By Kirsty Laschinger

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MANY listed retailers are expanding aggressively and seem to be opening new stores at an unprecedented rate. But as retail analyst Evan Walker of Andisa Securities says, this particular boom is being driven by landlords and new mall developers rather than directly by retailers.

Truworths CEO Michael Mark sums up the dilemma by saying that national chains, such as Truworths, effectively have little choice but to at least consider new mall developments, given that their competitors are likely to take sites. It would be a competitive disadvantage not to have a store in each of the large new shopping malls, especially as new centres have performed well recently.

Mark says that Truworths’ total trading space will increase by between 12% and 13% for the year to June 2005. That’s likely to be followed by a further 6% floor space increase in financial 2006. He anticipates that the rate of growth will slow from 2007 onwards.

However, analysts are increasingly questioning whether this new store base will be sustained once the current consumer boom slows. Walker says that it’s "early days" yet to evaluate the success of SA retailers’ store expansion programmes "because we haven’t seen all the new space trade in bad times yet. It’s easy to make it work in good times".

Walker says that the question is whether the new space will produce additional sales without cannibalising existing stores and that there will only be a satisfactory answer to that question in 18 months’ to two years’ time.

However, below the headlines there’s another story emerging that clearly shows that expansion isn’t as easy as the man in the street might suppose. On the one hand, that’s partly due to the fact that SA has two consumer economies. Whilst the upper income durable and semi-durable market is booming on the back of low interest rates and inflation, the lower income food market is suffering from the ravages of deflation and relatively lower growth in the disposable income of its consumer base.

The end result is that some lower income formats – such as Massmart’s CBW – have reduced their store growth targets. Management has indicated that it will halt its planned expansion and acquisition programme in lower-end food wholesale against previous aggressive growth targets.

Massmart originally planned to open 21 new CBW and Jumbo stores in SA and neighbouring countries between 2002 and 2007. Walker says that he had expected the group to consistently open six to 10 CBW stores for the next three years.

At its recent results presentation, Massmart CEO Mark Lamberti said that the group would respond to changing market conditions. He said that persistent deflation would accelerate the shakeout in the lower end cash & carry market that he’d predicted for some time.

But there’s another factor at play: a dearth of suitable sites. JD Group addressed that issue in its 2004 annual report, saying that the "tremendous growth in the property market" has "resulted in limited retail premises".

The table shows Finance Week’s analysis of the stated expansion prospects in each of the listed group’s 2003 annual reports, compared to the actual outcome during their 2004 financial years.

Though it clearly shows the consolidation in the furniture sector, it also illustrates that retailers aren’t able to find as many new sites as they initially expected. That’s particularly evident in the food sector, where Pick ’n Pay, Shoprite and Spar all saw new store growth less than their initial projections.

Part of the problem is stubbornly high rents and escalation clauses, a refrain that echoes throughout the sector.

However, in some sectors at least there’s also a shortage of suitable space. That’s particularly true for mass-market retailers as there have been few new shopping centre developments in lower income areas – though there are signs that’s changing.

At least one analyst says that lower-than-targeted store growth may not be a bad thing. Overly aggressive growth targets were one factor behind the demise of Profurn in 2001. The analyst says that he’d prefer well-managed conservative store expansion rather than a free for all.