Tips for retailers

The cost of trading

When considering where to have your store, there are three key words to remember: location, location, location!

Some retailers do well despite having their stores in secluded, out-of-the-way locations, but for the majority it bodes well to have your store where potential customers can see it.

However, with this comes the age-long-question: where is the best location for my store? For some, a shopping centre environment is the best place to reel in customers, but with the nice location comes a really nice price-tag. Not everyone can afford to have a store inside a shopping centre.

The other option is having a street-front store outside a shopping centre environment, where the price-tag is not as high, but customers might not be as captured as in a shopping centre.

How do these two options weigh up? Does the shopping centre lessee have to sell more stock to make the same profit as the street-front lessee? Does the higher customer-traffic in shopping centres compensate for the higher rent? The Mall of Rosebank, for instance, boasts 10.5-m people pass through the centre’s doors annually and Canal Walk says 19-m people visit the centre annually.

A mall is a mall is a mall

Before going into the costs involved in renting different types of stores, let’s take a closer look at the different types of shopping centres.

Shopping centres are classified according to their size and the type of stores they are likely to have. There are seven different shopping centres, ranging from big super regional shopping centres, for example Sandton City, to small value centres.

The Rode’s Retail Report of Q3 2004, a quarterly SA retail report, defines shopping centres as follows:

» A super regional shopping centre, the largest type, has more than a 100 000 rentable m² of store space and more than 250 stores. This type of centre provides substantial comparison shopping and its principal tenants are three or more major department stores. To rent a 150m² store in a super regional shopping centre, for example Canal Walk in Cape Town, would cost between R390 and R400 p/m².
» A regional shopping centre has between 30 000 and 100 000 m² of rentable store space with 40 to 250 stores. Its principal tenants are one or more major department stores.
» A community shopping centre has between 10 000 and 30 000 m² of rentable store space with 30 to 60 stores. Its principal tenant is usually a variety store, for example Clicks, or a discount department store, for example Game.
» A neighbourhood shopping centre has between 5 000 to 10 000 m² of rentable store space with 15 to 40 stores and its principal tenant is a supermarket.
» A convenience shopping centre is 300 to 1 200 m² of rentable store space with 5 to 15 stores. Its principal tenant is a café or grocer.
» A retail warehouse is a stand-alone centre with a single tenant. It is under 10 000 m², air-conditioned, has no ceiling and has warehouse finishes.
» A value centre is under 10 000 m² and is a multi-tenanted strip centre (see below). It has warehouse-type finishes in order to deliver lower prices to customers.

A mall is typically enclosed with a common walkway between two facing strips of stores. A strip centre is a row of stores or service outlets that are connected to each other and managed as a retail entity. Store-fronts may be connected by open canopies, but there are no enclosed walkways linking the stores.

Another important criterion to keep in mind when selecting retail space, is whether customers will be able to access your store. Is there parking next to or close to your prospective store? This is very important, because if the customer is unnecessarily inconvenienced by having to walk far to reach your store, he might not return again.

On the other hand, can your prospective customers access your store by making use of public transport? Is there a railway station close by, or is the store on or near a bus route?

The type of access, will also determine the type of stores in a shopping area: you will not get very far when selling heavy equipment that people cannot carry far in a shopping area like Long Street in Cape Town, where people expect to walk far and almost treat the street like a shopping mall.

Growth

The growth in the number of shopping centres that started in 2003, is continuing today. Even though SA is seen to be over-shopped and there seems to be no real need for more shopping centres, the attractive returns offered by retail property goes a long way in encouraging investors and developers to continue pouring money into new shopping centres, say the Rode’s Retail Report.

According to the report, there had been enormous growth in shopping centre refurbishments and extensions during the 3rd quarter of 2004.

However, rentals of regional, community and neighbourhood shopping centres, as well as of most of the street-front stores, stayed the same over the second quarter of 2004. Street-front rentals did not increase much in the period stretching from the second quarter of 2003 to the 3rd quarter of 2004. Durban’s decentralised areas showed the biggest increase (4.0%) with Bloemfontein’s CBD2 following with a 2.3% rise. This growth in retail space is expected to continue. The Rode’s Retail Report predicts that about 421 500m² of major developments and extensions will be added to existing retail spaces in the next two years. It also says that this should have a subdued effect on rental prices.

With all the new shopping centres being built and renovated, there is healthy competition amongst shopping centres for tenants and the public’s attention. For instance, when the Gateway Mall opened in Durban and La Lucia lost key tenants, the latter rebranded itself to attract more sophisticated tenants and shoppers.

Clothing retailers have been one of the driving forces behind the growing demand for more retail space in centres. "Analysts say that there’s been increased competition in this category, with fashion retailers such as Dunns and Hang Ten opening new outlets in shopping centres", wrote Joan Muller in a Finance Week article Malls’ highest returns in a decade.

It looks like established local fashion retailers are rising to the challenge set by certain retail property owners. Hyprop, who owns Canal Walk in Cape Town, is adding brands such as Lacoste and MetroSexual to its existing retailers. Earlier this year a Nike Concept Store was opened in Canal Walk. The established retailers are responding by increasing their floor space, which leaves property owners smiling ear to ear.

Foschini, Truworths and Ackerman’s in the N1 Value City, Cape Town, doubled their floor space in response to international competition. Other retailers, for example Legit, Topic and Markham’s, are also increasing their floor space in N1 Value City.

What do the customers say?

It is no wonder that there is such a demand for shopping centre space from apparel retailers. In the Sports Trader Teen Brand Survey, 44.9% of the rural and 50.8% of the urban respondents indicated that they shop at malls and 48% said that they usually buy shoes or clothing because they saw it while browsing in a mall.

Interestingly, malls definitely rank the highest (as a shopping destination) under the rural and urban teens, but not amongst the township teens. Amongst the township teens, malls rank fourth below department stores (40.7%), sports stores (26%) and fashion chains (21%).

Independent shoe or clothing specialists did not rank high amongst either of the groups – only 8.9% of the respondents in rural areas, 1.2% in townships and 11.6% in urban areas say they prefer to shop at these stores.

If you look at the individual provinces, malls are the most popular shopping destinations in six of the provinces (Free State, Gauteng, KwaZulu-Natal, Mpumulanga, North West and Western Cape), 2nd in the Northern Cape and 4th in the Eastern Cape.

Independent stores do not rank very high as a shopping destination in any province — although KwaZulu-Natal respondents would shop there if they do not shop in malls.

But how much is it?

Finally we get to the juicy bit – what is the price difference between a shopping centre store and a street-front store?

This depends on which province and in which part of the city or town you trade – and that is before taking into account the size store you need.

"Price Comparison (R/m²) in the greater Cape Town area" shows a comparison of the different shopping centre and street-front rental costs in the greater Cape Town area. The street-front retail rental prices have been split into those in the CBD and those that are decentralised, because CBD rental prices are on the whole more expensive. This shows that rent in a super regional shopping centre (R400 p/m²) like Canal Walk, for instance, is more than double the rent in a regional centre.

Store owners in a super regional mall therefore have to make more than double the profit of a retailer renting space in a regional centre, and eight times more than a street-front store owner in a decentralised area, before they can start comparing profits.

"Regional Shopping Centre Comparison (R/m²)" is a comparison of regional shopping centre rental prices p/m² in Johannesburg, Bloemfontein and Cape Town. There is a big difference in the asking price of the centres in the different areas. You will expect Bloemfontein to have the lowest asking price of the three; however, there is also about R40 p/m² difference between the rental in Cape Town and Johannesburg.

"Shopping Centre vs. Street Front" is a comparison of the street-front and shopping centre prices for a 50m² store in the CBD and decentralised areas of different cities. This indicates that position is as important as location in a mall, as the rent of a street-front store in the Cape Town CBD is more expensive than shopping centres in the decentralised areas. Cape Town and Johannesburg is also more expensive than the rest of the country.