By Kirsty Laschinger

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ANALYSTS are beginning to question whether South Africa’s retailers are overextending themselves in their store rollout programmes. Despite the current spending boom, there’s the potential that too many store openings too close together will only result in new stores cannibalising sales from existing outlets rather than attracting new customers.

However, SA’s townships are virtually virgin territory for formal retailers.

Township retail space has been controlled by small and informal retailers, particularly in selling food. Traditionally, township residents shop in retail chains either in the nearest central business district or in areas close to their workplace.

None of this is new: retail developers and retailers themselves have been attempting to unlock the door to SA’s township markets since the early Nineties with – in most cases – limited financial success.

Erwin Rode, CEO of Rode and Associates, is sceptical regarding the prospects for township retail, apart from convenience shopping. He says that there’s very little scope in a township destination centre for small niche shops, as consumers need high disposable incomes to support stores like boutiques. Consequently, the possible range of shops is limited – though Rode notes that’s a phenomenon worldwide.

There are new models of township retail development emerging aimed at meeting both consumer and investor requirements.

The Futuregrowth Community Property Fund has invested in 16 shopping centres located in rural areas and townships and has 10 new destination centres planned over the next two years. National chains comprise about 70% of the lessees. Financially, it’s paying off. For the year to September 2004 the fund yielded 11,5%.

Wayne van der Vent, a director at Futuregrowth Asset Management, says that the difference for Futuregrowth versus less successful developments in the past concerns choosing areas carefully and determining the right size for a shopping centre.

Many earlier developments were small and centred on convenience rather than shopping experiences: the result was that customers still had to travel to other shopping destinations. A second key problem was access to banking facilities, as banks shunned earlier centres.

Van der Vent also points to other "soft" issues. It’s important that retailers don’t put in "township spec" stores with lower quality goods and shop fittings. In addition, township shopping centres need to be well managed, especially in aspects such as cleaning and security.

However, it hasn’t been all plain sailing. Van der Vent says that in certain developments Futuregrowth had to build its own bulk infrastructure, such as roads and water.

Shoprite is one national chain that has invested – and will continue to – in township stores. CEO Whitey Basson says that more than 60% of township housewives already shop at Shoprite and says that the retail formula is the same in townships as at other stores.

However, he acknowledges that township stores tend to operate on lower than average margins because basic foodstuffs account for more volume.

Futuregrowth has seen its destination centres change economic patterns within townships as the flow of people changes. Basson says that the initial reaction from existing township competitors, such as informal traders and spaza shops, was always negative. But over time it becomes a central hub, which creates more business as more people flock to it.

Shoprite won’t reveal the number of township stores it plans to open. Basson says that sites are not readily available and developments take time.

What’s clear is that mass market retailers will have to give more consideration to moving into townships rather than operating on their fringes. Chains as diverse as Cashbuild, Pep, Ackermans, Price ’n Pride, Ellerines and Jet have already opened for business in townships.