Hyper centres appear to have ‘hit the spot’ according to card spend

Shopping centre

During the early stages of ‘hard’ lockdown around April, it became apparent that South Africa’s major city regions’ economies and retail centres would be more severely impacted.

With the agriculture sector largely declared an essential sector, more rural agriculture-dominated economies were arguably less shut down meaning that employment and household incomes in those regions may have been less impacted which in turn, would likely lead to better consumer spend growth or less decline at least, in more rural regions’ retail centres than in the major metro regions.

To enhance its insights into the retail property market, FNB Commercial Property Finance uses aggregated FNB client credit card spend by various expenditure categories in individual shopping centres or malls and the total FNB card spend in retail centres per province shows the ‘smaller five’ provincial regions showing mild growth with the North West Province showing the highest 2020 growth of 5.8% followed by the Northern Cape (5.5%). At the weakest end of the spectrum, the Western Cape recorded a -2.2% decline with KZN reporting -1.3% and Gauteng recorded zero change in 2020 compared with 2019.

Groceries are essential spending items along with healthcare and pharmaceuticals and the fact that there were less limited lockdown regulations applied to these made it obvious that their spend or sales would not dip as badly as other retail categories that were locked down more severely. However, home-related spending (hardware, along with furniture and appliances) surges following the hard lockdowns as the function of a home becoming a far more important place for many.

This surge quickly became apparent as lockdown regulations eased towards mid-2020 and as of January 2021, FNB card spend data still showed the top performing major category to be ‘hardware and furnishing’ at 124% of the pre-lockdown January 2020 level.

During the hard lockdown, fuel sales plummeted and work and leisure travel dropped sharply. The travel situation has been slowly normalizing as have oil and petrol prices rising but FNB card spend on fuel and tolls for January 2021 was still only 84% of the level at January 2020.

As lockdown regulations eased to allow for increased online retail, FNB card spend data saw a growth surge in ecommerce, excluding tourism spend. From a year-on-year growth rate of 35.6% year-on-year as at March 2020, the May surge in ecommerce spend took its growth to 123.5%. While tapering thereafter, this growth remained at a strong 66.6% as at February 2021.

The plight of the restaurant and entertainment sectors, along with tourism and leisure, is obvious with these parts of the economy not only having significant social distancing requirements to contend with but also having to deal with being a lower consumer spending priority in times of a recession and financial pressure. FNB card spend data saw the ‘dining out and entertainment’ spend category for January 2021 at only 82% of the January 2020 level while tourism spend was at a mere 50% of the January 2020 level.

So, what were the implications of the lockdown and the key spending themes for the various categories of centres?

FNB card spend data per centre points towards centres more dominated by essential spending items, particularly the grocery shopping category, as having fared better sales-wise, as would have been expected.

This implies that the larger super regional and regional malls, whose weighting of grocery retail shopping in their sales mix, was far less than the small sized neighbourhood and convenience centres, could fare worse from a sales point of view and this appears to be the case. FNB card spend in convenience centres grew positively by 6.7% in 2020 and that of neighbourhood centres by 6.1%. At the other end, super-regional mall spend declined by -10.4% and regional malls by -5.9%.

However, the performance differential between ‘small’ and ‘large’ centres was more than just about the differing weightings of retail categories. The large super regional and regional centres appeared to lose their appeal even for the essentials. Zooming in on card spend in the food and groceries category, FNB saw a 2020 decline of -9.2% in the super-regional mall category while neighbourhood centres saw growth of +9.7% in this category. Neighbourhood centres saw growth in card spend on clothing and apparel to the tune of +14.4% with super-regionals suffering a decline in this, their ‘strong point’ to the tune of -6.7%.

The large malls appear to have suffered more significantly at the hands of lockdown than the smaller centres from a sales point of view. This is not surprising given that the trip to a large mall is considered more of an ‘outing’ and an ‘experience’ than solely about quick essential shopping. Given that much of the ‘experience’ part of the mall has been restricted, i.e., restaurants and entertainment, the reasons to go there are less, and so the more essential shopping that gets done along the way also suffers. Convenience and Neighbourhood Centres have thus become ‘king’ … or have they?

The centre category whose sales growth appears to have outstripped all the rest is that of hyper centres. This category appears to have been best positioned, if FNB card spend is a reflective sample of overall spend. Seen as being ‘affordable’ places to shop in tough financial times, with big selection in their key focus areas, and not overly focused on entertainment. With a huge weighting of 81.9% food and groceries spend, and a DIY and Hardware component added on, this centre category experienced card spend growth of +14.2% in 2020. This included growth of +14.2% in grocery spend, 23.4% in DIY and hardware, 25.8% in clothing and apparel, with 17.4% in home and furniture spend. 

Hyper centres appear to have ‘hit the spot’ during the tough recessionary lockdown year.

Looking forward into 2021, the prospects for retail centres appear to be looking up. From the first quarter 2021, the FNB Property Broker Survey has perceived an increase in the retail property market activity for the past three consecutive quarters and perceives the retail property market’s strength to be in between the strongest – industrial property – and the now weakest office sector.

Brokers still perceive the retail property sector as significantly oversupplied, but the past two quarterly surveys have pointed to a slowdown in the rising vacancy rate trend in this sector.

TPN commercial tenant data points to a steady improvement in retail property tenants in good standing with their landlords regarding rental payments, from a very weak 40% of tenants back in May 2020 to 61% by December 2020. However, the sector remains at a weak level.

FNB does not see the GDP level returning to pre-Covid 2019 levels until around 2023 with household disposable income growth likely to remain under pressure. FNB believes that low consumer confidence is shifting in the direction of greater financial caution, translating into a rise in the savings rate to come.

The focus of consumers is likely to remain strongly on essential spend, with leisure and entertainment spend on the backburner. Another year of outperformance in those centres focusing to a greater degree on the big essentials, and on affordability, is likely.

By John Loos, Property Sector Strategist at FNB Commercial Property Finance.