Retailers take on mall landlords
by Dave Nemeth. Both TFG, as well as Pepkor, announced that they would be following in Edcon’s footsteps by refusing to pay their landlords until the lockdown was over and they were trading again.Tuesday, 07 Apr 2020
by Dave Nemeth. It came as quite a surprise this past week when both TFG, as well as Pepkor, announced that they would be following in Edcon’s footsteps by refusing to pay their landlords until the lockdown was over and they were trading again. Edcon’s reasoning was understandable, stating that they only had enough cash flow to pay their employees. Would the announcement by TFG and Pepkor show that they too are cash strapped, or just playing hardball with some of the country’s largest property groups?
It astounds me that large retail groups have never negotiated any kind of insurance for the unexpected forced closure of stores for a relatively lengthy amount of time. While it was nearly impossible to imagine a complete shutdown of all stores, should they not have had some sort of cover? I am aware of some forward-thinking event and exhibition companies that had insurance cover, should it ever happen that the government put a hold on any of their planned expos. What if malls had been closed for a period of time due to unrest, riots or any other similar occurrence which is highly possible in South Africa?
Many smaller retailers will also be unable to pay their rent over this period and will face the possibility of complete closure and eviction from malls unless a totally new business model is created to offer relief to these tenants. Whichever way we look at it, it is a lose/lose situation, which could gravely affect those who are not even involved in property or retail, due to the vested interest of many pension funds which own large stakes in some of the country’s most prominent retail malls. No matter how optimistic one is, the future does not look good for retailers or landlords.
There have always been rumblings that store owners are bullied by their landlords with non-negotiable rent increases, as well as the dictating of operating hours. This forces increased overheads due to the paying of overtime salaries and, of course, all the other costs associated with keeping a store open later. These extended trading hours often do not equate to increased sales. This industry has just been forced by current circumstances to change its business model or face an unprecedented number of empty stores. There are a couple of things that could potentially happen going forward
Full-scale family entertainment areas that have not been seen in malls to date (there are a few examples on a very small scale), such as theme parks similar to those seen at some of the casinos like Gold Reef City, could be introduced. All year-round water or snow parks could attract families with children without being restricted by the change in seasons. The introduction of action cricket/soccer/netball courts, which are generally situated in low-cost malls and industrial parks have been seen to bring large numbers of feet that could benefit other tenants and restaurants. Outdoor areas that host yoga and meditation sessions in the early mornings and evenings could easily attract businesspeople as well as household inhabitants in the nearby vicinity.
There has been a drastic rise in flexible workspaces over the years, but these are generally stand-alone office buildings. However, they could work just as well in malls. The convenience of this model is probably far better than the current one due to the easy access to other entities such as clothing, banks and groceries. This could also include differentiated conference and event facilities.
A major concern has always been the similarity in tenant mix, whereby two malls in close proximity to one another have exactly the same variety of stores. Portions of malls could be dedicated to sports and outdoor living including cycling tracks, climbing walls, water areas to try out kayaks and fishing gear. There could be areas dedicated to pets, which could include dog grooming, vets, training areas – the possibilities are endless. Malls could be dedicated to the youth, providing entertainment to teens in a safe environment. Malls are no longer appealing to teens and a reversal of this trend could bring in a lot of “new” revenue.
Areas of the mall could be converted into reasonably priced living units resembling New York Lofts that appeal to young couples and families, who will have all the other mall amenities at their fingertips. The current mixed-use spaces are exceptionally upmarket and are only affordable for the wealthy.
These are just some very top-level ideas which have come from research and current changes in consumer attitudes and the need for convenience as well as something different and exciting. Some of these ideas have been tested on a small scale over the years and, like many things, if they did not succeed it was probably either as a result of doing it half-heartedly or the fact that the timing was just out. Mall owners will no longer be able to charge a flat rental fee and nor will they be able to impose annual flat rate rental increases. They will have to look at more viable models which are as sustainable to the tenants as they are to themselves. The glory days are over, and a lot of innovation is going to be required if we don’t want to see our malls becoming the epitome of decrepit ghost towns.
Retailing Africa retail analyst and columnist, Dave Nemeth is a trend forecaster and business consultant at Trend Forward, and a design thinker, innovator, business re-designer, trend analyst, keynote speaker and writer.
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