Johannesburg - Retail cannibalisation was largely being driven by retailers themselves rather than shopping centre developers, Marius Muller, the chief executive of prominent shopping centre developer Pareto, said yesterday.
Muller said shopping centre developers, investors and funders would not “push the button” on new schemes without a high level of retailer commitment. “Developers regularly put their projects out to the market but there is no real way to make them work financially without retailers signing up.
Read: Rush of new stores 'a risk for retailers'
“In the case of larger mall developments usually the big fashion, department and grocery retailers, all chasing market share, are the first to commit and to give impetus the project. Then everyone else follows defensively,” he said.
Cannibalisation refers to a situation where a retailer opens a new store location close to an existing store and is willing to take the risk of losing customers to the new store if they believe the new store will also attract new customers that do not currently shop at the retailer’s stores.
Muller said retail value was being eroded by retailers chasing the top line at the expense of defending what they already had. He warned that the unchecked expansion of retailers was, in an increasing number of cases, diluting existing store sales significantly.
“While retailers’ trading statements may show double-digit turnover growth, like-on-like store growth is often only low or mid-single digit, and in some cases there is no growth at all,” he said.
When the race for market share resulted in cannibalisation, the consequence was ailing retailers trading at rates and rentals they could stick to and the developer or landlord had to take the hit.
“There is talk from retailers that they are changing the way they operate to focus on profitability instead of chasing market share. We don’t see this happening though. The talk isn’t translating into action.”
Slippery slope
Muller said if retailers did not draw the line, they would not achieve the profitability levels they needed in their stores and find themselves on a slippery slope, especially with the economy teetering on recession with less than 1 percent growth expected this year.
Pareto is one of South Africa’s premier shopping centre investors, owning a portfolio of regional and super-regional shopping centres.
It wholly owns Menlyn Park Shopping Centre in Pretoria Cresta Shopping Centre, Southgate Mall, Value Market and Westgate Regional Shopping Centre, which are all in Gauteng, The Pavilion in Durban and Mimosa Mall in Bloemfontein. It co-owns Tyger Valley Shopping Centre in Cape Town and holds 25 percent of Sandton City and its surrounding assets in Sandton Central.
BUSINESS REPORT