Ian Fife

Welkom, the Free State’s second biggest city, is to get a R500m shopping centre. The municipal bigwigs are celebrating. So are the national retailers who have signed up, the small retailers who are moving in and, of course, the developer, Retail Africa.

Does this mean Welkom is about to transform from a civic sinkhole to a bustling CBD, enriching its community financially and socially?

Goldfields Mall at Welkom is said to be the people’s saviour. Retail Africa chairman Angus Mackay claims that it will modernise an outdated CBD. Retailers in SA’s 24th-biggest city, with R1,7bn in spending, can “rightsize”, bringing back the buyers who go to Bloemfontein to shop, and support secondary and tertiary businesses in the town. “Construction will create 1400 jobs and one permanent job for every 40m² of the 34000m² centre — 2475 jobs in all.”

But this is what is more likely to happen: the big retailers will move out of the smaller and older shopping centres they’ve been occupying for years in a fragmented CBD of 1950s design, and move into Goldfields Mall. Trade will all but collapse for the small businesses left in the slowly emptying old malls. Low-rent businesses like pawnbrokers, micro lenders and sex shops replace them. One by one, mom-and-pop retailers close. Jobs are lost and social decay follows.

It’s much better for the national retailers in the new mall as trading densities — turnover/m² — increases, and they and the developer are the big winners. But that’s not necessarily so for all the mom-and-pop stores who took space.

After the first torrent of launch spending, shopping centres take time to settle in and for turnovers to grow. It’s low-risk for the giant anchor tenants who are paying rents between R45/m² and R65/m²/month. They usually occupy about 40% of the centre. Smaller nationals paying between R100/m² and R240/m² occupy another 40%. But the little tenants are paying between R200/m² and R400/m² Failure rates can be high.

Once those 1440 construction workers are paid off on completion, it could turn out that most of the “new” jobs are transfers from the older malls.

Mackay’s killer argument for the new mall is its free, secured open parking. “Shoppers are nervous of parking and walking in the streets of Welkom, because of crime and people loitering around,” he says. Except possibly for the FNB and Nedbank next door, it’s only this secure parking that combines with fear to separate Goldfields Mall from the rest, despite its being in the CBD.

So why build such a mall? Because each of the parties involved has something to gain. The researcher wants to please the developer with good results. The retailer is looking to increase trade and protect his turf, so he signs up. The bank feels secure with a 70% national tenancy and agrees to finance the project.

The local authority likes the extra rates income, and can brag that it is bringing progress to the town (no matter that 90% of the voters will not be able or willing to shop there).

These stakeholders create a circle of narrow aims that assures the go ahead, even as they ignore the wider consequences. Car convenience, fear of crime and racial prejudice lurk behind the commercial arguments.

The process has happened in towns across SA, starting with Somerset West in the 1980s. That town has yet to recover.

This Jurassic economic logic is in contrast to the revival of town centres and high streets elsewhere in the world. Local authorities, developers and retailers have discovered that they can collaborate to rebuild town centres, with the retailer providing the anchor for leisure, residential and office development. Among the results is fabulous trading densities.

But the pace of new centres being built near SA towns has quickened recently. Worcester, Rustenburg, Nelspruit, Jeffreys Bay and Westville are among the latest to succumb. Research company Urban Studies CEO Dirk Prinsloo calculates that the 36 malls of over 30000m² that existed in 1993 have grown to 116 in 2009, and the area they cover has rocketed from 1,88mm² to 6mm² That’s according to his research papers for the SA Council of Shopping Centres (SACSC) titled “Retail cannibalisation — all are guilty”.

What worries him from this research is that developments like Welkom are ignoring the retail fundamentals, such as counting the new rooftops in an area to determine new demand before building. “The economic situation three years ago was so positive that retailers started ignoring the principles of responsible store openings,” says Prinsloo in the report. “Fashion retailers thought they might miss opportunities. This is a clear indication of herd mentality. Certain metropolitan areas are reaching saturation.”

With low rents come low risks for the big retailers. But the burden on the small retailers is beginning to worry some developers, chief among them Louis Norval, codeveloper and manager of some prize-winning centres, such as Clearwater Mall on Johannesburg’s West Rand.

He didn’t mince words at the annual SACSC conference in Johannesburg a few weeks ago, calling the rental gap between large and small traders immoral and blaming it for the rapid expansion of retail malls, the obliteration of mom and-pop retailers and the unremitting sameness of most malls. And if a small retailer is successful, he’s usually taken over by a big one.

Norval was the most loudly cheered of speakers at the conference, clearly hitting a nerve.

The cannibalisation Prinsloo worries about is where retailers are nibbling at their own stores too close by, where trading densities are reduced, and where malls are too close together and have to share too many shoppers.

Cannibals like Goldfields Mall can eat the heart of a town in one bite.

Source: Financial Mail