Brett Exner - property executive, Massdiscounters:

After a slow and disappointing second half of 2007 for retail in SA the 2008 calendar year has certainly started with even more insecurity. A combination of a recession in the USA, global equity market negativity, high interest rates, high oil price driving inflation, a drop in business confidence, the impact of the National Credit Act and an electricity crisis have combined to create what some have referred to as the perfect storm.
 
The economy seems to be collapsing when in fact it’s simply making an adjustment back to a reasonable level after it overheated.

It is not the first time there’s doom and gloom for the retail industry, when I joined in October 2000 retail was in a similar situation of instability as it is today. As retailers we know that 2008 will be a tough year but it can be a great opportunity for us to get a front seat on the inevitable boom that we’ll experience from mid 2009 and beyond.

The slowdown in the economy, added competition and different expectations from customers are some of the major challenges that face retailers, and the only way for us to respond is to be the right size and shape and ruthless in competition.
 
On the issue of whether retailers should be cutting back or expanding in the current environment, we have already entered a period of consolidation with measured expansion for retailers. Key strategies, like securing sites in target markets where no representation exists and right-sizing stores based on performance, will still continue with far more scrutiny going into capital spend on new and existing stores. The revamping or renewing of existing stores will probably take more of a backseat where not absolutely and immediately necessary and closure or consolidation of stores with significantly overlapping catchments will be vital to sustainable growth in the current suppressed retail environment.

New developments will continue to be considered by retailers based on key factors such as ‘need and desirability’ by target markets as well as critical mass, differentiation and tenant mix offered by these developments. Existing developments that have a proven track record and are successful always present an opportunity for retailers who lack representation therein, and often with the slowdown in new developments, caused by factors such as the slowing retail sales within a depressed market environment and the lack of sufficient electricity supply, property owners look elsewhere at improvement and value adding on existing buildings. This creates opportunities for retailers who perhaps never had representation in some of these shopping centres.
 
With the above in mind, one would have to consider the following as some of the key criteria for retailers taking premises in the current market:  
    
Does the development offer exposure to a node where no representation exists or where there will be little or no cannibalisation on existing store’s sales?
    
Is your competition already represented in the same node/centre and on what scale, i.e. will you effectively be able to compete and take market share?
    
Right-sizing (both new and existing stores) based on demand, i.e. are you getting the required return on space? Over supply of space also has a knock on effect on your return on labour and return on inventory/stock as over spacing leads to oversupply on both of these important ratios with labour in specific being a retailer’s biggest cost and occupancy/rental the second biggest.
    
Relationships between retailer and developer/landlord will be even more important in this period to ensure that deals that are secured on new premises as well as existing are as innovative and cost effective as possible.
The one thing that is for sure is that consumers around the world are struggling with the same global issues that are impacting on their daily lives and have resulted in less spending power, which will lead to retailers cutting back on expansion. Retailer focus will definitely shift to one of consolidation and improving processes within existing core business with continued organic growth where feasible.

Mike Lewin - group retail director, Madison Property Fund Managers:

Retailers in South Africa are currently operating in extremely challenging trading conditions, specifically because of the shortage of skills, increasing interest rates, rising petrol prices and electricity disruptions. Under these conditions of trading, taking the correct retail property decisions is more important than ever.

Before making individual retail property decisions a number of important issues need to be addressed and most of these apply equally whether the premises under consideration are existing or new.

1. Are the premises suitably located for the existing type of retailing or the type of retailing being considered?
If premises have become poorly located over time it can be preferable to relocate to more suitable locations on lease expiry rather than to perpetuate trading in suboptimal locations. New premises should only be taken up in locations that totally suit the retail format being considered.
2. Are the existing or proposed premises suitably sized?
The impact of premises size is often underestimated. If premises are substantially oversized even in a prime location, disastrous consequences can result. Wherever possible, premises should be right-sized at the earliest opportunity.
3. When considering new premises, is there a threat of ‘cannibalisation’?
If proposed new locations are situated too close to existing stores the end result may only be a splitting of the existing turnover between the two stores rather than the gain of substantial net new turnover.
4. Does a proposed new store for a chain fall along existing service and supply routes?
It can be extremely expensive and inefficient locating new stores very far from existing stores even if the trading area is considered to be highly suitable.
5. Is the store well configured?
Here we are both referring to the shape of the premises itself but also the split of the premises over multiple levels. Generally regularly shaped premises are more suitable for most retailers and it is preferable to trade and/or operate a retail store from single level premises only.
6. Is this an objective decision?
Emotions must be removed from retail property decisions. Often retailers have an emotional attachment to a geographic area or a specific retail brand. Wherever possible such emotions should be excluded from retail property decisions.
7. Close the deal!
Where real opportunities arise to take up space in identified nodes these opportunities should not be lost during a period of challenging retail as they may well never occur again.
In conclusion, property decisions are even more important in challenging economic conditions than under buoyant economic conditions. It is often in these conditions of trading that opportunities arise which otherwise may never materialise.

Wendy Newton-Volkel - real estate executive, Woolworths:

Until now: Over the last few years the South African economy has enjoyed robust growth. 

This has been fuelled lately by the infrastructure development for the 2010 Soccer World Cup. As South African society moves towards better living standards for all, the demand for better quality retail increases. Businesses and developers have capitalised on this opportunity. In addition, significant new residential development has taken place on peripheral areas of all major cities. The growth in residential development has meant that certain urban nodes were more likely to benefit from business development. In recent years Woolworths has pursued a rapid roll out of its food stores, particularly throughout the major metropolitan areas of South Africa. Woolworths identified several opportunities in the market place, including:
    
The growing middle- to upper-income market segment of the population.
    
Convenience, which is a growing trend for customers.
    
Opportunity to grow Woolworths share of the supermarket business – which was traditionally small.

Where to now: The current economic climate means that customers have less disposable income. To compound this, population growth is slowing and developments have been hampered by electricity supply issues. There are, however, still opportunities for growth. For instance, opportunities still exist in new developing residential areas, townships which have been neglected in the past and some rural towns showing tremendous growth due to mining or tourism.

Woolworths will also give greater emphasis to modernising and extending existing successful stores in the short- to medium-term and, in this way, increase its penetration of the market and footprint going forward.

Retailers also play a vital role in influencing the design and development of centres to ensure they are environmentally friendly. Woolworths is committed to minimising the business impact on the planet. Woolworths’ good business journey is a five-year plan to help our communities, our country and our world.