By Joan Muller

Senior writer

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EDCON is to open 125 new stores in its current financial year; Massmart will roll out 50 new outlets by 2007; Shoprite will open 146 new stores in the next 18 months; Woolworths is to spend R260m on store expansions (up from R152m in its previous financial year). And so the list goes on.

Until recently, nobody was complaining about retailers’ aggressive take-up in South Africa’s ever-growing pool of shopping centres. After all, landlords and developers have been cashing in on the massive growth in demand for retail space, which saw total returns on retail property jump to 26% in 2004 – the highest level in 10 years, according to the latest Sapoa/IPD property index.

But what happens when the consumers’ spending party ends? That was one question raised by property owners at Sapoa’s annual conference held at Sun City earlier this month. It seems that some players are beginning to feel uncomfortable with retailers’ overzealous rollout of new stores.

Norbert Sasse, CEO Growthpoint Properties, the JSE Securities Exchange’s biggest loan stock listing, says that national retailers have become too keen regarding their expansion drive. "Retailers are rushing into every new centre on the back of buoyant consumer spending. But what happens when rates go up?"

Sasse’s concern is that if and when retailers’ turnover begins sliding, landlords will be the first to come under pressure, as they’ll be asked to lower rentals. And if landlords want to retain their tenants they may not have much choice in the matter. Sasse says that will put pressure on landlords’ earnings, making the listed property sector in particular less attractive to investors.

Pepkor retail property director Marius Barkhuysen acknowledges that retailers may have become too focused on size, wanting to grow their footprint at all costs. Says Barkhuysen: "Too many developments are riding on the back of too much credit."

Barkhuysen agrees with Sasse that if retailers begin battling to increase volumes per square metre, landlords are the ones who will suffer, as they’ll be forced to lower rentals. Barkhuysen says: "If retailers keep expanding at the current rate, overtrading could be a reality in three years’ time. But we’re not there yet."

However, he does say that recent expansion can be justified as most retailers have seen huge growth in operating profit and turnover densities in recent years, particularly in the clothing and textile sectors.

Repositioning existing brands and creating new brands – such as Hang Ten and Dunns (in the Pepkor stable) – have further necessitated new take-up of retail floor space. Barkhuysen says that a great deal of expansion is also happening in new markets, including townships, where many retail brands have only recently begun moving.

Massdiscounters commercial director Steven Whiley says that strong growth in disposable income from lower- and middle-income markets is one of the main drivers of retailers’ continued expansion.

Gensec retail director Jonathan Yach says that new stores and the growth coming from them should more than compensate retailers for any drop in turnover at the older stores. He echoes the sentiment that more people support the strong growth in demand for retail space with increased disposable income entering the consumer economy, particularly in the broad middle class (LSM 4-7). He says that will continue to push sales volumes and turnover.

Says Yach: "There’s been a tangible shift in consumer spend away from reliance on white spend to new black markets. At the same time existing black markets are also becoming stronger. More non-South Africans also shop here, relying on our retailers’ supply chains to secure clothing and bulk foods for export to other southern African markets."

Yach says that retailers are in business to grow and make profits, so they have to expand aggressively into these new markets. However, retailers are concomitantly negotiating better lease terms for their older shops in less desirable locations.

But Yach concedes that interest rates are the one factor that could spoil the party. Rising rates would put pressure on disposable incomes. Even so, he believes that retailers will still find ways to maintain growth, albeit by greater differentiation or new product development.