Research

SAPOA – Retail Trends Report – December 2016

Key research findings:

– Retail trading performance as measured by IPD Trading Density Index have come off somewhat for the year ended September 2016. The index quantifies sales performance as well as other key retail performance metrics across 24 merchandise categories in more than 100 retail centres, covering in excess of 4 million square meters.

– Trading density (sales per square meter; annualized) increased by 5.4% year on year (y/y) in current price terms for the quarter ending September 2016 – down from a revised 6.4% y/y recorded for the quarter prior. The 5.4% increase in trading density was a function of 7.2% sales growth and a trading density area growth of 2.8%.

– As at September 2016, the ratio of debt service cost to disposable income remains just below 10% whilst household debt to disposable income continues to decline slowly ending the quarter at 7.4% – the lowest level in 10 years indicating that consumers are still deleveraging some of their debt. The prime overdraft rate currently stands at 10.5%, possibly the peak of the current cycle – given that core CPI have remained 6% through 2016.

– For the year ending September 2016, annualized trading density growth on a segment level continues to diverge. For the period under review, the neighborhood segment (an under performer over the past several years) was the only segment to record an improving growth over the previous quarter.

– Community centre growth continues to outperform the other segments whilst the regional, small regional and super regional segments are now someway off their three and five year average year on year growth rates.

– Super regional centres recorded a flat year on year annualized trading density growth for the year ended September, signalling a pronounced moderation from the past 3 – 4 years.

– On an indexed basis since 2011, community centres are the top performing segment with regards to annualized trading density growth.

– The main driver of this out performance has been a significant decline in the segments vacancy rate – in turn driven by consumers preferring the convenience offered by this segment relative to larger retail formats.

– In addition to the improving occupancy rate, the out performance was further helped by a structural shift in the underlying merchandise category composition. Previously vacant space was taken up by categories where inherently higher trading densities with faster annual growth rates.

– On an aggregate level, trading density growth of 5.4% was driven by a 7.2% increase in sales whilst occupied floor space was up 2.8%. Sales, meanwhile, was a function of spend per head increasing by 5.4% whilst aggregate foot count was essentially flat.

– Retailer’s cost of occupancy, as measured by the ratio of gross rental to sales was flat on aggregate for the quarter ended September 2016. Given that overall sales increased by 7.2% y/y, it can be deducted that the gross rental increased in around the same pace for the period under review. Though the aggregate rent to sales figure was flat, there were some divergent moves in the underlying segments.

– Retail vacancy rates remain low on aggregate and there has been a convergence in segment vacancy rates in the past two quarters with community and neighborhood centre vacancies declining noticeably.

– An ongoing trend is the wide spread with regards to the annualized trading density growth on a category level. Category performance is not tied to centre type and in fact, there were very few categories that recorded strong growth across all retail formats. When analyzing the five largest categories (percentage of spend), only the food category recorded above inflation growth, with all 4 retail formats larger than 12 000sqm.

Read more here: SAPOA Retail Trends Report – December 2016