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South African shopping malls: A threat to small business ambitions

26th November 2010

By: In On Africa IOA

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In recent years, the South African press has told countless stories of the mushrooming of shopping centres in the country’s township areas. In Soweto, for example, arguably South Africa’s best-known township, at least six shopping centres have opened their doors since 2005, and the township now hosts several well-known retail complexes – including the Maponya, Dobsonville, Protea Gardens, Jabulani and Bara malls. In the townships adjacent to Cape Town, residents are able to shop at the Nyanga Junction, Westgate, Towncentre, Vantage and Khayelitsha malls, and in Durban, township residents can visit the Umlazi and Dube malls. Even in the townships of smaller South African cities, such as Port Elizabeth and Polokwane, shopping centre developments have sprung up, changing the face of commercial transactions for many of those residing in these areas.

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Frequently, shopping centre developments in township areas are lauded for the benefits of choice and urban regeneration that they offer to the residents of such areas. What is less prominently highlighted, however, is the potential for shopping centre developments to hamper small business. In a country where small business is seen as central to growth, employment and black economic empowerment ambitions, shopping centre developments represent a threat.

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The changing dynamics of township shopping culture

 

Up until about the late 1990s, retail activities in township areas were dominated by informal businesses serving a relatively low-income consumer market.(2) Many of these businesses were spaza shops – unlicensed ‘tuck shops’ – and mini-retailers. The businesses offered an array of products and services – ranging from fresh fruit to hairstyling – from informal premises that included containers, makeshift stalls, private homes and street corners.(3)

 

Since the end of the 1990s, capitalising on rising household income and swelling numbers of township dwellers, as well as indications that most middle-income township residents intend to stay for the foreseeable future, property developers and large retail outlets moved in to exploit the substantial market potential of these environments. Consequently, the dynamics of township business have changed to include shopping malls and other formal outlets.(4)

 

Retailers represented in township shopping malls include major operators such as Pick n Pay, Edgars, Woolworths, Shoprite, Pep Stores and Mr Price. Further, branded franchise groups – such as News Cafe, Debonairs, Steers, Nando’s and Primi Piatti – are keen to make their mark on township shopping centres.(5) These operators are complemented by the expansion of banking services: South Africa’s top four banking groups are to be found in almost all township malls.

 

The benefits of township shopping malls

 

Retail developments can be seen as a catalyst and stimulator for the regeneration of physically, socially and economically neglected areas, contributing to new social networks and safer living environments.(6) In addition, township shopping centres could contribute to a larger proportion of the consumer expenditure of township residents taking place within township areas, whereas previously, the majority of township workers spent their earnings in the main city centres or at shopping malls on the fringes of townships. For example, a 2004 study commissioned by the City of Johannesburg showed that Soweto households only spent about 25% of their retail expenditure at outlets situated within the township.(7)

 

Further, the presence of retail grocery chains, offering fresh produce and convenience food items, along with clothing, banking and fast-food outlets, among others, have meant higher levels of competition and, thus, in many cases, lower prices for township shoppers. In addition, the availability of greater retail choice could have health gains for township residents. Further, these shoppers are able to choose from a plethora of options, where previously their choices were more restricted.

 

The detractions of shopping centres on small business activities

 

However, while shopping centres may offer a variety of choice and lower prices to consumers, the competition that generates such choice and price flexibility could be the very thing that forces smaller businesses out of operation, displacing expenditure away from small operators to national chains and franchised outlets. Businesses facing particular challenges in this new retail environment are those operating in informal environments, those offering daily household necessities, and those that are situated close to the newly developed shopping malls.(8) Studies indicate that 75% of businesses located less than 1 km from a new shopping centre development report a decline in their profits owing to the shopping centre. Businesses situated further from the centre are less affected.(9)

 

In addition, smaller businesses find themselves disadvantaged owing to rental practices that favour large operators. National chain stores, for example, notably supermarket groups, typically pay low rents for the space they occupy in shopping centres. These rates are offered to such stores in an effort by the shopping malls to secure well-known anchor tenants. In order to make up for the low rents paid by large operators, the centres then charge inflated rentals to smaller tenants. Often the rental agreements of the smaller tenants also contain escalation clauses that hoist major rent increases, sometimes as high as 100%, on them, when lease agreements are renewed. These practices impact heavily on the commercial viability of new small businesses attempting to operate within shopping centres.(10)

 

Further, while shopping centres may lead to a higher proportion of household expenditure taking place within the township area, the benefits of such expenditure are unlikely to directly accrue to the local community, as the profits of the centres are fed back to the shareholders of major retail giants. Very few shops within the new township shopping centres are owned by township residents. For example, it is estimated that only about 10% of the tenants in Soweto’s Maponya mall are locals.(11)

 

Of course, the impact of shopping centre developments on small businesses has not been uniform, as there are those small operators that have managed to benefit from the presence of the new retail complexes in township areas. For example, certain street vendors have been able to intercept the large concentration of shoppers generated by shopping centres through carefully positioning their operations. Small operators could also potentially benefit from the pull effect that shopping centres may have in attracting shoppers from outside the township area.

 

It is possible that the effect of shopping centres on small township retailers has not been as significant as originally feared. Nevertheless, small businesses are struggling, and the small business stock in township areas is believed to be shrinking, despite certain new businesses having been established outside the shopping malls. André Ligthelm, of the Bureau for Market Research at the University of South Africa, estimates that Soweto’s small business stock fell by 40.7% in the period from 2007 to 2009.(12) He also said that almost 40% of small businesses in the township closed within a year of the establishment of the Maponya and Jabulani malls.(13) It is believed that only those small business operators demonstrating strong entrepreneurial acumen and business management skills will survive in the new competitive environment.(14)

 

The future

 

The situation in which the establishment of shopping complexes is affecting the ability of small and medium-sized businesses to operate effectively in the retail environment is not one that is specific to South Africa’s township areas, but can be seen in wide swaths of the country. Indeed, suburban South Africa abounds with shopping malls, and it is thought that suburban shopping centres are making it similarly difficult for small independent retailers to remain profitable. While shopping centres may offer price and convenience advantages to consumers, they are stifling much-needed entrepreneurship and, as a result, South Africa’s growth and employment ambitions. Several government strategy documents have identified small business activity as being central to growth, employment and black economic empowerment. Therefore, based on this argument and analysis, it is advisable that measures be implemented to protect small retailers from the threats represented by shopping mall developments.
 

Written by: Shona Kohler (1)
 

NOTES:

(1) Contact Shona Kohler through Consultancy Africa Intelligence’s Eyes on Africa Unit (eyesonafrica@consultancyafrica.com)
(2) Mathenjwa A, ‘The impact of Jabulani shopping mall on small township businesses and their response’, Research report submitted to the Gordon Institute of Business Science, 14 November 2007.
(3) Viruly Consulting, ‘Retail supply analysis of Soweto’, Palmer Development Group, 10 June 2004.
(4) Ligthelm A, ‘Small business sustainability and entrepreneurship in a changed trade environment: The Soweto case’, Bureau for Market Research. January 2008.
(5) Mabotja S, ‘Retail footprint: Developers are making strides in the townships’, Trade Invest South Africa, 20 May 2008.
(6) Ibid.
(7) Ligthelm A, ‘The impact of shopping mall development in township areas on small township retailers’, Bureau for Market Research. February 2007.
(8) Ibid.
(9) Ibid.
(10) First National Bank. Franchise Think Tank. 4 May 2010.
(11) Letsie T, ‘A battle plan is being drawn up to turn Soweto and other Gauteng townships into bustling economic powerhouses’, The Times, 30 January 2010.
(12) Ibid.
(13) Business Day, ‘Soweto malls strangle smaller shops’, 3 February 2010.
(14) Ligthelm A, ‘Small business sustainability and entrepreneurship in a changed trade environment: The Soweto case’, Bureau for Market Research. January 2008.


 

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