What lies ahead for South African shopping malls?

When I lived and worked in Dubai, it was if I had stepped through the same portal that Alice did when she travelled to Wonderland. Anybody that has been to Dubai, or has studied the development of the city, will know that the Emiratis live by the motto of: anything you can do, we can do better. Without being to the US (where the modern interpretation of the shopping mall took root and was developed), I can confidently say that I yet to see shopping malls on the scale and size as some of the malls in Dubai.

While South Africans are an active, mostly outdoors nation, the shopping mall culture in South Africa has begun to take root. We have moved beyond being serviced by the North Gate, East Gate, South Gate, and West Gate that were the only malls present in my youth. We now have the grand designs of Umhlanga’s Gateway, Soweto’s Maponya Mall, and Midrand’s Mall of Africa adding spice to the numerous other shopping malls that have sprung up over the years.

How has the Covid-19 Pandemic impacted the development of shopping malls? Will e-commerce prove to be a noose around their necks? Was the Covid-19 Pandemic the external disrupter that pushed a profitable business model into financial distress?

As always, some subheadings have been inserted by Turnaround Talk.

Voluntary business rescue

I recently read a News24 article which pointed out that Mall owner Rebosis has entered into voluntary business rescue.

The article points out that Sisa Ngebulana-founded Rebosis Property Fund is going into business rescue, and its shares have been suspended on the JSE with immediate effect.

The property company has been working on a turnaround plan to restructure and strengthen its balance sheet. This included plans to sell 32 of its buildings, including those wholly owned by its subsidiary Ascension Properties Limited. Rebosis announced that plan in October 2021.

The article adds that, on 26 August, the owner of Baywest Mall and East London’s Hemingways Mall said it planned to initially put 25 assets on the market for disposal that it considered non-core or felt they required capital injections to turn around.

But after extensive modelling and testing of all viable options, Rebosis’ management and board believe that the group is now “financially distressed”.

External environment time bomb

The News 24 article pointed out that it will still take time to get shareholders’ approval to dispose of the identified assets. At the same time, the rising interest rates are pushing up Rebosis’ debt servicing costs. It’s also grappling with high rates and taxes levied by some municipalities that Rebosis cannot recover from “sovereign tenants”. Furthermore, the company faces continuous delays in rental payments by certain national and provincial government departments, as well as municipalities. These make up more than 50% of Rebosis’ revenue.

“Considering the South African Reserve Bank’s indication of further interest rate hikes in the foreseeable future, and given Rebosis’ limited foreseeable cash flow, the management and board is of the opinion that the best option to ensure the long-term survival of the group is to commence business rescue,” wrote Rebosis in a statement.

The News24 article adds that the company hopes that under the direction of an experienced business rescue practitioner, it can return to sustainability and that the business rescue process could incorporate some of its management’s existing turn-around strategy.

Major challenges

But are spiralling interest rates the only challenge that shopping malls have to come to terms with?

I recently read an article which points out that there are other pertinent challenges:

• Growing e-commerce. The article points out that it’s no secret that the average share of e-commerce in Europe has been growing at an alarming rate, these last years. According to Eurostat (2022), e-sales had a 22% market share across the EU in 2020, the highest share being in Ireland, where the number is 40%. Ecommerce in Europe was worth €575 billion in 2020 (ecommcercenews.eu), and the profit made in ecommerce goes straight to the retailers with an online presence, whether or not they have a presence in brick-and-mortar shopping malls. Now, those numbers are obviously high, in part, because of Covid, which made physical retail a serious health hazard. But, while they were inflated from the pandemic, ecommerce’s growing share in retail is nothing new. What’s more is that consumers are becoming more and more attached to their phones. In 2020, 87% of EU enterprises with web sales used either apps or their own websites (Eurostat). The enormous amount of online spending shows that consumers have their shopping needs covered online, resulting in less frequent visits to their local shopping mall. This might be one of the reasons for fluctuating visitor count and lack of tenant revenue;
• Lack of customer insights. Online retailers have the advantage of a range of unique customer insights. They know who their customers are down to every single individual – which means they know what attracts different customer segments, how often they visit and what they buy. These customer insights mean online retailers can communicate to their customer in a personal and relevant way, increasing the impact and return of their marketing budgets. To malls, customers are often ghosts. Meaning that shopping malls typically have very limited customer insights. Oftentimes, they work with revenue numbers or on a categorial level combined with visitor. That means very little information about the characteristics of the different customers is known. While revenue and visitor numbers are important indicators of the shopping centres performance, converting these indicators into insights on how to improve and personalize communication is a challenge. Because of this, mass marketing plays a significant role for many shopping centres’ marketing efforts, which is an issue as the modern customers are expecting personalization; and
• Marketing channels are losing impact. The article adds that A lack of customer insights limits the opportunities to communicate sufficiently relevant to customers. This is an important explanation to why traditional marketing channels are losing impact. Shopping centres, who have yet to adjust their marketing mix to allow for the use of data-driven marketing channels, are now at risk of facing decreasing visitor count and revenue. A study was made for a Scandinavian shopping centre with 110 stores, measuring the impact of printed magazines, show that the mall pays more than €66 per customer influenced to visit the mall with an intention of buying. With the average basket size of a customer in the mall being €37, this result is far from satisfying.

What next for SA shopping malls?

What does the above challenges mean for SA shopping malls?

Retailors are facing the same problem as Cinema companies, they are becoming the sacrificial lamb in an environment where external pressures are disrupting the traditional characteristics that were driving SA shopping malls.

Does this mean that we are seeing the end of conventional retail? Absolutely not. South Africa is still lagging in terms of connectivity to the internet. Therefore, for the immediate future, e-commerce won’t explode in South Africa as it may in other countries. Further, South African consumers gravitate towards products that they can see, feel, and test. Retailors such as Game are basing their business turnaround strategies on enhancing the customer experience. Many of Games bigger outlets have large sections dedicated to customers testing products.

This is where the focus of shopping malls should be. They need to sit down with turnaround professionals and develop a strategy whereby they can enhance the customer experience. Offering a product, service, or experience that cannot be found online will get feet through the door.