SA shoppers boost retail sales

South African shoppers’ per capita spending pattern continues to bolster and support the trading performance of centres in general.

According to report writers, Jess Cleland and Marc Schneider the average turnover per store is growing across all retail segments and is presently particularly strong for neighbourhood centres.

According to the South African Property Owners Association (Sapoa) and Investment Property Databank (IPD) Retail Trends Q3 2011, this is despite an ongoing drop in the number of shoppers frequenting retail centres.

The report revealed that on average, trading density and turnover growth remains relatively buoyant compared with the historical average and is particularly strong in the smaller retail centre segments.

Shopping centre vacancies are slightly coming down slightly helping to prop up income in an environment that remains operating cost sensitive.

On an annualised basis this growth has tapered off from its recent peak in December 2010 where a level of 13.6 percent was recorded – having steadily declined since then to reach a level of 6.7 percent as at September 2011 and only slightly higher than CPI inflation.

Trading density growth in community shopping centres has been particularly robust over the past eight years and although this has subsided over the past two quarters.

The average annualised growth over the eight year period has been 11.1 percent which is roughly double that recorded for the larger retail formats.

According to report writers, Jess Cleland and Marc Schneider, the average turnover per store is growing across all retail segments and is presently particularly strong for neighbourhood centres.

Although gross rentals continue to grow nominally, the rate of growth appears to be subsiding after a solid period of real growth spanning 2008 to March 2011.

Rental growth is proving difficult to achieve for smaller centres. The annual growth in gross rentals to September 2011 was 5.5 percent for super regionals, 4.1 percent for regionals, and 3.4 percent for small regionals.

Community and neighbourhood centres actually saw a decline in rental growth with figures of -0.1 percent and -0.2 percent respectively, they say.

The overall vacancy rate for Q3 2011 is 2.7 percent compared to 3.0 percent in both the previous quarter and previous year.

Foot count levels recorded over the period January to September 2011 compared to the same period in 2007 have dropped by a significant 15.2 percent.

Cleland and Schneider say the per capita spending at shopping centres has been remarkably robust. The per capita spend growth was below inflation levels through 2010 and it has since steadily improved reflecting modest real growth.

For retail tenants, the cost of occupation - which reflects their rental costs as a percentage of turnover has flattened.

In the case of smaller shopping centre formats, this has in fact come down over the past three years, denoting turnover growth increasing at a faster rate than rental growth.

The writers say key factors behind the success and expansion of South African retail features certain non-negotiables include underlying economic growth, rising disposable incomes, falling unemployment, increasing urbanisation and the emergence of a black middle class.

With 2010’s real growth rate of 2.8 percent, forecast to increase to 3.2 percent over 2011 as the economy continues to recover, another key ingredient supporting GDP per capita growth over the next five years will be the population increasing from an expected 50.5 million in 2011 to an estimated 51.7 million in 2016.

Also of positive influence is the decline in debt servicing costs mimicking the lower interest rate regime.

Accessories had the highest rental-to-turnover ratio at nearly 22 percent, followed by children’s fashion at approximately 20 percent and food speciality at 15 percent. Unisex fashion demands the highest turnover rental percentage at 14 percent, up 1 percent since 2010, followed by home furnishings/art/antiques/décor, food speciality, food services and sporting/outdoor goods & wear at 12 percent.

“Although current retail sales growth during the third quarter of 2011 is above inflation levels, it is growing at a slower rate than anticipated by consensus forecasts,” they say.

They say this reflects a certain degree of hesitation in consumer confidence and notwithstanding the improved debt servicing costs.

Meanwhile, the Broll Retail Barometer for the third quarter of 2011 has revealed that gross rentals for prime street-front properties have remained mostly flat from the first quarter of 2010, with little or no movement.

Johannesburg and Pretoria have shown a slight upward movement since the third quarter of 2011.

The gross rental for prime-line shops of 80 square metres in shopping centres under Broll management near the anchor tenant showed a downward trend in Pretoria, Bloemfontein and Durban, while Johannesburg and Cape Town have shown an upward trend since the second quarter of 2011.

Prime shopping centres continue to perform well with few or no vacancies.

Sanett Uys, general manager for research and marketing at Broll says the average foot counts in most centres started to show a slight upward trend of 1.63 percent in September compared to the same period a year earlier.

This was followed by approximately 4 percent in October for the same period.

Centres under Broll management showed consistent growth in nominal retail sales for the third quarter of 2011, with a growth rate of nearly 6 percent.

In the apparel merchandise category, accessories continued to be the weakest performer, with a negative growth rate of approximately 23 percent for September compared to a year earlier.

Men’s fashion was the best performer in September with a growth rate of nearly 6 percent for the same period

Food and food services (bottle stores included) has remained the best performer since October 2010.

Grocery and supermarkets returned to positive growth in July, and showed a growth rate of approximately 3 percent in September 2011.

Uys explains that the trading densities for the apparel and food merchandise categories, food speciality had the highest monthly trading density at R2 754, followed by accessories at R2 694 and bottle stores at R2 509.

The lowest trading densities were recorded by ladies’ fashion at R1 616.

Accessories had the highest rental-to-turnover ratio at nearly 22 percent, followed by children’s fashion at approximately 20 percent and food speciality at 15 percent.

Unisex fashion demands the highest turnover rental percentage at 14 percent, up 1 percent since 2010, followed by home furnishings/art/antiques/décor, food speciality, food services and sporting/outdoor goods & wear at 12 percent.

The huge range in turnover rental percentages can be contributed to landlords’ agreeing to lower rentals with higher turnover percentages to secure tenants, she says.

Nominal sales growth has continued to be positive for the third quarter of 2011 and the bulk of the capitalisation rates have remained stable.

“We expect the festive season of 2011 to follow a similar trend to last year, with a growth rate of approximately 10 to 12 percent.”

Stronger than expected retail sales growth in the third quarter of 2011 has helped to maintain the robust performance of South African shopping centres, according to the IPD Retail Trading Density Index.

The new index, sponsored by the South African Council of Shopping Centres (SACSC), reveals the trading performance of different types of shopping centres and different tenant types.

The index indicates that although the turnover growth of shopping centres has recovered from the downturn in 2009 and early 2010, momentum during the recovery has now slowed and dropped below inflation for some types of centres.

It is the larger centres where the growth in trading density which is measured as turnover per square metre has been the most muted.

For the year to September 2011, trading density increased by 5.2 percent for super regional centres, by 5.5 percent for regional centres and 3.8 percent for small regional centres when compared to the previous year.

The smaller community and neighbourhood type centres increased their trading densities by 10.2 percent and 15.0 percent respectively.

These smaller centres generally rely more heavily on basic necessities such as groceries to drive their sales, compared to larger centres with more specialised tenant types which are targeted more towards discretionary spending, according to the index.

Stan Garrun, managing director of IPD South Africa, says there are mixed signals in the economy where retail sales are strong yet consumer confidence has dipped significantly.

Garrun says this highlights the need to carefully monitor shopping centre performance.

“It is important to more pointedly access the real performance of properties and tenant categories, which IPD is doing in this new index series based on the underlying turnovers and densities obtained directly from the shopping centre owners and managers.” – Denise Mhlanga

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