Economic growth, key to boosting South Africa’s troubled retail sector

Like many industries, the retail sector suffered substantial financial losses in 2020, especially during hard lockdown.

Vuso Majija

This was because many retailers, except those selling essential items were restricted from trading during lockdown level 5.

The Black Friday event in November 2020 was a disappointment. Data from Lightstone shows that South African spending power was drastically reduced during Black Friday 2020.

In previous years, this event boosted sales for retailers, with consumers taking advantage of large discounts.

By way of explanation, Linda Reid from Lightstone says that the percentage of mall visits increased by 20% in 2020, in contrast with normal Friday’s mall visits.

According to Lightstone, visitors from areas where household income exceeds R40,000 per month were down 10% compared to Black Friday in 2019, whereas visitors coming from areas where household income is less than R10,000 decreased by more than 20%.

Economic growth needed to revive the retail sector

Lightstone points to low economic growth and the Covid-19 impact on the retail sector as factors contributing to declining spend on Black Friday.

Meanwhile, retail sales fell 4% year-on-year in November 2020 from a revised 2.3% decrease in October 2020, according to Statistics South Africa.

In January, the International Monetary Fund (IMF) revised South Africa’s economic growth forecast downwards to 2.8% and 1.4%, in 2021 and 2022, respectively. Global economic growth is expected to reach 5.5% this year.

According to Vuso Majija, Fortress REIT, retail executive director, the biggest challenge they have as landlords currently is not omni-channel retail, but economic growth.

Omni-channel is the integration of physical and online retail stores offering a unified customer experience.

“There is appetite from small and large retailers to open stores, but the current economic situation is the main hindrance,” says Majija.

He was speaking at the virtual Fortress Retail Evolution webinar which took place on 4 February 2021.

Evaton Mall in Gauteng

Majija explains that small and medium-sized enterprises are key drivers of economic growth in the country, and this is an area where landlords are hoping to attract new tenants to shopping centres.

 “Both large and small partners are looking for space – it’s not all doom and gloom. Our priority this year is to try to accommodate as many of those opportunities as possible.”

South Africa’s retail sector accounts for approximately 72% of all retail, nearly R780bn per year, points out Majija. This sector is an important industry to the economy, and employs a large number of people.

“We have to keep growing and expanding the retail industry, as it contributes massively to service delivery and to the provision of services and products in South Africa.”

Majija points out that pre-Covid-19, the troubled retail sector was characterised by space consolidations by tenants, including the closure of non-performing stores.

In some instances, he says banks were closing some branches in a bid to reduce their floor space, and move to digital banking. The Edcon group closed some Edgars stores in various malls countrywide.

Growth opportunities amid the pandemic

Interestingly, Majija says that certain niche retail categories such as grocers, pharmacies and athleisure (gym and casual wear) tenants were opening new stores.

He maintains that this is directly because shoppers were focusing on essential items, health and beauty products and changes in clothing preferences during Covid-19.

In 2020, local sneaker brand Bathu Shoes, defied the odds, by opening 12 retail stores nationwide, a 3,700 m2 warehouse in Centurion, and creating employment in the process.

Tshiamo Mathibela

The African sneaker brand launched its limited edition of sneakers in 2015 online to consumers in Alexandra, Soweto, Midrand and Tembisa.

It wasn’t until 2018 that the brand opened its first physical store at The Newtown Junction Mall in Johannesburg.

According to Tshiamo Mathibela, Bathu Shoes head of retail, the brand opened 12 stores within six months despite Covid-19 and the tough economic environment.

 “We don’t have a blueprint for the way we do things, we focus on innovation and customer experience.”

She explains that when opening new stores, they paid attention to innovation and attractive in-store design elements, with engaging technological features.

As an example, they’ve introduced the levitating sneaker machine, which makes the sneakers look like they are floating.

Factors such as the music played in-store, the imagery and the fragrances all contribute to an aesthetically pleasing shopping environment thus adding to the customer experience.

The brand has also built South Africa’s first sneaker customisation lab as an extension of customer engagement, she says.

Mathibela believes that physical retail will remain a huge part of consumer demand in the foreseeable future, as online shopping cannot replace human interaction.

“We will continue to grow our footprint and conduct research into other engaging features to put into new stores. Our biggest goal for 2021 is to become even more accessible by tapping into the smaller communities and new markets,” she adds.

Since launching, the brand has won numerous awards including among others, Emerging Business: Entrepreneur of the Year 2019 from Sanlam & Business Partners, Fastest Growing Business Brand 2019 (Finalist) from the National Business Awards, and SME Award 2019 (Finalist) from Vision 2030 Awards.

Edited by fellow-Safrean Gudrun Kaiser

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