Shopping centre investor warns on retail cannibalization
![Developers, investors and funders would not “push the button” on new schemes without a high level of retailer commitment, says Marius Muller CEO of Pareto.](https://www.sacommercialpropnews.co.za/thumbnail.php?file=businesspeople/Marius_Muller_Pareto_CEO_877665779.jpg&size=article_medium)
Blue chip mall owner Pareto CEO, Marius Muller has warned South African Retailers to guard against cannibalization — citing bigger centres taking away spend from the weaker centres.
Despite talk of a looming oversupply of shopping malls, Commercial Property Investors continue to pour billions into South Africa's retail property sector.
Muller shared his views on the controversial issue at the South African Council of Shopping Centres (SACSC) Annual Research Conference, held in Sandton Central recently. He was joined by Maurice de Villiers of Woolworths and Craig Coetzee of The Spar Group in a panel discussion on retail cannibalisation moderated by Executive Director at MSCI Phil Barttram.
With the R5 billion Mall of Africa in Waterfall City Midrand set to open next week, Muller still believes retail cannibalisation is largely being driven by retailers themselves.
He said developers, investors and funders would not “push the button” on new schemes without a high level of retailer commitment. “Developers regularly put their projects out to the market but there is no real way to make them work financially without retailers signing up.
Cannibalisation refers to a situation where a retailer opens a new store location close to an existing store. When this happens, the existing store loses customers to the new store. Retailers are usually willing to take the risk of cannibalisation if they believe the new store will also attract new customers that do not currently shop at the retailer, boosting combined sales. However, this isn’t always the result.
“Retail value is being eroded by retailers chasing the top line at the expense of defending what they already have,” says Muller. “The unchecked expansion of retailers is, in an increasing number of cases, diluting existing store sales in a significant manner. While retailers’ trading statements may show double-digit turnover growth, like-on-like store growth is often only low- or mid-single-digit, and in some cases there is no growth at all.”
“In the case of larger mall developments, usually the big fashion, department, and grocery retailers, all chasing market share, are the first to commit and to give impetus the project. Then, everyone else follows defensively” explains Muller.
When the race for market share results in cannibalisation, the consequence is ailing retailers trading at rates and rentals that they cannot stick to and the developer or landlord has to take the hit.
“There is talk from retailers that they are changing the way they operate to focus on profitability instead of chasing market share. We don’t see this happening though. The talk isn’t translating into action,” says Muller.
He warns that if someone doesn’t draw the line, retailers won’t achieve the profitability levels they need in their stores and will find themselves on a slippery slope, especially with the economy teetering on recession with less than 1% growth expected this year.
Muller says: “In the US and China, we’ve seen wholesale exits from malls by retailers. Already, there are signs of blood in the local market, but we can still stanch this if retailers can just say ‘no’ to new stores with a higher risk of cannibalisation.”