDs continues to perform well as the CBDs remains the main destination supported by the various public transport providers. The success of retail in the CBDs is mainly the result of the support of large numbers of shoppers from the widest possible metro-wide catchment area. The LSM profile of most CBD areas has been established to cater for LSM segments 4 to 7. In some CBDs there also has been an increase in support from the higher LSM categories.
More shopping centres (especially large super-regional centres) such as Gateway, Canal Walk and Sandton City have specific programmes to attract tourists, local as well as foreign, to the centre. This trend is likely to increase as South Africa develops into a more attractive international tourist destination. Shopping centres should put a plan in place to attract spectators to the Soccer World Cup Final to their centres and to offer a variety of soccer related products.
What does the future hold for retail?
It is expected that economic conditions will remain positive. The reason for this is the fact that most changes in South Africa have been structural and not only cyclical. This means that people have more money in their pockets, are more educated with higher employment ratios. Should the target of 6% growth set by the State President be reached, the impact on retail and shopping centre development will be very positive.
Almost 1 million m² of retail floor space is currently (November 2005) in different planning stages. Not all of this will be built but gives a very clear indication of the level of activity in the market.
The most important aspect regarding shopping centre development right now is the correct timing and the right size of a particular development. Many developers have started construction 5 – 7 years too early just to keep competitors out. A specific area is only right for retail once a certain number of households are already living in a particular area (so-called threshold value). A ‘follow the roofs’ strategy should be followed. This means that retail can only be successful once sufficient households and money are available for development.
Once this publication comes to the end of its shelf live (end 2007) we will see a number of new centres of which some will be successful, offering new types of attractive life style orientated shopping facilities, while other centres will be overbuilt or built too early.
There is a large number of older centres (especially older community type centres) that will reach the state in 2 – 5 years time where it will become necessary to totally refocus the centre or develop it into something different (so-called de-malling).
The existing six or seven large retailer groups will offer more brands and product types, reducing the role that will be played by smaller independent retailers in future. Hopefully more international retailers will see the potential to establish outlets in South Africa. Ikea (homeware and furniture store) and Zara (fashion) would be ideal tenants to complement our current retail offering.
Over the last three years we have seen major changes in the macro economic conditions, demographic changes, shopping behaviour and shopping centre development. These changes must only be seen as the beginning while all the trends will be strengthened making shopping centre development attractive. There are however certain basics that will always influence the performance of retail.
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