Retail is a function of the South African economy that is struggling but there are defensive segments in the retail sector that are responding valiantly according to Preggie Pillay, CEO of Commercial Property Finance at FNB.
With an urgent and essential response to the pandemic, we are now seeing the more gradual change – the consequence of constantly morphing property dynamics.
Pillay believes that mainly owner-operated neighbourhood malls that are smaller and trade on convenience and location are currently more resilient. These malls are closer to commuter nodes and thrive off consumer changes that see more frequent, smaller shopping trips.
“Shoppers want choice, opportunity and convenience. Unlike the previous generation that did monthly shopping, modern shoppers visit malls more, are better informed and have less wastage. They are locally rooted and loyal”.
The owners of these neighbourhood malls are mostly entrepreneurs with more direct relationships with their tenants and the ability to keep costs, rentals, and vacancies down. Decision making is quick and flexible making them less vulnerable.
One such company that is flourishing is Exemplar REITail, headed by CEO Jason McCormick who has been involved in property development for nineteen years.
McCormick Property Development is a family run business that was established by Jason’s father, John, in the 1980s. The company listed on the JSE in 2018 due to better access to capital and Exemplar was born. McCormick Property Development continues to run as the development arm with more than thirty projects secured in its pipeline.
Exemplar has twenty-two shopping centres in its portfolio, ranging in size from 4 900m2 near Atteridge Stadium to 41 529m2 in Vosloorus. The average size of its assets sits at 21 000m2 with key tenants including Shoprite (Exemplar’s Shoprite accounts for 2.9% of the grocer’s global turnover), Pick n Pay, Super Spar, the full banking gambit and major fashion retailers.
Jason says Exemplar is embedded in the communities it serves and it was well poised to help in responding to Covid-19 in the early days. In those first few weeks, information changed rapidly and neighbourhood shopping centres provided critical platforms for health authorities.
Responses by the Exemplar team included specialized queuing to allow for the maximum number of shoppers while ensuring social distancing and the company established ‘MasksforGood’, an initiative to get as many free masks out to its customers as possible. Township-based seamstresses were sourced and paid to make the masks which injected much needed funds into the micro-economies of the communities were these malls are positioned.
Exclusive trading hours for the elderly were created to allow them to collect their pensions and to shop in safety. In the first three months of the lockdown, Exemplar redirected its entire marketing fund to educational issues around the virus and implementing safe social distancing and hygiene practices.
“We are community-centric. It determines everything that we do. We are ingrained in all the community structures and we are not just about the bottom line. We are more concerned about creating places of community pride where people want to shop.”
Pillay says the outlook for bigger shopping centres, mainly owned by funds, is more challenging. They have more pressure points. Operational costs are higher, big brand retailers are negotiating rentals down and the effects of the Coronavirus run deep, slowing foot traffic markedly in some malls.
He predicts a repurposing of big mall space for accommodation and hotels. With online shopping, a factor affecting retail, it is not as significant as is estimated because brands still need a point of presence.
“The buying power of their shoppers runs into billions. Trading densities are what is important – turnover versus square meterage. The perception that these shoppers will accept a lower standard is wrong. The spaces are at the forefront of community problem-solving. They stay open later to cater for people working in the cities and commuting home, for example. They show that the situation affecting retail is not all bad. They have tailored an offering and are responsive to market changes, which is more important now than ever”.
McCormick says he is “very bullish” about the company’s future, despite the economic climate and the virus.
“My humble opinion is that the platform we have got is unparalleled. The number of people we access and the location of our centres allows us to get stuck in and create positive change by impacting communities daily… and when one sees the positive impact you’re having; how can one not remain inspired and motivated to keep pushing.”
Pillay says there is no doubt 2021 will be challenging, businesses are struggling, and unemployment is rising.
But the situation is not dire. Some businesses have been resilient. “People want to get back – in Durban, for example – Florida Road, Umhlanga village and La Lucia Mall, are thriving and spaces are filling up and there are tenant waiting lists.”