Despite the rise of ecommerce globally, statistics show that the majority of South African shoppers continue to shop in brick and mortar stores.
While in countries like the United Kingdom, about 15% of retail turnover is spent online, in South Africa the figure still stands at just over 1%.
South Africa’s shopping mall industry continues to be robust with research released by Urban Studies, which conducts feasibility studies for shopping centres, showing that South Africa has the highest number of shopping centres in the world after the United States, Japan, China and Canada. In 2014 the number of malls stood at 1 785, with 44% of the shopping centre space being in the Gauteng province. This is according to a 2014 Mail and Guardian report.
For SMEs, entering a mall as a tenant can seem like a great opportunity to capitalise on the increased foot traffic and brand exposure that malls can offer.
However, the process of entering a lease agreement can be complex one, particularly for SMEs.
The advantage for a retailer located in a mall is access to diverse foot traffic in larger volumes than a stand alone or private location
SME South Africa speaks to Monalisa Sam who is the founder of Tungwa Retail Holdings, a 100% South African black woman owned retail and investing firm.
Her company helps clients with all aspects needed to make a retail business successful. This includes retail strategy development, retail business rebranding and relaunching, store design and retail management economics.
“We support businesses from a “concept to trade” approach which entails the process of supporting concepts from business planning stage, financial modeling, brand development, retail training and facilitating financing once the business is ready to move into a formal environment like a shopping mall which would entail finding suitable locations at rentals which support the financial models built around the business,” says Sam.
Sam has extensive knowledge on the South African retail environment. She has also managed Cavendish Square in Cape Town, The Zone in Rosebank and Maponya Mall in Soweto. With over 11 years in the industry she has had exposure to more than 650 retailers in different retail categories.
Here is what Sam has to say about how you should choose a location, costs you should expect and deadly mistakes to avoid.
Q: What are the advantages of being located in a mall for a small business?
Shopping malls are an organised form of retail through a well thought–out and planned retail ecosystem they provide to their shoppers. The advantage for a retailer located in a mall is access to diverse foot traffic in larger volumes than a standalone or private location.
Q: How should a business owner choose a suitable mall location for their business?
It is important to request shopper profile information from the mall you have interest in. This will guide you as to whether your target market is visiting the mall in the first place. Secondly having an understanding of the retail mix in that specific mall will give you insights of any competition you may have in the centre.
Q: What kinds of costs can a business expect when they become a mall tenant?
- Security deposit as agreed with the Landlord.
- Shopping fitting costs to fit out the store procured in the mall.
- Signage costs for the store.
Other costs include:
- Costs to stock (merchandise) the store for trading purposes
- Operational system support for point of sale equipment
- Recruiting and staffing the store
- Marketing costs – The shopping mall markets to attract feet to the mall not specifically to your store.
- Monthly rent and electricity – Rent includes operational costs incurred by the mall such as security and cleaning which is allocated to tenants according to size of their operations.
A business which has not yet secured a healthy customer base is going to have a more challenging time in a shopping mall
Q: How is rent calculated in a mall location – what can an SME expect to pay?
It is a rate per square metre. In most cases, the smaller the store, the larger the rate per square metre that is applicable to the store. Some commercial agreements may include turnover rent which is a percentage calculation of audited turnover due every quarter.
Q: What will a landlord expect in an application?
The landlord will expect a business plan which details the brand concept (if unknown), marketing plans and financial projections to illustrate sustainability of the business.
Some landlords will also expect the applicant to have cash deposit available to secure the premises which they will hold until expiry or termination of the lease.
Most importantly, landlords want to see what value the brand will add to their shopping centre and customers.
Q: What are the ongoing expectations (and upkeep) once you are a full time tenant?
The landlord expects all tenants to adhere to trading times of the centre including public holidays and to participate in meetings that may be co-ordinated by the marketing and facility management teams of the mall which form part of management. Most importantly, to pay your rent on time as per your agreement.
Q: Is there any kind of business that should stay clear of malls and why?
Retail in general is a formula of understanding what a customer wants to buy at which price and ensuring that it is available when they want to buy it. A business which has not yet secured a healthy customer base is going to have a more challenging time in a shopping mall than one that is established in terms of brand and customer base and testing the market in a shopping centre is an extremely expensive exercise.
If you are not prepared to work at it every single day, then retail in general is not for you.
“First and foremost, business owners need to understand that opening a store in a shopping mall does not guarantee sales from day one”
Q: You hear a lot of stories about businesses struggling to make rent, what should a business owner who is in trouble do to deal with this before it is too late?
First and foremost, business owners need to understand that opening a store in a shopping mall does not guarantee sales from day one. Build a relationship with mall management as a means to keep them posted on the performance of your business from the time you start operating not when you are three months in arrears.
In some cases, shopping mall managers will be able to advise you on aspects of the centre in terms of customers that will help boost sales and they can also provide advice on marketing measures that they can support to drive feet to your store. The worst thing you can do is to attack shopping mall management and blame them for your poor performance when there may be internal operational issues within your store that contribute to poor sales and subsequently not being able to pay your rent.
Q: What are the biggest mistakes that business owners can make with regards to entering into a lease agreement?
A lease agreement is a legally binding commercial agreement which details both the landlord’s and tenant’s obligations within the trading environment. Many business owners make the mistake of not fully understanding the commercial terms of the agreement they are signing themselves into.
For example, when rent is due, what other costs the business owner is liable for and what constitutes a breach of lease agreement. The main thing that business owners should fundamentally understand, is that breach of a lease agreement can result in serious legal and financial implications very similar to the implications one would endure if they missed payments, for example, with a banking institution.
