Retailers rush in as international brands arrive

With more shopping malls opening, expanding or upgrading, local retailers are racing headlong with international brands to occupy prime space.

In the face of unprecedented competition, they cannot rely on extending square metres to keep customers, argued Jaco Prinsloo, principal at management consultancy AT Kearney.

“It’s not always expansion for profitable growth, it’s expansion just to secure that position,” he said. Increasing floor space risked the dilution of revenue per square metre – an important metric for measuring the performance of a retailer.

According to data from AT Kearney, formal retail space in South Africa is 11-million m2. It has grown on average 18% over the past five years, while retails sales figures remained “relatively flat” over the same period, said Prinsloo.

“Across the board, there is lots of competition and revenue per square metre has gone down,” he said.

Fashion brands
International fashion brands such as Zara, Cotton On and H&M have already entered or are due to enter the retail clothing space. They bring a new offering and a European “feel” to the local retail market and they “can still compete price-wise with the local players”, Prinsloo said.

In addition they come from “relatively rich organisations”, which benefit from the devaluing of the rand against global currencies.

Firms from other parts of Africa are also making inroads, such as Botswana-based food retailer Choppies, which recently listed on the JSE. The company has a distribution centre in Rustenburg and 35 outlets across South Africa. This is in addition to its 72 outlets in Botswana, and the 18 it operates in Zimbabwe.

South African retailers have benefited from a relatively stable economy and growth in recent years. “All of a sudden the world has woken up in the last couple of years and we also want a share of that pie,” said Prinsloo.

Major mall developments, such as the Mall of Africa in Midrand, attract local and international brands. The project is one of the largest mall developments in Africa. It will house global names such as Forever 21, River Island, Mango and Tommy Hilfiger alongside flagship stores for the Foschini Group, Mr Price and Truworths, the company said.

Relentless pursuit
But this relentless pursuit of more shopping room takes place against a backdrop of a weakening consumer environment.

In the year’s second quarter, consumer confidence slumped to -15, surpassing lows last seen at the start of the 2008 financial crisis.

Retail sales figures for May, released by Statistics South Africa, slowed to 2.4% from 3.4% in April.

The numbers reflect a “more normal” picture of consumer spending: the April figure was driven by the number of public holidays, according to Investec economist Annabel Bishop. South African consumers continue to face “increasing financial distress”, she said in a research note.

After the credit amnesty last year, the latest data from the National Credit Regulator showed impairments – consumers three or more months in arrears on the payment of an account, or who have a judgment or listing against them – and delinquencies – accounts 30 days in arrears – are rising again, she said.

Retailer confidence
Bishop added that the EY Bureau for Economic Research retail survey for 2015’s second quarter show retailer confidence has decreased. Some 48% of respondents were dissatisfied with prevailing conditions compared with 40% in the first quarter of the year.

“Retailers expect a slower pace of growth in sales volumes and are less confident about the future, anticipating business conditions will deteriorate [in the third quarter],” she said.

Other economists are not optimistic about the outlook improving.

Nedbank economists Johannes Khosa and Dennis Dykes said: “Domestic spending is not expected to improve significantly in the short term as household financial conditions are likely to remain weak on the back of higher taxes, higher administered prices, tight access to credit and the poor job market.”

Consumer appetite
This will contain consumers’ appetite and ability to spend “particularly on nonessential goods”.

It is often difficult for retailers to vacate unprofitable stores, Prinsloo noted, because they run the risk of leaving the space available to competitors.

It can also be a costly process because of long-term rental agreements and high severance costs. Negative publicity as a result of job shedding is another factor.

A “relentless focus on consumers” is important to ensure local brands differentiate, themselves from their growing international competition, he argued.

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

‘Frustrated’ police resort to force

Regulation uncertainty leaves slap-happy police and soldiers to decide when people should or shouldn’t be allowed on the streets

Mail & Guardian needs your help

Our job is to help give you the information we all need to participate in building this country, while holding those in power to account. But now the power to help us keep doing that is in your hands

Press Releases

New energy mix on the cards

REI4P already has and will continue to yield thousands of employment opportunities

The online value of executive education in a Covid-19 world

Executive education courses further develop the skills of leaders in the workplace

Sisa Ntshona urges everyone to stay home, and consider travelling later

Sisa Ntshona has urged everyone to limit their movements in line with government’s request

SAB Zenzele’s special AGM postponed until further notice

An arrangement has been announced for shareholders and retailers to receive a 77.5% cash payout

20th Edition of the National Teaching Awards

Teachers are seldom recognised but they are indispensable to the country's education system

Awards affirm the vital work that teachers do

Government is committed to empowering South Africa’s teachers with skills, knowledge and techniques for a changing world

SAB Zenzele special AGM rescheduled to March 25 2020

New voting arrangements are being made to safeguard the health of shareholders