Redefine Properties on growth of value retailers

JSE-listed Real Estate Investment Trust, *Redefine Properties say there is an increase in retailers focusing on consolidating and investing into value brands and merchandising.

In particular, value brands are experiencing growth, with retailers in this space increasing their footprint.

“Other brands are developing or buying existing retailers to gain exposure into this emerging market,” says Nashil Chotoki, National Asset Manager: Retail at Redefine Properties.

“We are seeing strong growth coming from value retailers, as consumers buy down amid continued pressure on disposable income. The move to value also sees national fashion brands looking at opening stores in convenience value centres,” he says.

Retailers such as The Foschini Group (TFG), with a diverse portfolio of over 30 retail brands worldwide, are seeing opportunities into this emerging market. Some of these brands include Foschini, Markham, Totalsports, Sportscene and @Home, among others.

TFG has acquired Jet, a leading Southern African retailer (by brand recognition and market share) giving the company exposure into the value segment.

Annual results for the period ending 31 March 2021, show that TFG concluded an agreement to acquire certain commercially viable stores, and stock-holding of Jet in South Africa, Botswana, the Kingdom of Eswatini, Lesotho and Namibia. TFG acquired 425 Jet stores for a consideration of R385.3m, according to company results.

Slow retail recovery

Redefine Properties interim results reveal that recovery in retail continues, although uncertainty around the Covid-19 pandemic persists.

Nashil Chotoki

 “The recovery of retail sales has been driven by essential services, value fashion and homeware/hardware retailers.” However, trading density for the reporting period is -7.4% (3.6% for the full year in 2020).

“We have already seen a better-than-expected recovery of retail sales compared to pre-pandemic levels. The continued growth will be largely influenced by the extent of lockdown regulations that are imposed to manage the impact of the third wave.”

The Covid-19 pandemic and the recessionary impact of the lockdowns are by far the main challenges facing the retail sector.

According to the FNB Commercial Property Broker Survey Q2 2021, the industrial sector is relatively strong, retail is mildly positive, and the office market continues to weaken.

Brokers surveyed say that generally, economic performance and its impact on consumer buying power are key issues facing retailers and their landlords.

“While the commercial property market does tend to track the overall economy to a very significant degree, we would expect its recovery to lag that of the overall economy,” says John Loos, FNB Property Strategist.

He explains that when businesses have taken a major financial knock such as that of 2020’s deep recession, finances and confidence are low. Leasing additional space or investing in additional commercial property would probably, for many, be on the backburner for some time until confidence is significantly better.

Mall of Thembisa

According to the Rode Report Q2 2021, the retail sector recovery will continue to recover over the short-term due to better economic growth and low interest rates.

However, this could be hampered by further lockdown restrictions in the event that there is a fourth Covid-19 wave.

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

Shopping centre performance

With a total GLA ((gross lettable area)  of 1.3m square metres, Redefine Properties total retail vacancy rates recorded 5.5% for the interim period to 28 February 2021.

Super regional shopping centres measuring +100,000m2 recorded 9.7%, whereas community shopping centres reached 3.7%.

Generally, vacancy rates and rentals are still under significant pressure, according to the Rode report.

Rental vacancy rates peak to +13%

Lockdown restrictions have put further pressure on property owners and tenants, especially restaurants, which had to close for sit-down customers due to the third Covid-19 wave.

Jason McCormick

Furthermore, as a result of restrictions and prevalence of the pandemic, shoppers’ preference of shopping closer to home at community and neighbourhood centres will continue.

Redefine Properties say that within its retail portfolio, convenience and township shopping centres have performed better through Covid-19. “These types of centres have seen a return of foot count and higher sales compared to the large-format shopping centres,” says Chotoki.

He points out that with social distancing becoming mandatory, convenience centres appeal to many customers with their simple in-and-out navigation, direct access to stores and open-air environment that make consumers feel safer, in light of Covid-19. In addition, convenience centres with a major anchor tenant, recovered faster after lockdown restrictions were lifted. 

“The working from home trend is also contributing to the move towards convenience centres. We have noted that convenience centres in the township and rural areas outperformed the centres in the developed metropolitan areas.”

Chotoki says Redefine Properties is also fielding a number of enquires by large clothing retailers for space in convenience centres.

“Before Covid-19, these retailers would have been on the bucket list but not in the actual tenant mix. Clothing retailers have been proactive in the face of evolving risks and the changing preferences of the consumer,” he says.

To this end, Redefine Properties is developing an approximately 10,000m2 convenience centre, Kwena Square in Little Falls on Hendrik Potgieter Road in Gauteng.

Landlords competing to secure tenants

Resilience of rural and township malls

Rural and township retail specialists, Exemplar REITail, say that amid the pandemic, the defensive nature of its portfolio has shielded the company from the worst.

Centurion Mall

“These types of malls generally tend to have a higher percentage of stores selling essential goods and services, fulfilling people’s needs more than their wants,” says Exemplar CEO, Jason McCormick.

“Our core market has always been on essential retail. As landlords in the niche sector of rural and township retail, over 50% of our tenant base is considered essential services and we were thus able to trade when the rest of the industry could not.”

McCormick says their assets are well-located in areas that are not over-traded. Here, rental levels are reasonable, thanks to the company’s ability to contain construction and operating costs, hence contributing to the defensiveness of the portfolio.

Exemplar is the owner of the Mall of Thembisa in Gauteng, which opened at the end of 2020, and has been trading positively since.

McCormick says that nearly 30% of the total GLA at this mall is defined as essential, according to the lockdown regulations. These essential retailers include four supermarkets, nine banks/financial institutions, two large pharmacies and a medical centre.

Other shopping centres owned by Exemplar include Acornhoek Megacity, Alex Mall, Diepkloof Square, Modjadji Plaza and Katale Square, among others.

Vukile Property Fund bullish about retail sector

Online retail growth and new stores

The FNB commercial broker survey reveals that 11.56% of respondents said that online retail contributed to declining footfall, under the major category of Difficult Trading Conditions.

John Loos

Redefine Properties say that the accelerated growth of online took place mainly in the grocery and pharmacy category. Additionally, retailers in these segments still have an aggressive new store rollout programme in regions such as Cape Town and Gauteng.

Chotoki says that the likes of Dischem, Clicks, Shoprite and Pick n Pay had the largest online growth.

For the six months ending 28 February 2021, Clicks online sales grew +167.4% to 1.3% of shopfront sales. Direct delivery increased to 84.5% of online. 

Clicks opened its 600th pharmacy in February 2021 and plans to open 40 new stores, 36 pharmacies and to refurbish 40 stores this year.

Dischem reported 261% online revenue growth for the 12 months ending 28 February 2021. The company said its investment in online retail over the past five years supported increased online sales volumes.

Additionally, Dischem opened 22 new stores, including three Mediclinic stores, and acquired two new pharmacies during the year, with a total of 194 stores during the reporting period.

In April 2021, the Pick n Pay Group reported sales growth of 10.0% in core food and groceries in South Africa. Online sales increased by 150%.

Pick n Pay also acquired online grocery platform Bottles. Bottles is the highest-rated mobile app in its category, ahead of any other online grocery delivery service in South Africa.

Moreover, it opened 112 new stores across all Pick n Pay and Boxer formats, bringing the total to 1,994 stores.

Between July and December 2020, Shoprite Holdings opened 45 new supermarkets in South Africa. More store openings are on the cards later this year.

The group reports a 100% growth in digital reach for supermarkets’ monthly web visitors, thanks to the rapid adoption of Sixty60, the on-demand 1-hour grocery delivery app.

Meanwhile, TFG online sales grew by +33%, contributing 12% to group turnover. The company says investment and new initiatives in online retail will continue.

 “E-commerce was growing fast, even before Covid-19 hit. As a result of the pandemic, and government’s appeal for people to observe movement restrictions and to step out less, more South African consumers turned to online shopping,” says Chotoki.

He points out that the growth of recovery of retail sales is being underpinned by the turnover growth of essential services, mainly groceries.

“Grocers with omnichannel capabilities found a big market for their delivery and curbside pickup, as many consumers were wary of in-person shopping.”

During the lockdown, Redefine Properties’ Kyalami Corner was one of the spots for Woolworths and Checkers to try out Click and Collect.

Redefine Properties owned Kyalami Corner
Kyalami Corner

Customers were able to order and pay for their groceries online and then drive to the centre to collect. This kept customers safe while retailers saved on expensive delivery fees.

Redefine Properties will continue to invest in the Click and Collect platforms and provide facilities to support online at their shopping centres, says Chotoki.

Exemplar has seen a far slower uptake of online shopping in the rural and township markets. However, McCormick says they are excited about the synergy that can, and to some extent already does, exist between the online and rural brick and mortar space.

“While the Click and Collect and similar concepts are only just beginning to establish themselves in the rural space, this promises to change the traditional idea of what a shopping centre provides and represents for its community,” says McCormick.

He says that by nature, human beings require social interaction and connection – something that the online space cannot provide. The interpersonal interactions and experiences that a mall provides for a shopper and their family are irreplaceable.

“Our vision for the future of rural retail takes cognisance of this, as our goal is to improve and expand on the idea of the mall as a place to gather and socialise. The social experience on offer will become the unique selling proposition that ensures customers continue to visit our portfolio of centres on an ongoing basis,” says McCormick.

Redefine Properties will continue to increase its exposure to essential services and value, identify emerging retailers and explore opportunities to repurpose vacant space,” adds Chotoki.

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*The figures and information in this article were correct at time of going to press. We will keep you updated.

Edited by Gudrun Kaiser

The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Safrea or its members.

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