SAPOA Retail Trends Report for Q2 2017

Key research findings:

  • South African shopping centre trading performance as measured by the IPD Trading Density Index recorded a second consecutive quarter of slowing growth for the period ended June 2017. The index is based on data collected by MSCI Real Estates Retail Performance Bench marking Service which 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 growth (sales per square meter; annualised), slowed to 0.3% year on year (y/y) in current price terms for the quarter ending June 2017— down from +2.7% y/y recorded for the quarter prior.
  • The latest trading density growth figure is lower than StatsSAs retail sales growth of 7.4% y/y for the year ending June implying that the sample of mall-based retailers under performed the larger retail market for the period.
  • While trading density growth, as measured by the IPD Trading Density Index, slowed to 0.3% year on year to June 2017 on an aggregate level, the performance of individual centres continue to vary significantly as they are subject to varying levels & quality of competition as well as different growth drivers and characteristics which may play a role in their sensitivity to the economic growth and consumer spending cycles.
  • On an aggregate level, trading density growth of 0.3% comprised a 4.0% decline in sales while occupied floorspace was down 4.3%. Looking at it from another perspective, trading density growth was a function of spend per head increasing by 4.3% while aggregate foot count/sqm declined by an estimated 3.9%.
  • Over the longer term, the amount of spend per head is the primary driver of ̊ retail sales growth (~75% of total trading density growth) while the impact of foot count growth is secondary (~25%). Since mid-2016, foot count growth has detracted from trading density growth suggesting that -on aggregate- consumers are currently visiting malls less frequently but spending more per visit when compared to the same month last year.
  • Annualised trading density growth has been slowing across all retail segments since December 2016. For the period under review, the Super Regional segment was the only segment to record a negative year on year growth rate at -6.3%. Community centres remain the top performing segment in terms of year-on-year trading density growth but has seen growth sliding since Q1 2016.
  • Retailers cost of occupancy, as measured by the ratio of gross rental to sales, was almost unchanged on the quarter before. Given that overall sales per square meter increased by +0.3% y/y, it can be deduced that the gross rental increased at a slightly faster rate despite an increased vacancy rate. Though the aggregate rent to sales figure was stable there were some divergent moves in the underlying segments.
  • The current retail sector vacancy rate, while still low relative to Office & Industrial property, is above its long term average of around 2.5%. The latest quarter saw increases in the vacancy rate of all retail segments the exception of Small Regional centres which recorded a 10bp improvement over the previous quarter.
  • Some merchandise categories have been performing better relative to others – thereby gaining market share as a percentage of total sales within these segments. The largest market share movements seen over the last three years was in the Department Store category, which lost market share across all segments. Other categories — most notably Apparel and Health & Beauty — gained market share across all retail formats.
  • Analysing the food category provides some interesting insights into the argument that consumer are currently favouring convenience centres for specific type of purchases.

Read more here: SAPOA Retail Trends Report 27th September 2017