Better growth by investing in local shopping centres
He showed how global behemoths like Amazon.com are laying the groundwork and personal data gathering infrastructure for far-reaching changes in retail, to the point where products might be shipped to consumers before they are ordered, or even before we think we might want them: the replenishment economy.
And while some might take offence at the invasion of privacy, millennials, research shows, are quite happy to sacrifice personal data in return for value, and as long as the transaction is based on trust, which builds with every satisfactory online transaction.
Such is the level of trust already, some 50 percent of online sales are currently inspired by just a simple image. The front end of the replenishment economy are subscriptions, which according to Stephens, are growing at more than 100 percent annually in Europe and the US. The variety is vast, and includes cosmetics, food, appliances and clothing.
There is much going on at the back-end of companies such as Amazon.com in preparation for the replenishment economy.
For instance, when Fedex announced it was no longer doing business with Amazon.com in June, Amazon.com was already doing 60 percent of its own deliveries in the US, with its own aircraft, trucks and vehicles.
True, there is currently very little that is exciting about online shopping, but Stephens says this will change in the near future, with for instance, advances in virtual reality storefronts and online advisory services.
It would seem that younger generation consumers don't want to shop in stores any more.
It adds up to seemingly bad news for stores, and by extension, for many of the longer-term futures of our listed property and shopping centre groups.
Well, according to Stephens, the store is changing too, to become an experiential media channel.
There are two reasons. One, digital is becoming expensive, and two, product marketers have to get through an ever increasing volume of online noise, ie notifications, to reach their customers.
Ideally, for the stores and malls of the future to engage customers, it should create a unique experience, provide personalised satisfaction, a surprise needs to be engineered into the experience, and it needs to be repeatable.
Millennials, says Stephens, value experience above all else.
These changes are still a long way off at our malls. And I believe there are still not nearly enough rural and peri-urban shopping centres, let alone attempting to bring an entirely new and more expensive shopping model to these areas.
However, for our dominant malls, providing security and a basic website for tenants is not going to be enough in the very near term.
For a listed property investment that is likely to be at the forefront of shopping centre change, especially considering the rising transport costs (millennials don’t like vehicle ownership), consider UK-based Capital & Regional, which has a listing in the South Africa. It traded slightly higher at 500c on Friday, with the price steadily trending higher since the end of August.
Also consider South Africa’s biggest listed property company Growthpoint, which also liked Capital & Regional so much that it sealed a deal last week with the UK firm to acquire a substantial shareholding in it.
Growthpoint traded at R22.77 on Friday, on a * :e of more than 14. The problem in South Africa is that tenants are downsizing and increasingly afraid to commit to long-term leases due to the frail economy, let alone commit to capital expenditure to substantially enrich their store experiences.
Until this changes, to my mind an investor would achieve better growth investing in local shopping centre groups with a regional portfolio.
There has been a bun fight in this segment. Listed Fairvest first attempted to merge with Safari Investments, then unlisted Community Property Group put in a better offer, which Safari, in spite of a weakening financial position, seems to have roundly rebuffed.
Fairvest’s R3.16 billion worth of shopping centres are not always pretty looking from the outside, but they are likely to continue to cater to a growing market for some years yet, It generated a reasonable 8.1 percent distribution growth in 2019. Its share price was flat at 190c per share on Friday, at a * :e of around 8.9.
One of the best-positioned JSE-listed groups that ought to be in the forefront of change is intu Properties, which owns some of the best malls in the UK.
But traditional high street shopping in the UK is under big pressure too, due to the financial difficulties of a growing number of big brand tenants, weaker consumer spending power, Brexit uncertainties, and online sales.
intu saw its first half pre-tax profit loss almost double, and it is trying to sell its shopping centres in Spain to reduce debt.
It's started a five-year turnaround plan, which hopefully will include not just having good stores in good locations. This strategy may have worked some time ago, but it isn’t likely to be enough to pull consumers into stores over the next two decades.
Its share price was trading 3.92 percent lower at R9.07 on the JSE, on a * :e of 7.8.
Its bigger peer in the UK, Hammerson, affected by much the same factors as intu, was trading 0.71 percent lower at R59.75 on the JSE, at a deservedly higher * :e of 12.6.'