Kzn planning and dev comm book 1

THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

KwaZulu-Natal Planning & Development Commission

First Published in 2010 by KwaZulu-Natal Planning and Development Commission Private Bag X9038 Pietermaritzburg 3200 ISBN: 978-0-621-39201-2 PRICE: R50.00 This document is available from: KwaZulu-Natal Planning and Development Commission 12th Floor Natalia Building 330 Langalibalele Street Pietermaritzburg 3201 OR Private Bag X9038 Pietermaritzburg 3200 Tel: 033 395 3067 Fax: 033 345 3647 Email: ppdc@kznlgta.gov.za Website: www.kznpdc.gov.za The reproduction of the contents of this document, whether in whole or in part, for publication is prohibited unless permission is first obtained in writing from the KwaZulu-Natal Planning and Development Commission, Private Bag X 9038, Pietermaritzburg, 3200, KwaZulu-Natal, South Africa.

The contents of this publication, whilst being the views of the author, do not necessarily represent the views of the KwaZulu-Natal Planning and Development Commission.

THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

CONTENT

PAGE

FOREWORD ACKNOWLEDGEMENTS EXECUTIVE SUMMARY 1.

Introduction and main objectives 2.

Methodology 3.

Retail trends - International to KZN examples 4.

Situation analysis 5.

Changes in demographic and shopping behaviour 6.

South Africa retail and shopping centre industry 7.

Retail demand and supply: KZN 8.

Participation of planning and development 9.

Site selection and different levels of analysis 10. Strategic development guidelines and actions for existing and new shopping centre facilities 11. Major retail types, classification of hierarchy of retail facilities 12. Proposed interaction between town planners, retail centre developers and local authority 13. Use of the guideline document 14. Site selection checklist for retail development 15. Conclusion

3 4 5 5 5 6 6 6 6 7 7 8 8 9 13 13 13 14

1.

2.

BACKGROUND DEFINITION OF RETAIL AND THEORETICAL CLASSIFICATION MODELS 2.1 Definition of Retailing 2.2 Theoretical base 2.2.1 Central Place Theory (Christaller 1933) 2.2.2 Gravitation Model (Reilly, 1930s) 2.2.3 Probability Model - Huff (1963) 2.2.4 A classification of urban commercial structure (Berry, 1967) 2.3 International Classification of Retail Facilities 2.3.1 Retail Classification (Dawson, 1983) 2.3.2 International Council of Shopping Centre Classification 2.3.3 Australian Property Council 2.3.4 Pan-European Shopping Centre Standard 2.4 South African Classification of Retail Facilities 2.4.1 Oosthuizen (1981) 2.4.2 Kahn (1988)

15 16 16 18 18 19 19 20 21 21 24 26 27 28 28 30

3.

4.

INTERNATIONAL SHOPPING CENTRE EXAMPLES AND TRENDS SOUTH AFRICAN LANDSCAPE INFLUENCING RETAIL DEVELOPMENT 4.1 Macro South African Economic Conditions 4.1.1 Gross Domestic Product 4.1.2 Interest rates 4.1.3 Inflation 4.1.4 Rand/Dollar exchange rate 4.1.5 Building plans passed and completed 4.1.6 Various confidence indexes 4.1.7 Retail trade sales 4.1.8 Global influence 4.1.9 Property Economic Indicators: (2006-2009) 4.2 Political Conditions 4.3 Social Conditions

32 34 34 34 35 36 36 37 38 39 40 40 42 42

THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

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5.

CHANGES IN DEMOGRAPHICS AND SHOPPING BEHAVIOUR 5.1 Population Growth 5.2 Effect of Urbanisation 5.3 Socio-Economic Change 5.3.1 Living Standard Measurement (LSM) 5.4 Emerging Black Market and Changing Consumer Base 5.5 Township Areas, CBDs and Rural Shopping Centres 5.5.1 Retail in CBDs 5.5.2 Retail in township areas 5.5.3 Retail in rural areas 5.6 Changing Lifestyles 5.7 The Need for a Shopping Experience 5.8 The Youth Market 5.9 Trends towards Extended Shopping Hours 5.10 Growth in Homeware Stores and other New Retail Tenant Types 5.11 E-Commerce 5.12 Renewal of Centres 5.13 Cannibalisation

43 43 43 44 44 46 47 47 48 48 49 50 50 50 50 51 51 51

6.

SOUTH AFRICAN RETAIL AND SHOPPING CENTRE INDUSTRY 6.1 Retail Supply in South Africa

52 52

7.

RETAIL DEMAND AND SUPPLY IN KWAZULU NATAL 7.1 Main Characteristics of KwaZulu Natal Market 7.2 Economic Base of KZN in comparison to the RSA Economy 7.2.1 Gross Domestic Product per region for 2007 7.3 Retail demand in KZN: Demand drivers 7.3.1 Population Numbers, Growth and Projections 7.3.2 Additional population related information regarding KZN 7.3.3 Socio-Economic and demographic profile of KZN households 7.4 Monthly Expenditure on Consumer Goods 7.5 Estimated annual retail expenditure for KZN

54 54 54 54 57 57 58 58 64 65

8.

SUPPLY OF RETAIL SPACE IN KZN 8.1 Current Supply of Retail Space in KZN 8.2 Retail Supply in Townships and Rural Areas 8.3 Growth in Retail Supply in KZN (2003-2009) 8.4 Retail Development Potential in KZN 8.4.1 Retail apace per capita 8.4.2 Various other models

66 66 67 68 68 69 69

9.

PARTICIPATION OF PLANNING AND DEVELOPMENT STAKEHOLDERS 9.1 Questionnaire Phase 9.2 Workshop

70 70 71

10.

11.

12.

CONCLUSION TERMINOLOGY AND DEFINITIONS BIBLIOGRAPHY / REFERENCES

73 74 75

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THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

FOREWORD In December 2008 the KwaZulu-Natal Planning and Development Commission (KZNPDC), appointed Urban Studies, to compile planning guidelines for shopping centre development in KwaZulu Natal. The project consisted of two components namely the understanding of retail development on an international, local and KZN level and to compile planning guidelines for future retail development.

Retail and shopping centre development forms part of one of the most dynamic urban markets and land uses.

Shopping centres worldwide are continuously changing by trying to attract more shoppers to increase the drawcard and to increase the spending of their customers. There has been a substantial increase in planned shopping centres over the last 15 to 20 years, compared to the static situation as far as unplanned retail facilities are concerned.

A number of institutions like the International Council of Shopping Centres (ICSC) have published some guidelines for the classification of shopping centres. Most of these publications are restricted to planned shopping centres only. In the case of this guideline report, the full spectrum of retail facilities ranging from metropolitan super regional centres to small rural village town squares, were included. There is a major need amongst town planners, developers, retailers and bankers to get a better understanding of the practical implication of the classification of shopping centres. This will streamline and regulate the development and control process of shopping centre development.

Shopping centres and retail markets in South Africa are all changing because of the growth in disposable income, the increase of the upper end of the market, the growth of the emerging market and the opening of a number of new retail facilities in township and rural areas. All role players (town planners, developers and retailers) need to understand these changes in order to have a better understanding as far as current and future shopping centre development is concerned.

All the different retail types ranging from planned metropolitan to unplanned rural facilities were discussed in detail in the guideline report. Each retail type was classified according to its role and functions, market size and appropriate floor area. The locational criteria, a broad indication of the tenant mix and future trends and changes were incorporated for each retail type. Appropriate KwaZulu Natal examples were used in all cases.

The last part of the guideline document includes details regarding the interaction between town planners, shopping centre developers, and local authorities. These interaction guidelines were included to streamline the whole process of shopping centre development.

The dynamic nature of retail shopping centre development will always result in the provision of new retail types, the introduction of new types of retailers and the changing needs of shoppers. This will require an update of the guideline document on a regular basis to continuously obtain new information regarding the latest trends.

BISHOP MM MAKHAYE CHAIRMAN

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ACKNOWLEDGEMENTS Retail is one of the most dynamic urban land uses to be found in any human settlement. This is also the one land use that changes almost on a daily basis. New retail types are developed to attract more customers and to better service their needs. To understand the retail market and to prepare a set of town planning guidelines a number of people contributed to this project, which I sincerely want to thank.

The success of this document is based on the major contribution made by the Commissioners of the Steering Committee: Christine Platt, Dr D.S. Rajah and Prof Michael Kahn.

A special word of thanks to Prof Kahn for his input, his past experience in formulating comprehensive classifications for shopping centres and his general knowledge of the KZN market, added additional value to this guideline report.

A word of thanks to the Research Programme Coordinators from the Planning and Development Commission, Mr Hloniphani Ngcobo and Mrs Priscilla Shanmugam for managing the project.

Other representatives attending the meetings were Sibusiso Dlamini a representative from the Natal branch of the South African Planning Institute, Mr Mark Poval representative from the Provincial Planning Department, Me Dorcas Zondi from the Ingonyama Trust Board and the retailer representatives Amanda Stops of the South African Council of Shopping Centres and Mr Greg Azzopardi from the Mr Price Group.

A special word of thanks to all the different stakeholders who completed the questionnaire and attended the workshop. Your contributions were valuable to fully understand the specific needs from the different Town Planning Departments.

Lastly I would like to thank the staff from Urban Studies who all made a very large contribution in compiling this guideline document. Your commitment and dedication is well appreciated.

This Guideline Document will definitely assist all future users to contribute to a more successful development of shopping centres for all the people of KwaZulu-Natal and to improve the lives of many people.

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THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

EXECUTIVE SUMMARY 1.

Introduction and main objectives

The Provincial Planning and Development Commission (PPDC) identified the need for planning guidelines for shopping centre development. The original research dated back to 1951, 1978 and 1981. There has been growth in the demand and supply of shopping centre development in all types of settlements. New demands and new types of shopping facilities require a good understanding of the latest development trends in retailing.

Urban Studies was commissioned to undertake this study with the following main objections: • To describe, in general terms, the nature of the South African shopping centre environment; • To update and explain the hierarchy of shopping centre typology, using current, local and international examples; • To formulate a new set of guidelines that can be applicable for different types of shopping centre developments in different types of settlements. This will then vary from metropolitan areas and small towns, including rural settlements; • To link the guideline document to specific retail development strategies; • To identify the implications of the guideline document in terms of the socio economic impact centre development will have on job creation, the tax base and the total multiplier effect it will have on a community.

• To highlight areas where the guideline document could be misused; and • To recommend the way forward as far as retail shopping centre development is concerned.

2.

Methodology

This study was mainly based on three research components namely: • A desk survey where existing sources of information where used (see reference list); • To understand the status quo as far as retail development in concerned; • A questionnaire was sent to some of the planning and development stakeholders in KZN. It was expected that these stakeholders would comment and add to a list provided to them focusing on trade area analysis, types of retail facilities, guideline actions and strategies; • To guide the development process in terms of pre-consultation between town planning officials and developers; • This was followed by a workshop attended by 22 people to provide their detailed input insofar as the content of the guideline document is concerned.

All this information culminated in a good understanding of the retail environment and to direct guidelines for future retail developments and redevelopment of existing developments.

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3.

Retail trends - International to KZN examples

A large number of different shopping centre classification models are in existence. Most of these models only include planned shopping centres.

The current document is the South African Shopping Centre Classification Standards, prepared for the South African Council of Shopping Centres. The project focuses on planned shopping centre development and a new guideline document for KZN covering the whole spectrum from metropolitan through to rural areas.

4.

Situation analysis

Retail development in the first place, is influenced by macro economic conditions including aspects such as the gross domestic product (GDP) and interest rates. These two components of the economy has a major impact on property development, building plans passed and completed as well as retail trade sales. Macro economic conditions in South African have changed from very positive in 2006 to negative in 2008 with positive changes in interest rates and inflation during 2009.

5.

Changes in demographic and shopping behaviour

The most important changes in the demographics of South Africa, which will influence retail “spend” and development, are: • Population growth has slowed down to an annual increase of 1.5%, except that the number of foreigners living in South Africa is currently unknown; • Increasing urbanisation will also increase the demand for retail facilities; • Socio-economic changes, where especially the middle market as well as the upper end show major increases, with more disposable income to spend on retail products; • The total “spend” by the different population groups clearly shows the increase in “spend” by the African market; • CBD and Town Centre retail still focuses very strongly on the middle and lower LSM markets; • The development of township shopping centres has shown tremendous growth since 2002; • The growth in shopping centre development in rural areas is also substantial; • Changes in lifestyle, the need for a shopping experience, the importance of the youth market, the opening of new retail format e-commerce and the renewal of shopping centres, all play a very important role to understand this dynamic and changing market.

6.

South Africa retail and shopping centre industry

During the last 4 years South Africa and the world have experienced amongst the highest growth rates in recent decades. Shopping centre space has increased to 18 million m² representing ± 50% of all retail space in the country. This market has grown consistently with 8% during the last 15 years. The highest additional retail space has been added to the South African market in the four consecutive years since 2005.

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THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

7.

Retail demand and supply: KZN

Retail demand and supply in KZN: • The KZN GDP was growing over 5% per annum between 2003 and 2008; • KZN represents 16.2% of the total national GDP; • The contribution to KZN economy is mainly based on manufacturing, finance and real estates and wholesale and retail; • The latter clearly indicates how important retail development is for the province.

Population numbers, growth and projection The total KZN population has increased from 9.4million in 2001 to 10.1million in 2008. KZN is in a strong second position with 20.8% of the total number of people in South Africa (second after Gauteng). It is expected that this population will grow to between 10.6 million and 11million people by 2015.

Socio economic and demographic profile of KZN households There are major resemblances between the KZN households and those of the South African Market. The major differences are a larger proportion of the younger cohorts in KZN, a strong rural character and fewer households in the upper LSM categories (LSM 7-10).

Estimated annual of retail expenditure for KZN There are ±2.25mil households in KZN with a total spend on retail products of R79billion per annum. This represents 15% of the total retail spend which is in line with the GDP contribution of this province.

Retail supply in shopping centre facilities in the KZN is currently at 2.2mil m² and has increased annually by 9% since 2002. This clearly indicates the attractiveness of shopping centre development in the province. The total warranted retail floor space based on monthly expenditure for KZN is 5.2million m². This includes shopping centre space, unplanned retail space in metropolitan areas, small and medium sized towns, rural areas, as well as gaps that may exist in the market.

8.

Participation of planning and development

This information was sent out to stake holders involved in a number of municipal and provincial planning departments. Specific comments were made to improve the guideline document.

A workshop was held during June 2009, and was attended by 22 people. Specific comments were made to fine tune the guidelines. All this was incorporated in the final document.

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9.

Site selection and different levels of analysis

The best approach to analyse different markets for retail development is from the macro to the micro locations.

Area/Level

Area Analysis/Key aspects to consider

Macro

• • • • •

• Identify Potential

Meso

• Primary trade area Economic growth rate of catchment area Target market of the centre Existing centres/competition • Secondary trade area • Tertiary trade area • Demographic and socio-economic profile of the area

Shopping Centre

• Identify best location

• • • • • • • • •

Micro

Regions Metropolitan areas, Cities, Towns and Rural areas Population demographics Competition Growth

Main Objective

Location Pedestrian/traffic flow Accessibility Visibility Shape Size Topography Utilities Surrounding area

Specific Shop • • • • • •

• Identify Gaps

Traffic flow Accessibility Pedestrian volumes Shop front Parking Competition

10. Strategic development guidelines and actions for existing and new shopping centre facilities The following broad action plans and guidelines for shopping centre development and re-development exist.

Existing CBD/ town centre retail facilities • • • • •

Maintain Upgrade Redevelop/renew Demolish New-will become more popular as existing facilities get older

Time of implementation • • • •

Immediately When necessary Continuously Sufficient potential

8

Existing suburban/ township retail facilities • • • • • •

Maintain Upgrade Redevelop/renew Expand Demolish Nodal/mixed use

Time of implementation

• When necessary • Continuously

Infill areas CBD/suburban/ township

Potential and new growth areas

Greenfields

• Develop new facilities • Potential should be available

• Develop new facilities • Potential must be noticeable/sufficient • ‘Follow the Roofs’

• ‘Follow the Roofs’

Time of implementation

Time of implementation

Time of implementation

• Warranted potential • When necessary

• Enough potential • Future potential Growth

• Expected new growth • Enough potential to warrant retail

THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

11. Major retail types, classification of hierarchy of retail facilities The whole spectrum of retail facilities consists of planned and unplanned retail types, each fulfilling a specific role and function.

Planned

Core Classification

• Small free standingconvenience • Neighbourhood • Community • Small regional/large community • Regional • Super Regional

Specialist • • • • • • • •

Big Box Retailers Entertainment/casinos Lifestyle Value Hyper Motor showrooms and related facilities Filling station stores Airport

Unplanned/Incremental • CBD/town centre • Taxi rank retail/ commuter centre • Flea markets • Spaza shops • Fresh produce markets • Informal trade

Rural • Rural retail taxi orientated • Town centres • Informal trade • Spaza shops • Planned shopping centre

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THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

Size of centre (m²) (GLA)

±25 000-±50 000 75-150 stores

Small regional/ Large community centre

Super regional centre

>100 000 More than 250 stores

Large region in city and surrounding areas/Tourists

±135 000 ±51 000 ±18 500

<40 000 <15 000 <7 000

LSM 1-5, (180 000-420 000) LSM 6-9, (80 000-185 000) LSM 10-10+ (33 000-76 000)

LSM 1-5, (90 000-209 000) LSM 6-9, (40 000-90 000) LSM 10-10+ (17 000-38 000)

All LSM 4-10

±623 000 ±217 500

Above average LSM 5-10

±1 200 000 All ±464 000 LSM 4-10 ±165 000

±600 000 ±280 000 ±83 000

All LSM 4-10

All LSM 4-10

All LSM groups

SocioPopulation economic groups

LSM 1-5, (44 000-103 000) ±295 000 LSM 6-9, (20 000-46 000) ±115 500 LSM 10-10+, (8 000-19 000) ±41 000

LSM 1-5, (20 300-47 000) LSM 6-9, (9 000-20 100) LSM 10-10+, (3 700-8 600)

Major arterial LSM 6-9, (106 000-250 000) road usually a LSM 10-10+ Provincial main (44 000-101 000) road, linking to a National road.

Regional centre ±50 000-±100 000 Large region of city/ Major arterial 150-250 stores or whole city/rural road usually a towns Provincial main road linking to a National road.

Major suburban arterial road linking to a provincial highway

Strategically located Major arterial to serve a suburban road community.

±12 000-±25 000 50-100 stores

Specific sub-region of city (can be large self contained community (i.e.

Chatsworth)

No. of households

Suburban street LSM 1-5, (<10 000) LSM 6-9, (<4 500) LSM 10-10+, (<2 000)

Community centre

Serves part of a suburbs

Access Require-ments

Centrally located for Major collector a group of suburbs roads

500 – 5 000 5-25 stores

Trade area

Neighbourhood ±5 000-±12 000 centre 25-50 stores

Small free standing and convenience centre

Core Classifications

Type of Centre

10+

8

5

3

2

1 – 1.5

Ave Radius (km)

Median Travel time (min)

24-30

14-20

10-16

6-14

4-9

<3

SHOPPING CENTRE CLASSIFICATION

large supermarket convenience small national clothing restaurants & takeaways services

• as at regional but more emphasis on entertainment and variety

• large supermarket (even 2)/or hyper • 3 or more large clothing • small clothing stores and boutiques • entertainment restaurants • services • convenience

• large supermarket • 1 or 2 large clothing anchors • Strong national tenant comparison goods component • boutiques • restaurants • entertainment • services

• • • • •

• supermarket • convenience • some small specialised stores

• café/Superette • few convenience stores

Main tenants

THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

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Size of centre (m²)

Vary from 2 000 to 15 000

Vary from 2 000 to 30 000

15 000 – 50 000 (can be smaller or larger)

10 000 – 50 000

15 000 – 35 000

500 -5 000

30 - 260

Depending on size of airport

Big Box Retailers

Entertainment /Casino

Lifestyle Centre

Value Centre

Hyper Centre

Motor showrooms

Filling Stations

Airport Retail

Specialist Classifications

Type of Centre

Size of airport will determine size

Local & through traffic

Large sub segment of a city/metro. Same as regional centres.

Next to regional centre or on main road/ highway

Upscale Catchment areas

Depend on type of store or centre - mostly on regional level

Depend on type of store or centre - mostly on regional level

Trade area

Accessibility for arrivals & departures & visitors

Main arterial routes, highways and feeder roads

Along major arterial routes

Major urban arterial main road.

Major urban arterial main road.

Major urban arterial main road.

Major urban arterial main road.

Major urban arterial main road.

Access Requirements

Depend on the size of the filling station

LSM 10-10+ (21 400 - 50 000) LSM 6-9 (60 000– 100 000)

LSM 6-9 (40 000-60 000) LSM 10-10+ (20 000-30 000)

LSM 6-9 (40 000-60 000) LSM 10-10+ (20 000-30 000)

5 700 – 85 700

LSM 6-9, (±25 000) LSM 10-10+, (±14 000)

No. of households

75 000 – 175 000

±200 000 ±105 000

±200 000 ±105 000

20 000 – 300 000

50 000-100 000

Population

Mainly higher LSM

All LSM 4-10

Higher LSM suburbs

Middle to above average LSM 5-10

Middle to above average LSM 6-10

Mainly LSM 9-10

Average and higher LSM 5-10

Mainly above average LSM 7-10

Socioeconomic groups

6-8

3-6

3-8

5-10

5-10

Ave Radius (km)

10-15

10-15

6 - 20

10-30

10-30

Median Travel time (min)

emphasis on big box retailers specialist retailers home improvement small to large groceries

• • • •

• • • •

mainly food curio’s & souvenirs clothing exchange services

convenience store ATM fast food car wash

• one hyper store (70% of area) • convenience line stores • services

• • • •

upscale supermarket book stores dining entertainment speciality retail (house/home/ garden) • fresh produce stores

• • • • •

• specialist traders/ entertainment and/or theme centre • emphasis on food, restaurants and fast food outlets

• specialist traders

Main tenants

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THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

Size of centre (m²)

Vary from 10 000 to 300 000 Number of stores depend on size of town

1 000 to 15 000 Depending on station

Vary from a few stands to hundreds of stands

10 – 50m²

5 000 – 30 000

CBD/ Town Centre

Taxi Rank Retail / Commuter Centre

Flea Markets/ Informal Trade

Spaza Shops

Rural Retail Development

Trade area

Whole community up to 50km

Provide the surrounding residents – walking distance up to 400-800m

Focusing on passing pedestrian volumes

Same as above

Normally very wide -outlying township areas

Unplanned/incremental Classifications

Type of Centre

Close to main community and taxi facility

High volumes of pedestrian traffic is important

Highly accessible area adjacent to taxi ranks /station

Major roads running through the CBD/ Town Centre – focus on taxi/train/bus transport

Access Requirements

20 000 - 210 000

200 - 400+

Not applicable

Same as above

Normally very high, starting at ±10 000 households

No. of households

80 000 – 560 000

2 000 +

Pedestrian volumes need to be very high

20 000 – 300 000 People per day

30 000+

Population

Mainly LSM 1-5

Mainly LSM 1-6

Mainly LSM 1-6

Mainly LSM 1-6

Dominant LSM 4-6

Socioeconomic groups

Very wide up to 80 km

Up to 500m

Part of larger town/rural trade area

Not fixedUp to 50 km

Not fixedUp to 50 km

Ave Radius (km)

Up to 45 minutes

Up to 5 minutes walking time

Passing by

20 minutes plus

Mainly by taxi

Median Travel time (min)

national tenants supermarkets homeware stores fast food outlets cell phone shops ATM facilities

• depend on the size – need to focus on the needs of the surrounding community

• convenience grocery goods • cigarettes

food clothing and shoes fruit and vegetables electronic equipment and cell phones • music and DVDs

• • • •

• • • • • •

Wide variety of tenants including: • national tenants • supermarkets • homeware stores • furniture stores • cell phone shops • banking facilities

Main tenants

12. Proposed interaction between town planners, retail centre developers and local authority The pre-application consultation should cover various aspects or issues such as: • • • • • • •

demographic and market study; proven need and desirability; traffic impact assessment; parking requirements; provision for taxi rank and public transport facilities; relevant land use zoning and development controls; preliminary site development plan indicating aspects like ingress to and egress from the site, loading zones, air-conditioning, signage, lighting, impact on adjacent properties and • the socio-economic impact of the development on the local community in terms of job creation, taxes and the economic impact of such a development.

13. Use of the guideline document The following 10 aspects are of critical importance: • • • • • • • • • •

To understand the dynamic nature of a particular market; The key aspect of retail facility viability remains a very good visible and accessible site; Sufficient people/households to warrant a specific size centre; To make sure that most of the planned residential development for a new centre is occupied and that households can spend money on retail products; To be aware of cannibalisation of own stores; To overestimate the potential, To offer the right products to the target market; To be aware of the size and strengths of competing facilities; Not to over-build any centre ;and To correctly time the project.

14. Site selection checklist for retail development

SITE SELECTION CHECKLIST FOR RETAIL DEVELOPMENT Population • • • • • • • • • • •

Population size Age profile Household size Income levels Disposable income per capita Occupation classifications Seasonal fluctuations Housing numbers Housing age/type Current shopping patterns LSM Groups

Accessibility • • • • • • • • • • • • • • • •

Pedestrian flow Pedestrian entry routes Public transport Types of transport Ease of use Car ownership levels Road network Conditions and roads Driving speeds Congestion Restrictions Plans to upgrade Parking facilities/requirements Capacity- road Convenience Visibility

Competition • • • • • • • • • • • • • •

Existing retail activity Direct competitors Indirect competitors Anchor stores Trade areas Age of outlets Competitive potential Outlet expansion Refurbishment Vacant sites Interception Repositioning Competitor policy Cannibalisation

* Source: McGoldrich, 1990 (adjusted) THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

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15. Conclusion Retailing is very dynamic, with changes on a regular basis. The above mentioned must be seen as broad guidelines which will answer most questions insofar as retail development is concerned.

Market and economic forces, as well as a good location, will in most cases, result in sustainable retail development and satisfying the needs of the customers.

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THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU NATAL RETAIL AND SHOPPING CENTRE INDUSTRY 1.

BACKGROUND

The old marketplace has been replaced by shopping centres. The purpose of shopping centres is to satisfy the needs of customers through the provision of the required retail products. There are also other needs which become part of this ‘new marketplace’, such as entertainment, providing specific services, and allowing people to socialise.

There are different needs that should be satisfied and therefore different sizes and types of shopping centres develop. Each type of store has its own threshold value, indicating the minimum number of people and disposable income required, to be viable. Some stores require fewer households, while others require a very large population to operate. This results in a definite hierarchy of shopping centres, which operates and functions according to the different environments.

Retail development in South Africa is strongly influenced by what is happening worldwide. Current worldwide economic conditions are also impacting on the retail sector in South Africa. It is therefore of utmost importance to understand global economic trends, and the impact on retail development.

Retail development is also influenced by changes in demographics, income and shopping behaviour. The specific impact of all these aspects will also be highlighted to get a better understanding of the KZN situation.

This report consists of two very clear sections: 1. A broad overview of the theoretical aspects associated with retail and shopping centre development locally and internationally, and 2. To focus on retail demand and supply in KZN. Section 1 of the report focused on the following: • The international and local understanding and classification of retail and shopping centre facilities. This theoretical approach formed a broad based understanding of shopping centre development.

• To address international trends insofar as shopping centre development is concerned.

• To evaluate the broader environment in which retail in South Africa operates.

The latter will focus on the following: - macro-economic conditions, - the political situation, - social changes and development.

- the retail market in South Africa with specific reference to the national supply and demand of shopping centre facilities, and - The way in which changes in shopping behaviour influence the demand for shopping facilities.

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All this culminates in a good understanding of the macro environment, before focusing on KZN in particular.

The main objectives of the second section where the focus is on KZN, are: • to get a clear understanding of the economic base of the province; • to indicate the current demand of all retail space as influenced by household numbers, socio-economic profiles and disposable income; • to give an indication of the current supply of retail space in KZN with specific reference to shopping centre space, and • to focus on the identification of guideline parameters that would form the basis for the final guideline document. In this regard, input was received from a number of stake holders, as well as during a workshop held in Durban.

2.

DEFINITION OF RETAIL AND THEORETICAL CLASSIFICATION MODELS

This section focuses on the following: • a definition of retailing; • a detailed understanding of the theoretical base for the existence of a hierarchy of shopping centres; • to indicate historical and current international and local shopping centre classification methods, and • to give a brief description of shopping centre development trends in the rest of the world, with specific reference to Africa and other developing countries.

2.1 Definition of Retailing The definition of retailing, as it will be used throughout this report, embraces the following: “All activities connected with the selling of goods and services to the end consumer”. Retail transactions, however, do not take place on business premises only. A clear differentiation will be drawn. The most important components of retail will include the following: (Diagram 2.1) • • • • •

type of ownership the type of merchandise sold type of business the location physical structures.

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DIAGRAM 2.1 DIFFERENT COMPONENTS OF RETAIL Independent/Franchise chain Owned by manufacturer Type of ownership

Owned by government Owned by farmer Owned by public company Owned by consumer

Type of merchandise

Variety Motor dealers Furniture & appliances Clothing & accessories

Type of business

Pharmacy & patent medicines Eating and drinking places Food stores

Different classifications

Service stations General dealers Service outlets Entertainment Distinguish: rural through to metropolitan Central business district Shopping centres Location

Individual centres/free standing (hierarchy of centres) Strip/value Mail orders Electronic in-house purchase

Non-store trade

Telesales Internet shopping

Source: Mason, et al., 1988:22 (adjusted for 2009).

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A large portion of the retail facilities in KZN is represented as part of a rural environment and therefore it is important from a geographical point of view to clearly distinguish between metropolitan and rural retail facilities. The following characteristics are typical of rural areas: • population numbers are in many instances small and spread over a very wide geographical area; • population densities are much lower, impacting on the size of the catchment area; • mainly part of the lower LSM*1 groups compared to the middle and upper income groups in the metropolitan areas; • transport facilities comprise taxi versus private transport; • lower car ownership; • higher levels of unemployment; • no major other supporting employment facilities. In some cases trading activities would be a stimulus for higher employment figures and higher household income.

2.2 Theoretical base It is necessary to briefly examine some of the theoretical models that were developed to explain the distribution of retail facilities, and more specific shopping centres and their trade areas. A summary is given of the most important theoretical models that highlight and explain the existence of a hierarchy of shopping facilities.

2.2.1 Central Place Theory (Christaller 1933) It is regarded that the central place theory is the basis for most of the classifications that have been developed in the western world, subsequent to the original study in 1933. There are many points of critique regarding this model, but there are a few important aspects that do apply in the evaluation of any shopping centre hierarchy.

The Central Place Theory is based on two very important fundamental concepts namely: • Threshold population - this is the minimum population which is required to bring about the offering of certain goods for sale, or to sustain any service. In economic terms it means the minimum demand to make such an offering viable. A detailed discussion of this concept will be covered later in this document.

• Range of goods and service - this is the maximum distance which people will travel to purchase goods and derive a service offered at a central place.

All this resulted in a hierarchy of central places, each with its own appropriate size shopping facility.

The basic principle of a hierarchy of shopping opportunities is also applicable to an understanding of the hierarchy of retail centres within the city. The intra-urban hierarchy of shopping centres would range from the isolated street corner grocery store to the neighbourhood, community and super regional shopping centre.

1

*

18

See Section 4.3.1 for a detailed explanation of the different LSM categories.

THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

2.2.2 Gravitation Model (Reilly, 1930s) The gravity model was based to a large extent on Newton’s Law of Gravitation where a force exists between two bodies, and that force depends on the size (mass) of each of the bodies.

Reilly started to apply this model to measure the retail trade areas of cities in the 1930s. The main aspects of his theory were as follows: • population of and distance between two cities (centres) are the only variables used; • cities of equal size would have a trade area boundary midway between them; • if the centres are of unequal size the boundary would be nearer to the smaller city.

This model is very rigid, taking only two variables namely size and distance into account. It does however provide an important base for any hierarchy to illustrate the forces that are active between certain shopping centres. The situation is however much more complex in reality.

2.2.3 Probability Model - Huff (1963) The Huff model incorporates the conceptual framework of Reilly and other gravity models but focuses on the spatial behaviour of consumers. This model is based on two fundamentals: • the size of a shopping centre • travel time to the centre.

The fundamental argument is as follows: • the larger the centre, the more variety is offered and the greater the consumers’ expectation would be of a successful shopping trip; • travel time is related to the utility of the shopping centre. The further the customer lives from the centre, the less likely the trip to the centre would be.

The unique feature of the Huff model is the generation of probability surface. Customers living close to the centre will have a high probability of supporting the centre. As distance increases from the centre, the probability decreases. This model can be used to delineate trade areas by determining equal probability contours to two or more centres. A 50% or 60% contour is used to delineate a trade area.

An important notion of this model is the fact that the customer behaviour in urban areas is flexible and complex, not rigid, and that shopping behaviour is governed by choice.

A shopper could thus support a variety of centres for goods and services offered at a particular centre if not available from another centre.

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2.2.4 A classification of urban commercial structure (Berry, 1967) This classification forms the basis for our understanding of the different types and hierarchy of shopping centres.

Berry developed a broad classification of retail facilities. He identified three main components, namely: (see Diagram 2.1) • centres • ribbons • specialised areas.

Shopping centres demonstrate a hierarchical arrangement with a 2low-order isolated convenience store (small grocery store) and a neighbourhood centre, both offering low order and a few 3higher-order facilities (variety of clothing and household stores). At the regional level the most specialised stores, as well as department stores are represented.

Ribbon developments incorporate those retail and service functions mainly orientated to vehicular traffic, including filling stations, fast-food restaurants, motorcar dealers, tyre dealers, nurseries and other similar operations. These functions serve demand created by motorcar customers. Arterial streets with the highest vehicular traffic volume are the most densely developed. The intersections of two or more major arterials have higher development intensity. Some commercial ribbon streets stretch for kilometres.

Large metropolitan areas also contain specialised function areas. These are characterised by motorcar showrooms and professional office clusters (doctors, dentists and lawyers). Specialised function areas require good accessibility, because they draw customers from the entire metropolitan area.

This classification remains the most suitable today to describe the retail landscape, and is especially appropriate to explain the hierarchy of shopping centres.

2 3

Low order facility refers to a product/store visited frequently for daily use/consumption A higher order facility refers to a product/store that needs a large number of people to warrant the existence of such a facility.

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DIAGRAM 2.2 CENTRES

RIBBONS

SPECIALISED AREAS

Planned or Unplanned

Traditional Shopping Street

Automobile Rows

Urban Arterial

Printing Districts

New Suburban Ribbon

Entertainment Districts

Highway Oriented Planned or Unplanned Plaza

Exotic Markets

Convenient Neighbourhood

Community Regional Metropolitan CBD

Furniture Districts

Medical Centres Planned Unplanned Source: Berry, 1988 Note: Berry has not indicated any specific sizes for the different types of centres.

2.3 International Classification of Retail Facilities The main reason for including a variety of international classification models is as follows: • to indicate their approaches, trends and similarities; and • to learn from these classifications and to eventually indicate the difference as far as South Africa is concerned.

2.3.1 Retail Classification (Dawson, 1983) Dawson developed his hierarchy (Table 2.1) which was an expansion of the traditional classification of the neighbourhood, community and regional centre in 1983.

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TABLE 2.1 SHOPPING CENTRE CLASSIFICATION (DAWSON 1983) The Structure of the Shopping Hierarchy 1.

General Purpose of Free Standing Shopping Centres

(or the 4 Suburban levels of the basic hierarchy) with subtypes of: • Local Convenience • Neighbourhood • Community • Regional • Super-Regional which may be added to the top of these sub-types 2.

General Purpose of Renewal Centres (with three subtypes that occur within any of those in category 1, as well as the CBD): • Infill centre • Extension centre • Core replacement centre Alongside the general purpose shopping centres are the remaining categories, 3 - 6.

3.

Multi-use Shopping Centres1

Here social, office and other facilities are integrated with the shopping provision of the basic hierarchy.

4.

Speciality, Theme or Festive Shopping Centres (with sub-types of the following):

• High order comparison purpose-built speciality centres, such as fashion or tourist centres in high income areas.

• Speciality or theme centres developed in recycled buildings in central and specific locations, such as centres in former markets or railway halls.

• Festive shopping centres with specific leisure components developed in specialised locations such as redeveloped waterfronts.

5.

Entertainment Shopping Centres

A shopping mall combined with substantial entertainment and amusement facilities, and includes food courts and cinemas.

6.

Focused Shopping Centres (with two sub-types):

• Superstore centres, in which a single large tenant dominates retail provision, such as in Hypermarket centres or discount centres.

• Specialised sales mall, in which all the outlets are orientated to the same product, such as auto malls, DIY malls, etc.

• Bargain centre, which reflect the present trend of factory outlets to cluster.

7.

Non-Residential Serving Centres

They provide retail floorspace that does not serve immediate resident populations. They comprise two subtypes: • Strip centres, which are on major transport routes and are interceptive to a large population, and • Ancillary Shopping Centres which provide shopping within structures (or landuse zones) developed primarily for another function such as hotels, offices, industrial areas, or transport complexes.

It can thus be seen that there are innovative new shopping centres, which occur in addition to the traditional hierarchy.

Multi-use Shopping Centres4

4

This concept is lately (post - 2000) referred to as New Urbanism

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Major function

Leading tenant

Control of tenant mix

Location

Radius of service area

Minimum support population

Site area (Shopping centre)

Range of leasable area (gross)

Present threshold sizes

Number of stores

1

2

2.a

3

4

5

6

7

7a

8

5 – 15

N/A

300 – 1 200m²

0,5 - 1,0 ha

1 000 - 2 000 people

Within 5 mins. Driving time or reasonable walking distance

Collector roads within residential area

Slight

Café/Grocer

Convenience goods

Local Convenience Cluster

15 – 40

8 000 - 10 000m²

7 000 - 12 000m²

1,5 - 3,0 ha

20 000 - 60 000 people

5-10 mins. driving time

Intersection of collector and arterial roads

Some

Supermarket

Convenience goods and personal services

Neighbourhood Centre

30 - 60

15 000 20 000m²

15 000 30 000m²

4,0 - 12,0 ha

60 000 - 150 000 people

5-15 mins. driving time

Intersection of major arterials

Considerable

2-3 small variety and/or departmental stores

Same, plus comparison clothing, appliances, etc.

Community Centre

BASIC HIERARCHY

40 - 100

75 000 100 000m²

50 000 100 000m²

16,0 – 40,0 ha

100 000 or more people

20 mins. driving time

Intersection of freeways and/or major arterial

Considerable

Three or more large department stores

Same, plus speciality.

Furniture, quality clothes, etc.

Regional Centre

15 - 20

2 500m²

100 - 5 000m²

N/A

N/A

N/A

Within existing developments

Slight

None

None

Infill Centre

Varied

15 000m²

5 000 20 000m²

N/A

N/A

N/A

Close to core of shopping

Some

Varied

Comparison shopping

Extension Centre

Varied

40 000m²

10 000 75 000m²

N/A

N/A

N/A

Centre of shopping

Considerable

Department stores

Comparison shopping

Core Replacement

RENEWAL CENTRES

Varied

20 000m² (retail)

20 000 50 000m²

5,0 – 40,0 ha

50 000 - 200 000 people

N/A

New community

Considerable

Department stores

Comparison shopping, services, administrative

Multi-use

5 – 20

3 000m²

2 000 10 000m²

0,5 - 3,0 ha

N/A

N/A

Hotel, office and industry

None

None

Convenience and service

Ancillary

Varied

Varied

200 3 000m²

N/A

N/A

Interceptory locations

None

None

None

Basic convenience and services, or sales outlets

Strip

NON-RESIDENTIAL SERVING

Varied (mostly small units)

6 000m²

5 000 10 000m²

1,0 - 3,0 ha

Regional

N/A

High income sector

Considerable

Often none

High order impulse goods

Speciality/ Theme

Dominant tenant(s)

10 000m²

300 30 000m²

N/A

N/A

20-30 mins. driving time

Junction on major road network

Considerable

Mass merchandiser

Hypermarket plus 10-20 shops

15 000 18 000m²

18 000 30 000m²

10,0 – 20,0 ha

100 000 or more people

20 mins. driving time

Intersection of freeways and/or major arterial

Considerable

Hypermarket

Convenience goods and routinely bought durables

Hypermarket Centre

NEW TYPES

Discounted goods (limited range)

Focused

TABLE 2.2 DETAILS OF THE RETAIL CLASSIFICATION (DAWSON, 1983)

Table 2.2 indicates the detail of the classification of Dawson with some threshold values to radius, population and size of centre.

Varied outlets

N/A

N/A

N/A

Regional

20 mins. driving time

Major focus

Considerable

Range of attractions

High order impulse goods, leisure and entertainment

Entertainment

2.3.2 International Council of Shopping Centre Classification The classification of retail space has always been complex. This is because there are so many different identities/categories to be linked to retail space. In the United States of America there have been problems in classifying retail space into either standard categories or into some form of specialised type of centres. Table 2.3 is a list of the various categories:

TABLE 2.3 CONFUSING TERMINOLOGY REGARDING SHOPPING CENTRE DESCRIPTION AND TYPE OF CENTRES General Descriptions/Standard Centres, commons, crossings, hybrids, lifestyle centres, malls, markets, marts, mega malls, mixed-use, outlets, parkways, places, plazas, promenades, shops, strips, squares, etc.

Specialised Centres Convenience, entertainment, ethnicity, festival, lifestyle, luxury, tourist, urban and value.

In the United States of America, shopping centre development can be categorised into four distinct phases where different styles and approaches were followed: • Phase 1 Shopping centres were classified into several basic categories, this includes community centres, neighbourhood centres and strip centres. Early shopping centres also tended to be fairly uniform, designed to satisfy more of the mass merchandise demands, while offering the convenience of one-stopshopping.

• Phase 2 The age of regional malls was born. The shift from urban to suburban shopping centres became the developing trend. Shopping centres were then mostly enclosed with a common corridor connecting tenants.

• Phase 3 Period of product differentiation, the two core categories were further subdivided. Super regional malls became more common, and even bigger mega malls started to develop. Developers started to recognise their niches and began to develop retail in the form of entertainment, festival, lifestyle, mixed-use, open-air, premium and tourist centres.

• Phase 4 The current wave is to build the so-called “lifestyle” centres, where it is all about the openness, the street-like atmosphere, and the creation of a unique shopping experience.

The main emphasis in each of the four phases discussed above was to offer something unique and to remain attractive in order to continuously draw support from the marketplace.

Table 2.4 below clearly indicates the latest classification by the ICSC. Apart from the traditional malls, the classification also distinguishes between open-air centres, including lifestyle centres, power centres, theme/festival centres and outlet centres.

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TABLE 2.4 SUMMARY OF ICSC SHOPPING CENTRE CLASSIFICATIONS Type

Subtype

Concept

Size(m²)

Malls Regional Centre

General merchandise, fashion

40 000 - 80 000

Super Regional Centre

Same as regional; more variety and assortment

Over 80 000

Neighbourhood Centre

Convenience

3 000 - 15 000

Community Centre

General merchandise; convenience

10 000 - 35 000

Lifestyle Centre

Upscale; national, speciality; entertainment, outdoor

15 000 - 50 000

Power Centre

Category-dominant anchors, few small tenants

25 000 - 60 000

Theme/Festival Centre

Leisure; tourist-oriented; retail and service

8 000 - 25 000

Outlet Centre

Manufacturer’s outlet stores

5 000 - 40 000

Open-air centres

De Lisle, J. R, 2005, US Shopping Centre Classification, volume 12, no 2. ICSC, Research Review, 2005.

The outstanding aspects regarding this classification are the following: • not much additional information about the threshold values, driving times and other requirements is provided; and • the open-air centres consist of a broad variety/mix of different retail types; The current ICSC classification is used by institutional investors, real estate investment trusts, research institutions, valuers, lenders and city planners. Potential users include city marketers, development agencies and retail developers.

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2.3.3 Australian Property Council The Australian Property Council is not affiliated to the ICSC, and uses a different classification system.

Table 2.5 illustrates their classification.

TABLE 2.5 SHOPPING CENTRE CLASSIFICATION: AUSTRALIAN PROPERTY COUNCIL* Definition

Size (m²)

Key Features

A. CORE CLASSIFICATION 1. City Centre2 • Centre located in CBD-owned by one owner

>1 000

• Speciality stores • Frontage onto mall of CBD road • Generally do not include supermarkets

2. Super Regional Centre • At least two full line department stores • One discount department store • Two supermarkets • 250 Speciality stores

>85 000

• • • •

One-stop shopping Full range of retail needs Entertainment and leisure attractions Shopper facilities (parking, food court and restrooms)

3. Major Regional Centre • One full line department store • One discount department store • One supermarket • ±150 stores

50 000 - 85 000 • • • •

One-stop shopping Full range of retail needs Entertainment and leisure attractions Shopper facilities (parking, food court and rest-rooms)

4. Regional Centre • One full line department store • One discount department store • One supermarket • ±100 stores

30 000 - 50 000 • Broad range of retail needs • Range of shopper facilities and amenities

5. Sub regional Centre • Medium sized • One full line discount store • One supermarket • ±40-100 stores

10 000 - 30 000 • Range of sub regional retail needs • Dominated by discount department store or supermarket

6. Neighbourhood Centre • Local centre • One supermarket • Up to ±35 stores

<10 000

• • • •

Located in residential areas Services immediate surrounding area Extended trading hours Caters for day-to-day residents

B. SPECIALIST CLASSIFICATIONS 1. Showroom/Warehouse Centre • Medium to large size • Bulk goods retailers • Large display areas • Small number of speciality stores 2. Theme Centre • Speciality centre • Located in resort areas • Caters mainly for tourists

<5 000

No specific size

• Adjacent to regional centre • Purpose-designed built and operated

• Resort/tourist style • Speciality stores and food

City Centre25

5

Note: These are shopping centres larger than 1 000m2 in CBD’s

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Definition

Size (m²)

3. Market • At least 50 stalls or outlets • Operates permanently or irregularly • Dominated by food retailing

Key Features

<5 000

Source: Australia Property Council 2004

2.3.4 Pan-European Shopping Centre Standard The last set of standards depicted an effort to classify the diverse nature of all European Countries into a meaningful classification.

The framework classifies shopping centres into 11 broad-based international types of centres, which can be grouped into two broader categories: traditional and specialised, as shown in the Table 2.6. A traditional centre is an all-purpose scheme that could be either enclosed or open-air and is classified by size. Specialised centres include specific purpose-built retail schemes that are typically open-air and could further be classified by size.

TABLE 2.6 INTERNATIONAL STANDARD FOR CLASSIFICATION OF EUROPEAN SHOPPING CENTRE TYPES Format

Traditional

Specialised

Scheme

Gross Leasable Area (GLA)

Very Large

80 000m² and above

Large

40 000-79 999m²

Medium

20 000-39 999m²

Small

Comparison based Convenience based

5 000-19 999m² 5 000-19 999m²

Retail Park

Large Medium Small

20 000-m² and above 10 000-19 999m² 5 000-9 999m²

Factory Outlet Centre Theme-Oriented Centre

5 000m² and above

Leisure based Non-Leisure based 6

5 000m² and above 5 000m² and above

Leisure based6 Source: Towards a Pan-European Shopping Centre Standard, ICSC Research 2006

A comparison-based centre includes retailers typically selling clothing fashion and shoes, homeware, electronics, general merchandise, toys, luxury goods, gifts and other discretionary goods - usually offers higher order products/shops.

Convenience-based centres include retailers that sell essential goods (usually anchored by grocery stores) – usually lower order products/shops.

A Retail Park, also known as Power Centre, is a consistently designed, planned and managed scheme that comprises mainly medium- and large-scale specialist retailers (e.g., Mr Price Home).

6

This is not similar to low cost discount centre.

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A Factory Outlet is where manufacturers and retailers sell merchandise at discounted prices (that may be surplus stock, prior-season stock or slow selling merchandise).

A Theme-oriented centre is either leisure based or non-leisure based. It consists of a narrow, but deep selection of merchandise within a specific retail category.

It is foreseen that this classification will evolve over time and with the industry. This is of critical importance because no classification is ever fully complete.

2.4 South African Classification of Retail Facilities 2.4.1 Oosthuizen (1981) A number of classification models were used/ designed over the years to address the situation in South Africa. There has been a consistent need to update these classifications as the industry continuously changes.

Prof. Dries Oosthuizen previously from the Institute for Urban Studies at the previously called Rand Afrikaans University (now University of Johannesburg) developed criteria for the classification of a hierarchy of shopping centres. Table 2.7 indicates this classification.

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29

CBD - Minor Regional

C

8 000 - 30 000m² Size threshold is dynamic and changes over time

Local convenience

Isolated shops

Hypermarkets

General remarks

5.

6.

7.

Large local Small local

Neighbourhood Centre

500m²

1 000 - 5 000m² 500 - 1 000m²

5 000 - 10 000m²

10 000 - 25 000m²

25 000 - 75 000m²

>75 000m²

25 000 - 75 000m²

4.

A. B.

Same as 2A

2 chain supermarkets = 2 department stores 1 chain supermarket + 1 local supermarket = 1 junior dept. store or variety store

• 1 Dominant tenant

• Local supermarket, or • more than one café-grocer

• 1 chain supermarket, or • more than one local supermarket

• 1 chain supermarket and 1 junior dept. store or variety store, or • 2 chain supermarkets

• One full-line department store, or • Junior dept. stores or a junior dept. store and a variety store • Chain supermarkets

• Two or more full-line department stores, or • one full-line department store, + junior dept. store + variety store or • Two chain supermarkets + 1 full-line department store

Same as 3

75 000 - 150 000m² Same as 2B

>150 000m²

Community Centre

Minor Regional Centre

B

Main tenant (minimum requirements)

MAJOR CRITERIA

Depends on metro- 3 or more full-line department stores or politan region but composition of major magnets equal expected to be thereto 200 000m²

3.

Major Regional Centre

A

CBD - Community

CBD - Major Regional

B

D

CBD - Primate

A

Area (m²)

Regional Centre

City Centre

Central business district

Detailed

2

1

Major

HIERARCHICAL LEVEL

Exceptions always occur, but in general composition is a sound criterion

Mainly groceries

Convenience and service shops 80%+ of GLA

Convenience and service shops 70%+ of GLA

Convenience and Service shops 60%+ of GLA

Convenience and service shops 40%+ of GLA

Durable shops 60%+ of GLA

Durable shops 67%+ of GLA

Durable stores 40%+ of GLA

Durable shops 60%+ of GLA

Durable shops 67%+ of GLA

Depends on metropolitan region-durable predo-minance

Composition (Excl. support services)

Turnover changes constantly because of inflation and growth in purchase power, etc.

<10 min driving time

Portion of metropolitan area 15-20 min. driving time

Substantial portion of metropolitan area 20-25 min. driving time

Serves a smaller town

Serves a town = 50 000

Portion of metropolitan area more than own municipal area

Total metropolitan area and surrounding area

Trade Area

No. of Shops

Represents a greater degree of specialisation

20-30 5-20

75

150

100

250

500

1 000

LESSER CRITERIA

BROAD CRITERIA FOR THE CLASSIFICATION OF A HIERARCHY OF SHOPPING CONCENTRATIONS (OOSTHUIZEN)

TABLE 2.7

2.4.2 Kahn (1988) Michael Kahn, Emeritus Professor of the University of Natal developed a classification of retail centres specifically for the South African situation. This classification was based on the model of Dawson as discussed above. Kahn indicated that most international models were inadequate to address the whole retail structure, and especially within South African circumstances. The additional aspects included in this model, were the following: • the difference in disposal income amongst different socio-economic groups. The level of spending is determined by the level of income and the socio-economic profile of the shoppers living in the primary catchment area of the particular centre; • the type of transport facilities used by the shoppers. The emphasis is on car ownership which is increasing in most of the middle and upper income categories. Taxi transport is also very important and has a direct influence on the development of retail facilities; and • different threshold values for different product categories which have a direct impact on the whole hierarchy of shopping centres.

The Kahn Classification (see Diagram 2.3) clearly distinguishes between high, middle, low and very low income households. This plays a very important role in the positioning of a specific shopping centre for the right market.

This classification is most appropriate for South African conditions. It will be updated and adjusted in the Guideline Document of this report and will form the basis for retail classification in South Africa.

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31

Convenience Centres

Neighbourhood Centres

Community Centres

Regional Centres

HIGH INCOME

LOW INCOME

Discount

VERY LOW INCOME

Central Business District

Source: Kahn (1988)

Focussed Centre

Speciality

Corner Cluster MIDDLE INCOME

Speciality

Hierarchical Link By-Pass Link

DIAGRAM2.3 TRUNCATED HIERARCHY

Service Station

Ancilliary Centre (Hotels, Offices)

Ancilliary Centre (Industry, Offices)

Arterial Strip (Convenience, Sales)

NON-RESIDENTIAL SERVING

Interceptory Strip

Focussed Centre

All the above-mentioned classifications show specific attempts to group the different retail types into meaningful and broad categories. The guidelines developed for KZN will rely on some of these broader trends, but will specifically focus on the local circumstances and examples.

3.

INTERNATIONAL SHOPPING CENTRE EXAMPLES AND TRENDS

Graph 3.1 gives a clear indication of the focus of retail development worldwide. There is a clear distinction between traditional retail (mainly focusing on market areas within cities or central places), street retailing and retail along specific major roads and strips. This is typical of what was referred to earlier in Section 2.2.4 (Berry, 1967) as the unplanned retail development.

Traditional retail versus organised and planned retailing differs worldwide. According to Graph 3.1, there is a clear indication of the emphasis on organised retail in westernised countries like the US, UK and Europe, compared to traditional retailing in areas like India, China, Indonesia and Africa.

It is also important to note that the South African situation is at this stage almost 50/50 between traditional and organised/planned retailing. This clearly indicates that the South African retail market is very strongly developed, although a large proportion of traditional retail still exists. This trend is changing with a strong increase in planned/organised retail facilities.

GRAPH 3.1

As far as the different retail developments are concerned, the major trends are highlighted below: • The United States of America has been the leader as far as shopping centre development is concerned; • the main focus for many years has been on enclosed malls of which >60 000 centres were completed until 2008; • recently (last 3-5 years), the emphasis has been on so-called lifestyle centres. These lifestyle centres are located in the more affluent parts of the cities. The focus is on specific types of tenants, and the main difference from the enclosed malls is the ambiance, openness, street atmosphere, layout and design.

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• Europe - there is a focus on the construction of traditional malls, especially in the eastern European countries. The focus is mainly on the main capital cities, and will most probably expand to the smaller cities in future. This is almost a catch-up situation where shopping centre development as such has been far behind the rest of the developed world.

• United Kingdom - The focus on large regional malls has reached a saturation level. There is a renewed interest in the redevelopment of town centres. The UK town centres offer a unique atmosphere and are very similar to what the USA is trying to achieve through its new lifestyle centre focus.

• China, India and Asia - currently, substantial growth in this sector of the market is being experienced, mainly because of the under supply in the past. (See Graph 3.1). The focus is on two aspects, traditional malls and shopping centres on multiple levels (up to 9 storeys high).

• Dubai - is one of its own kind. The retail facilities try to cater for a worldwide market, mainly driven by Emirates Airline as the carrier bringing shoppers in daily, from at least 100 cities worldwide.

• Africa - according to Graph 3.1, the retail facilities in the rest of Africa is still very traditional with at least ±90% of the retail in this particular category. In most of the African capital cities like Nairobi, Lusaka, Luanda, Lagos and Accra, shopping centres developed are still according to the old model of enclosed malls like in the United States of America/South Africa.

A very large part of the shopping centre development in the rest of Africa is driven by South African retailers expanding into the rest of Africa. This drive was initiated by Shoprite Holdings, and over the past 12 years they have opened 193 corporate stores in 16 countries outside of South Africa. This includes countries like Angola, Botswana, Ghana, India, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. 10% of planned shopping facilities in the rest of Africa are closely associated with these types of tenants and other retailers from South Africa. The rest are traditional facilities focusing on local markets/strips and ribbon facilities.

There are currently major plans in the rest of Africa to focus on the construction of the new retail shopping centres. These centres will mainly be built in the more affluent suburbs first, and will then follow filling up the rest of the urban environment with a hierarchy of shopping centres. It is however expected that the traditional CBD areas will remain strong in terms of retail support for many years to come. Most important requirements are: • developers to develop in partnership with local people; • the establishing of a strong supply chain; and • obtaining the necessary tenants to establish strong viable centres in these areas.

It is also expected that the middle income groups in these areas will increase in size, making shopping centre development more viable in future.

As far as South Africa is concerned, the focus will be on planned/organised mall development, as well as the redevelopment of town centres as is currently happening in the UK. A few lifestyle centres have been developed in South Africa. The success of these centres still needs to be confirmed, because some are successful and others not.

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4.

SOUTH AFRICAN LANDSCAPE INFLUENCING RETAIL DEVELOPMENT

Situational analysis is based on the impact of economic, social and political conditions on the development of property, and specifically on retail.

4.1 Macro South African Economic Conditions The global economic crisis has already impacted the retail environment in South Africa, and it is clear when looking at the following economic indicators. Shopping centre development is a long term investment. Any development over a 20 year period will go through very specific economic cycles. It is however very important to understand the impact of the current situation on shopping centre development. In the evaluation of a shopping centre application, these factors will play a lesser or more important role, especially insofar as the timing of a particular product is concerned.

The following economic indicators are a barometer of the South African economy, and are very important for any kind of development, especially retail development. As mentioned above, retail development is a long term investment and therefore will experience numerous economic cycles. These economic indicators clearly show the trend that the South African economy has followed the past three years (refer to Diagram 4.1).

These indicators change on a monthly basis, but the broader trend is more important to guide retail performance and shopping centre development.

4.1.1 Gross Domestic Product The Gross Domestic Product (GDP) is one of the key indicators of economic growth. The South African economy is in a recession at the moment, with negative growth of 4.8% recorded during Q1 of 2009.

These figures have already improved to only 3% negative growth for Q2 of 2009. This is the third consecutive quarter with negative growth. The impact is more on the local economy, which is slowing down with increasing unemployment as a result of layoffs by mining companies, manufacturers and closure of retail stores. The current economic mood (September 2009) is already more positive compared to a year earlier.

GRAPH 4.1

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THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

4.1.2 Interest rates Early in 2005, the South African economy experienced historically low interest rates, and this boosted the retail property market in the sense of retail space. As the economy grew at a fast pace in 2005-2007, the inflation rate started growing and needed to be halted. This was done by raising the interest rates in order to stop inflation. Higher interest rates helped investors, but not up-and-coming developers. With the economic crisis in 2008, the interest rates needed to be lowered, and this will in turn help the retail property market to get back on its feet. The impact of interest rates is the most direct on property development. The prime interest rate was as high as 15.5% during Q3 in 2008, and has subsequently come down to 10.5%. Further decreases are expected which will stimulate future growth.

GRAPH 4.2

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35

4.1.3 Inflation Inflation hampered the South African retail market to a large extend in 2008. The rate was at ±13% in 3Q of 2008, therefore retail sales dropped into a recession. Together with the lowering of the fuel price and the economic recovery plan at the end of 2008, the inflation rate started its downturn towards the 3%-6% inflation target. The projected inflation rate for SA will be ± 6% by the end of 2009.

GRAPH 4.3

4.1.4 Rand/Dollar exchange rate The rand/dollar exchange rate was ±R10.00 to the dollar in 1Q of 2009. The rand lost ±30% of its value in 2008. This has a double effect on retail in South Africa, exporters receive more for their goods and importers need to pay more for their goods. The weakened rand will also result in fuel inflation, because of the imported goods being more expensive. The dollar has weakened against most other currencies and is currently (September 2009) around R7.50 to the dollar.

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4.1.5 Building plans passed and completed

GRAPH 4.4

There is a definite downturn on building plans passed, which shows a more negative attitude from developers. Buildings completed also shows that the process has been stabilised with an expected decline over the next year.

The above Graph shows that the overall building industry is slightly down. Yet, with infrastructure expansion (up to R880bn over 3 years) and the World Cup Soccer preparations, there is hope for the future growth of this industry.

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4.1.6 Various confidence indexes There are various indices released per month/per quarter indicating the current status of the economy.

The most important is the SACCI confidence index indicating the monthly ‘mood’ in the country. This index reached an all time low during 2009. It is slowly recovering, an indication that a turning point has been reached.

GRAPH 4.5

The indices below are short-term benchmarks of the economy and retail prospect performances, and currently reflect a negative trend. Most of these are at an all time low.

• South African Chamber of Commerce & Industry (SACCI) • RMB/BER Business Confidence Index • Building Confidence Index

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4.1.7 Retail trade sales Stats SA provides actual retail sales figures on a monthly basis. The limitation in applying this data is that it reflects the retail sales on a national scale and not on the micro level, i.e. city basis. There is also a time lag of up to 3 months before this data is made available for utilisation. The retail sales reached a low of -6.9% year-on-year in June 2009. This figure recovered slightly to -3.9% in July 2009 (latest information available). The decline in retail sales is currently very visible in increased shopping centre vacancies and declining 7trading densities. See Graphs 4.6 and 4.7.

GRAPH 4.6

GRAPH 4.7

7

Trading densities refer to the monthly/annual turnover (in Rand) of a particular store or centre achieved per square meter GLA. This is a standard measurement used by the industry to draw comparisons between same type centres countrywide. This is also the most important performance ratio used to compare certain stores.

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4.1.8 Global influence Global issues impact on the local economy and, by implication, on local sales. With the global economic crisis still continuing, South Africaâ&#x20AC;&#x2122;s export market is under extreme pressure. It is also important to note that South Africa experienced less direct impact, especially on the banking system, compared to other developed countries.

4.1.9 Property Economic Indicators: (2006-2009) Diagram 4.1 gives an indication of the changes in economic indicators since 2006. The colour of the arrows indicates (green = positive, orange = sideways and red = negative movement) that 2006 was a very positive year for property development.

During 2008, most indicators turned negative. The latest information for 2009 indicates that interest rates and inflation are coming down, which will have a positive influence on retail sales probably within the next 8 to 12 months.

It is expected that the recovery in the South African market will only happen in the second half of 2010.

The decrease in interest rates is the most important driver of recovery. Uncertainty regarding world economic conditions prevails for the time being. Most retail development will fluctuate with these economic indicators.

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DIAGRAM 4.1 ECONOMIC INDICATORS INFLUENCING PROPERTY DEVELOPMENT (2009-09-23) Attributes

Trend 2006

Trend 2007

Trend 2008

Latest 2009(Q2)

Comments

GDP growth

The overall growth in 2008 was 3.1%. -6.4% in 2009(Q1) and -3% in 2009(Q2) -annualised Q/Q figures.

This is the 3rd quarter with negative growth. Forecast for 2009, -2% (for the year).

Inflation CPI

The CPI was 6.9% in June 09 and 6.7% in July 09. Inflation expectation for end of 2009 is 5.6%. The PPI for July 09 deflated by 3.8%.

Rand/Dollar

Currently around ±R7.50 to the dollar.

A strong rand could hurt exports, but would make imports cheaper and benefit domestic inflation.

Building plans passed

The figures shown below, are the % change between Jan-June 08 and Jan-June 09: Residential (-45.3%), Non-residential (-10.2%), Addition and Alteration (-10.5%). In total, plans passed are down by 28%.

Building plans completed

The figures shown below are the % change between Jan-June 08 and Jan-June 09: Residential (-20.8%), Nonresidential (13.9%), Addition & Alteration (16.9%). In total, plans completed are down by 5.2%.

Domestic Cement Sales

Down 11.5% y/y in August 09 (monthly average sales per day)

Car sales

Figures for y/y August 09/08: New car: -26.2% Light Commercial: -21.9% Medium and heavy trucks: -46.2%.

Car Exports: - 66.7%

House prices

July 09, deflation of 9.7% y/y change (Real Values) and deflation of 10.1% for Jan-July 2009.

Formal employees

Unemployment in 2009(Q2) was 23.6% up from 23.5% in the previous quarter. Formal employees are down 2.1%, for the 3 months from December to March 09, from 8.5m to 8.3m employees.

Retail sales (Real Value)

Latest: July 09 y/y - 3.9% June 09 y/y 6.9% & May 09 y/y -4.4%. Consumer confidence is still very low, and consumers are looking to save what they can.

SACCI Business Confidence Index

Currently (August 09) 83 points, this shows a 0.2 points decrease from July 2009.

RMB/BER Business Confidence Index

June 09 = 26 (this confidence index varies between 0 and 100, therefore 50 is neutral) 26, is the lowest RMB-BCI since Sept 1999.

Interest Rates

Repo 7% and Prime 10.5% The effect of 5% interest rate cut since December 08 has not completely turned into positive confidence, expectations and consumption.

Manufacturing

-17.2% y/y May 09 and -17.1% y/y June 09, this shows the tough circumstances of the manufacturing sector currently.

Purchasing Manager Index: Decreased from 37.9% to 37.3% from June to July.

FNB Building Confidence Index

The index is at 29 points 2009(Q2), 1 point increase since 1Q09. This is still very low when compared to 40 points in 4Q08.

Oil prices

Currently, ±76$/barrel. Higher prices could hamper inflation prospects, especially if the rand weakens. Oil price forecast is ±85$/barrel for later in 2009. In the light of economic recovery later in 2009, demand prospects will force the oil price to above 70$/barrel.

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KEY TO ECONOMIC INDICATORS Green:

Positive for property and retail development

Orange: Sideways movement Red:

Negative for property and retail development

The most important aspects that need to be considered when looking at retail development are the interest rates, inflation and the most important is the long term GDP growth. These indicators will play a major part in when, how big and where to develop either new retail facilities or renewal centres.

4.2 Political Conditions The political conditions in South Africa will always play an important role, and will be evaluated by world players on a regular basis. The stability in government is a pre-requisite for economic growth.

4.3 Social Conditions The most important social change in South Africa impacting on retail development is the growth of the middle-income market. This has a direct impact on the availability of disposable income and the demand for retail facilities. This will be discussed in detail later in the report (See Section 5.3).

The economic, political and social environment will always have a direct or indirect impact on retail development. Town planners will also have to be aware of these aspects and how they will impact on future retail performance and retail development.

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5.

CHANGES IN DEMOGRAPHICS AND SHOPPING BEHAVIOUR

The changes in demographics and shopping behaviour will have a major impact on the demand, as well as the supply of retail facilities. It is therefore of utmost importance to get a broad overview of specific trends that might impact on shopping centres and retail in future. It is important at any point in time to get a clear understanding of specific trends that may influence shopping centre development. These changes will continue to take place as demographics change and new ideas are formulated to continuously increase retail sales.

Shopping patterns and behaviour are continuously changing. This requires adaptation on the part of the metropolitan and rural municipalities to keep abreast of these changes and to respond in an appropriate manner when evaluating new retail development initiatives. The rural market forms a big part of the retail market in KZN, and the people from these areas are becoming bigger spenders. The rural market buying power is a growth opportunity for the KZN retail market and needs to well understood.

5.1 Population Growth Population growth is a key driver of retail growth. The estimated annual population growth rate for South Africa during 2001-2008 was 1.6%. South Africaâ&#x20AC;&#x2122;s population growth in future will largely depend on the increase in HIV/AIDS cases, and the general consensus is that growth is expected to slow down as a result of that.

The current population estimate is 49.5 million, growing at an estimated 0.82%, which is much lower than the growth rate of 1.45%, 7 years ago. The World Bank predicts that in 2015 -2020 the total South African population will be 44.3 million, indicating a negative growth as a result of AIDS. Depending on the target market and style of a particular shopping centre, the effect of AIDS could possibly have a more significant impact on one type of centre, rather than on the retail industry as a whole.

5.2 Effect of Urbanisation The provinces of Gauteng and the Western Cape are the only two provinces with a nett increase in migration figures compared to the decrease (or outflow) experienced by the seven other provinces. South Africa is almost 60% urbanised, and a large inflow to the urban areas is experienced. This migration is mainly by individuals forming part of the LSM Segments 1 to 5 and is putting pressure on the supply of housing facilities, job creation and infrastructure.

The contribution towards and the demand for retail facilities by the rapidly growing urban population (mainly LSM 1-5) will be limited to basic commodities like food, clothing and furniture. This will, in turn, stimulate the demand for more township centres, CBD retail and small spaza shops. All this will create opportunities for retail development, but the target markets need to be clearly identified and specified.

The estimated number of foreigners in South Africa ranges between 2.5-5 million people. Most of these residents live in Gauteng and other large metropolitan areas. The uncertainty regarding specific numbers and the location of these foreigners makes it difficult to calculate their real impact on retail facilities.

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5.3 Socio-Economic Change 5.3.1 Living Standard Measurement (LSM)8 LSM is a segmentation framework for living standards in South Africa developed by SAARF9.

Living Standard Measurement is a South African classification/segmentation model used countrywide by marketers, property developers and retailers and market research companies. LSM is a scale used for indicating the socio-economic status of an individual or a household. The LSM categories are derived from Âą30 000 household interviews conducted annually. LSM is a classification method based on 29 different variables (See Table 5.1).

TABLE 5.1 VARIABLES USED AS PART OF THE LSM CLASSIFICATION MODEL 1.

Hot running water

2.

Fridge/freezer (combination)

3.

Microwave oven

4.

Flush toilet in/outside house

5.

No domestic worker in household

6.

VCR/DVD player

7.

Vacuum cleaner/floor polisher

8.

Number of cell phones in household

9.

Traditional hut

10.

Washing machine

11.

Personal computer

12.

Electric stove

13.

TV set

14.

Tumble dryer

15.

Home telephone

16.

0 or 1 radio set in household

17.

Hi-fi/music centre

18.

Rural rest (excl. W. Cape/Gauteng rural)

19.

Built-in kitchen sink

20.

Home security service

21.

Deep freezer

22.

Water

23.

M-Net/ DSTV subscription

24.

Dishwasher

25.

Electricity

26.

Sewing machine

27.

Located in Gauteng

28.

Western Cape

29.

Motor vehicle

After the variables had been used to measure the household, the households were then placed in groups. The groups range from LSM 1 to LSM 10, from deep rural to an affluent standard of living. The easiest way to distinguish between the groups is by way of household incomes. (See Table 5.2)

8 9

LSM = Living Standard Measurement SAARF = South African Advertising Research Foundation

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TABLE 5.2 MONTHLY AVERAGE HOUSEHOLD INCOME PER LSM CATEGORY LSM Group

Income

Group 1

R1 080

Group 2

R1 401

Group 3

R1 795

Group 4

R2 536

Group 5

R3 122

Group 6

R5 386

Group 7

R8 677

Group 8

R12 337

Group 9

R16 296

Group 10

R23 054

Source: SAAERF AMPS 2008A

The LSM10 classification was created in the late 1980’s. Throughout the years, a drastic shift has taken place. This was in the form of more/many people moving up from the lower end groups (LSM 1 and 2) to the middle groups (LSM 4-6). The shift was mostly caused by urbanisation, ending of apartheid, BEE, constant economic growth and the rise of wealthier townships. (See Table 5.3 and Graph 5.1)

TABLE 5.3 CHANGE IN LSM PROFILES (2006-2008) Proportion of each group of total number of households LSM group

10

2006

2008

Growth 06-08

LSM 1

7.6

3.4

-55.3

LSM 2

12.2

8.7

-28.7

LSM 3

13

9.4

-27.7

LSM 4

14.9

14.6

-2.0

LSM 5

13.5

15.5

14.8

LSM 6

14.5

17.9

23.5

LSM 7

7.1

9.4

32.4

LSM 8

5.2

6.9

32.7

LSM 9

6.4

8.1

26.6

LSM 10

5.5

6.1

10.9

These figures indicate the decreases in the lower end of the market

These figures clearly indicate the increases in the middle sector of the market

Also strong increases in upper end of the market

LSM = Living Standard Measurement – a South African classification used countrywide by marketers, property developers and analysts. The income per LSM category reflects the monthly household income. The LSM categories are derived from the census information, updated annually.

(LSM 1 = deep rural, LSM 10 = affluent) LSM 1 – 4 = <R800 – R3 000 LSM 5 – 7 = R3 001 – R12 500 LSM 8 – 9 = R12 501 – R25 000 LSM 10 = R25 001 – R40 000 LSM 10+ = R40 000 plus THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

45

GRAPH 5.1

It is clear from the graphs above that more people in South Africa are finding themselves in the middle LSM group (LSM 4-6), as well as in the upper LSM categories compared to the situation in 2001. This shows the growing potential for the retail industry in the future. Retail sales are down, but the economic cycle follows its path and will eventually be more positive.

This clearly indicates the growth in the middle and upper sectors of the market. This already has a strong positive impact on retail expenditure and shopping centre development.

5.4 Emerging Black Market and Changing Consumer Base According to recent research, the upper end of the market, LSM segment 10, has shown rapid growth (23,4% p.a. between 2006-2008), whilst the lower end of the market, LSM segments 1 to 4 (<R3 000 per month) had a negative growth of 22,3% per annum for 2006-2008. Between 2006 and 2008 the middle market consumers (LSM 5-8) earning between R3 000 and R12 500 per month, have grown at 25,8% per annum. The total LSM 5 to 10 segments have increased to 63.9% of the total market in 2008.

The following graph shows the percentage share of each population group and its contribution to total household expenditure over a 15 year period.

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GRAPH 5.2

Source: Bureau of Market Research, Unisa, 2008.

The household expenditure for whites has dropped from 53% of the total expenditure in 1993 to 43% in 2008, while expenditure by Africans has grown from 35% of the total in 1993 to 44% in 2008. This will also have a major impact on retail sales and future retail development.

5.2 Township Areas, CBDs and Rural Shopping Centres Growth in shopping centre development in the traditionally black urban areas is expected to accelerate in future. It is expected that the growth in shopping centres in townships and rural areas will further be stimulated once the right tenant mix and centre size have been determined. There is also a strong commitment from the national grocery retailers, as well as national clothing retailers to be better represented in these areas.

5.5.1 Retail in CBDs Retail in the CBDs as indicated earlier continues to perform well, as the CBDs remain the main destination for a large number of workers and dedicated shoppers. The success of retail in the CBDs is mainly the result of the support of large numbers of shoppers from the widest possible catchment area serviced by trains and taxis. The LSM profile of most CBD areas has been established to cater for LSM segments 4 to 7.

Most CBDs of the smaller cities and towns are very vibrant and busy. It is expected that these areas will remain very busy in spite of centres that opened close to where large proportions of the residents live.

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5.5.2 Retail in township areas A large number of centres have also been completed in the township areas during the last 4 years.

Maponya Mall is the best example of a large centre in a township area. Many retailers are recording very positive performance figures, while other stores, specifically the stores catering for the higher LSM shopper are totally underperforming. A number of smaller centres of between 20 000m² and 30 000m² have been built in other township areas. These centres tend to perform well. The key aspect in the development of these centres is the tenant mix where the focus is mainly on food, clothing, furniture and services. An important fact to keep in mind is that up to 60% of the shoppers walk to these centres.

Umlazi Mega City is the best example of this kind of development in KZN. Table 5.4 gives an indication of the new developments in the township areas. These centre sizes vary between that of a community centre of ±12 000m² to a regional centre of ±68 000m². The emphasis so far has been on larger centres and less so on smaller neighbourhood centres.

TABLE 5.4 SHOPPING CENTRES OPENED IN METROPOLITAN TOWNSHIPS DURING LAST 8 YEARS Name

Location

Size(m²)

Jabulani Mall

Soweto

44 355

Maponya Mall

Soweto

68 000

Protea Gardens

Soweto

17 400

Bara Mall

Soweto

12 000

Attlyn SC

Atteridgeville, Pretoria

18 190

The Crossing

Mafikeng, Northwest

17 500

Umlazi Mega City

Umlazi, KwaZulu-Natal

33 000

Khayelitsha Mall

Khayelitsha, Cape Town

20 000

Palm Springs Mall

Orange Farm, Vereeniging

15 000

Kanyamazane Plaza

Nelspruit

15 000

Evaton Plaza

Evaton Vereeniging

32 000

Source: SACSC – Shopping Centre Directory 2009/10

5.5.3 Retail in rural areas It is of utmost importance that retail facilities in rural areas are developed in such a way that they cater for the specific needs of the target market. The size of these facilities depends on the number of households and the available disposable income. The most important being the household density factor, and their means of travel. Table 5.5 illustrates shopping centres opened in rural areas. It is clear that most of these shopping centres have opened after 1994.

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TABLE 5.5 SHOPPING CENRTES OPENED IN RURAL AREAS SINCE 1991 (RANKED ACCORDING TO SIZE) Shopping Centre

GLA

City

Suburb

Province

Development date

Mdantsane Centre

35849 East London

Mdantsane

Eastern Cape

2008

Setsing Shopping Centre

26154 Phuthaditjhaba

Phuthaditjhaba

Free State

2000

Big Tree Mall

25500 Moloto

Moloto

Mpumalanga

2006

Twin City - Bushbuck Ridge

22306 Bushbuck Ridge

Bushbuck Ridge Limpopo

2000

Kopanong Centre - Hammanskraal

19443 Hammanskraal

Hammanskraal

Gauteng

1995

Mvusuludzo Shopping Centre

19292 Thohoyandou

Thohoyandou

Limpopo

1998

Nkomazi Plaza

19046 Kamaqhekeza

Kamaghekeza

Mpumalanga

2008

Palm Springs Mall

18864 Orange Farm

Orange Farm

Vaal Triangle

2005

Temba City Shopping Centre

18313 Temba

Temba

North West

1991

Tembisa Plaza

18248 Tembisa

Tembisa

Gauteng

2004

Thabong Centre - Sebokeng

18071 Sebokeng

Sebokeng

Gauteng

2007

Metropolitan Centre - Emalahleni

18000 Emalahleni

Emalahleni

Mpumalanga

Orange Farm

18000 Orange Farm

Orange Farm

Vaal Triangle

2006

Phumulani Mall

17500 Tembisa

Tembisa

Gauteng

2008

Renbro Shopping Centre

16500 Hammanskraal

Pretoria

Gauteng

0

Masingita Plaza

16258 Giyani

Giyani

Limpopo

Circus Triangle

16153 Mthatha

Mthatha

Eastern Cape

1994

Maake Plaza

15856 Lenyenye

Lenyenye

Limpopo

2008

Re-a-Hola Shopping Centre

14745 Botshabelo

Botshabelo

Free State

1999

Acornhoek Plaza

14680 Acornhoek

Acornhoek

Mpumalanga

1993

Bushbuck Ridge Shopping Centre

14640 Bushbuck Ridge

Bushbuck Ridge Mpumalanga

1994

Kamaqhekeza Plaza

14480 Kamaqhekeza

Kamaqhekeza

1999

Mpumalanga

Source: SACSC â&#x20AC;&#x201C; Shopping Centre Directory 2009/10

Changes in shopping behaviour will definitely have an impact on shopping centre performance and shopping centre development. The direct impact on shopping centre development will be the result of increasing household numbers and increasing disposable income.

5.6 Changing Lifestyles Lifestyle changes have a very important impact on retail sales and shopping behaviour. New retail formats have been developed to cater for the changing needs of consumers. Lifestyle centres11 are also being developed, offering the shopper a different tenant mix and shopping experience. Lifestyle centres in the USA mainly offer an attractive complex with a relaxed atmosphere and a variety of facilities/activities as part of the whole development. This can include offices, residential units, hotels, theatres, conference facilities and retail.

The impact of lifestyle changes on shopping centre development will be on the type of tenants and the layout and design of a new centre.

11

Specific definitions of various types of retail facilities will be discussed in detail.

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5.7 The Need for a Shopping Experience Consumers today are in search of a shopping experience. Shopping is not only about consumption, but also about an experience. It would traditionally be the larger centres that can potentially fulfil the shopping experience expectations of consumers. To meet such expectations and be sustainable in the longer term, shopping centres have to offer good quality public space, offer ease of movement and places where people can meet, relax or be entertained such as coffee shops, restaurants and theatres. These facilities must make use of both indoor and outdoor spaces. The increasing demand for a shopping experience is one of the major reasons for the growth in the number of lifestyle centres. Interactive shopping is a new keyword associated with lifestyle centres. Interactive shops include golf shops where shoppers can experiment with golf clubs, coffee shops combined with bookshops, and shops where shoppers build their own toys, etc.

The impact of this trend on shopping centre development is continuously changing to renew the retail offering. This could also result in an expansion of existing centres and the planning of new centres.

5.8 The Youth Market The youth of today have considerable spending power and exert a major influence on spending patterns by their parents. The importance of brands and branding should not be underestimated in retailing, particularly within this segment of the market. This segment of the market is also called the ‘one universal market’, because trends are set and are followed worldwide.

5.9 Trends towards Extended Shopping Hours There is a definite trend towards the implementation of longer shopping hours. Longer shopping hours have been the norm in convenience stores for some time, but there are indications of this trend being implemented in the larger and regional shopping centres as well. It is however not always easy to implement, and will depend on the local conditions of each centre.

5.10 Growth in Homeware Stores and other New Retail Tenant Types The homeware sector of the retail market has shown strong growth over the last eight to ten years. This resulted in the opening of more homeware stores, including Mr Price Home, @ Home, Ackermans Home, Home Etc., and the expansion of Boardmans, Wetherleys, Weylands, Woolworths, Homeware Department, and others.

The drivers behind the growth in the homeware product sector are the following: • the growing affluence of the South African population, more specifically the upper end of the black market; • increasing home ownership; • mass housing and electrification; • the international trend towards a shorter lifespan of homeware products resulting in more rapid replacements.

Due to the success of the existing homeware stores, most of the retailers in this sector also moved into different retail formats, ranging from strip/value centres, small and large centres, as well as free-standing big box retail outlets.

Many of these stores are struggling at the moment because of economic conditions, but also because of cannibalisation12 where existing stores ‘steal’ market share from each other.

12

The term retail cannibalisation is used when the same store opens outlets too close to one another. A second type of cannibalisation is when shopping centres open in the same area offering the same tenant mix with very little differentiation between the two centres.

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Other new types of retail facilities include different restaurants and coffee shops. There is also a new approach from cell phone companies to install very large attractive service centres in shopping centres. There will always be new types of tenants entering the market. The demand for shopping centre space will therefore change and increase over time.

There are also retailers that are becoming less attractive and will eventually close down. All this has an impact on the saturation levels in particular centres.

5.11 E-Commerce In general, retailers are far less concerned at present about the impact of e-commerce than during 1999.

Currently, worldwide e-tailing is responsible for Âą0.5% of total retail sales. More and more centres use the Internet to promote the centre, rather than to drive sales. Most shopping centres use websites as one of their marketing tools.

The impact of e-commerce on bricks and mortar in South Africa will be a longer term situation with no specific impact.

5.12 Renewal of Centres Many of the first generation shopping centres in South Africa (built in the sixties and seventies) are becoming very outdated, rundown and are in desperate need of total revamps and re-tenanting.

This trend is also very applicable in KZN with centres like Musgrave, Overport, The Wheel, Chatsworth Centre, Sanlam Centre Empangeni that are already old and in need of an upgrade.

Many malls have also increased in size during the last 2 years, indicating that once a mall is well established, it acts as catalyst for further retail growth, as well as for other commercial facilities. A number of the malls in the smaller cities have expanded to cater for new tenant categories and to offer a better service to their customers. Very good examples of these are: Waterfall Mall in Rustenburg, Riverside Mall in Nelspruit, Boardwalk in Richards Bay and Midlands Mall in Pietermaritzburg, to mention a few.

5.13 Cannibalisation Cannibalisation typically occurs when there is an oversupply of retail facilities in a certain area. The market share of each facility will then automatically be reduced and the outdated facilities will further deteriorate.

Cannibalisation is one of the serious threats that retailers face in South Africa these days, with the opening of a number of new shopping centres that are in direct competition with other centres as far as the duplication of the same stores are concerned.

A number of new regional centres are being planned within 3-4 kilometres from existing regional centres.

This could become a real threat and retailers and developers must clearly understand the impact of cannibalisation. Cannibalisation is also one of the most important research topics in the United States at the moment.

These changes have direct and indirect impact on shopping centre development. The key is however population growth, the tempo of urbanisation and increase in disposable income. The rest of the indicators impact more on the tenanting and size of centres.

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6.

SOUTH AFRICAN RETAIL AND SHOPPING CENTRE INDUSTRY

6.1 Retail Supply in South Africa The section is included to give an overview of the total shopping centre industry in South Africa. The KZN situation will be compared to this to indicate where KZN fits into the bigger picture.

During the last four years, South Africa and the world have experienced amongst the highest growth rates in recent decades. China had continuously been growing at a rate above 10%. The growth in other eastern countries also showed the same tempo of growth. The rest of the western world maintained its high growth.

Many African states were achieving growth of more than 5% per annum. South Africa experienced positive growth in 42 quarters, with some above 5%. All this started changing with the crash of world economic markets in September 2008.

The retail sector has experienced very high growth in the supply of new shopping centres since 2000. The current retail space under construction will further increase retail space by another 1 million m² by 2010 (See graph 6.1). The total shopping centre floor area space is currently at ±16,8 million m², which will increase to 17,8 million m² by 2010/11. In 1993 there were only 137 shopping centres larger than 10 000m² compared to more than 500 in 2008.

GRAPH 6.1

Graph 6.2 gives an indication of the annual increase in shopping centre space since 1990. The macro economic impact at a particular point in time is clearly visible on the graph for the period 1999-2002. The same is expected for 2009/11. There is however always a ‘time lag’ between economic conditions and retail supply.

Current high growth rates for 2009/10 are mainly because of high GDP growth during 2006/7.

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GRAPH 6.2

The annual retail sales at current prices exceeded R500bn in 2008. The size of the market is substantial. High increases in 2008 are mainly the result of high inflation during that year. This high growth in the retail market since 2004 is also a reflection of high growth in shopping centre development during the same period. There is however, a lag time between developments currently coming onto the market, and the economic downturn since September 2008.

GRAPH 6.3

All this clearly indicated that accelerated growth in the supply of retail shopping centre space, occurred during the last 5 to 8 years.

The above mentioned has an influence on shopping centre supply and demand in KZN. A detailed analysis of the retail in this province will follow in the next section, which will form the basis of the final guideline plan.

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7.

RETAIL DEMAND AND SUPPLY IN KWAZULU NATAL

7.1 Main Characteristics of KwaZulu Natal Market KZN currently represents the second highest population numbers in the whole of South Africa. The population (mid 2008) is estimated at 10.1 million people. This reflects an annual growth rate of <1%. Growth rates have decreased for all provinces, mainly because of better education and higher occurrence of HIV/Aids.

The KZN province is also strongly divided between large proportions of rural dwellers compared to urban residents. The national ratio is 60% urbanised while this figure is estimated at 53% for Kwazulu-Natal.

The provincial estimates show that since 2006, Gauteng has had the largest share of the population namely 21.5%, followed by KZN with 20.8%.

KZN also plays a very important role with their contribution to the national economy. Currently, the province contributes 16.25% to the total GDP of South Africa. This represents >R324 billion.

As far as formal shopping centre retail space is concerned, the province represents almost 13% of the total shopping centre space in South Africa.

All this clearly indicates that KZN fulfils a very important role within the South African economy.

7.2 Economic Base of KZN in comparison to the RSA Economy In this section, the most important economic indicators for the country will be compared to those currently present in KZN. This information clearly indicates where the province fits into the larger South African market, and how the province compares to other provinces in terms of economic indicators.

7.2.1 Gross Domestic Product per region for 2007 Preliminary estimates indicated that Gauteng and Western Cape both with 5.7% annual growth had the highest real annual economic growth rate per region as measured by the gross domestic product per region at market prices for 2007 compared to 2006. Kwazulu-Natal was third with (5.2%), and Eastern Cape fourth with (4.6%).

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GRAPH 7.1

Source: Stats SA, 2007

In 2007, Gauteng contributed 33.5% to the economy of South Africa, followed by Kwazulu-Natal with 16.2% and the Western Cape with 14.5%. This clearly indicates the strength of Kwazulu-Natal within the national text.

GRAPH 7.2

Source: Stats SA, 2007

KZN recorded economic growth of 5.2% during 2007. This followed a growth rate of 5.3% in 2006. The latest figures for 2008 have still not been released, it is however expected that the GDP growth in Kwazulu-Natal would have decreased to Âą2.4% during 2008, and is currently under pressure for a further decrease.

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In 2007 the contribution of the different KZN industries to the economy was: • manufacturing industries (21%); • finance and real estate and business services (17%) and • wholesale and retail trade (12%).

GRAPH 7.3

The retail and wholesale market have been growing at a rate of between 5.6% and 7.2% during the period 1999 to 2007, with the exception of 2002 when the rate was lower at 2.4%. The growth in retail and wholesale sales has been much higher in all cases than the total GDP for Kwazulu-Natal per annum since 1996. (See graph above)

GRAPH 7.4

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7.3 Retail demand in KZN: Demand drivers Retail demand is a function of the number of households, socio-economic and demographic variables, and the disposable income for each household. All these variables will be analysed in terms of the Greater KZN Province to quantify each of the demand drivers.

7.3.1 Population Numbers, Growth and Projections According to the latest official release from Statistics SA (July 2008), the midyear estimate of the total South African population was 48.7 million people.

TABLE 7.1 MID-YEAR ESTIMATES FOR SOUTH AFRICA POPULATION GROUP - 2008 Population group

Total Number

% of total population

African

38 565 100

79.2

Coloured

4 379 200

9.0

Indian/Asian

1 243 500

2.6

White

4 499 200

9.2

Total

48 687 000

100.0

Source..Stats SA Census 2001 projected for 2009/2012

According to this latest population estimates, KZN has a total population of 10.11 million people.

GRAPH 7.5

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The total KZN population has increased from 9.42 million in 2001 to 10,1 million in 2008. This represents an increase of 1% per annum. According to the graph, KZN represents 20.8% of the total South African population. KZN is in a strong second position after the 21.5 million people in Gauteng. The major reasons for the growth in the population of Gauteng are mainly twofold: • migration from all provinces towards Gauteng; and • major inflow of people from other African countries.

The decline in population numbers in KZN can mainly be ascribed to higher HIV numbers as well as relocation from the province especially to Gauteng.

7.3.2 Additional population related information regarding KZN As far as other demographic characteristics are concerned note the following: • KZN has the highest number of people in the age category <15 years (22%), representing 3.4 million people. This is followed by Gauteng with 2.94 million people; • KZN has a fertility rate of 2.4 children per woman; • the life expectancy rate in KZN is currently the lowest in the country at ±44 years.

Table 7.2 gives an indication of the projected population numbers for KZN by 2015. The growth rates projected for these population numbers are in the range of 1% to 1.5%. The population numbers will most probably increase to 10.6 million by 2015.

All these figures correlate and the expected population in 2015 could be between 10.6 and 11 million people.

TABLE 7.2 KZN PROJECTED POPULATION NUMBERS: 2009 AND 2015 KZN Population

Number of people in KZN

Number of households in KZN

Total population 2001

9 426 027

2 086 278

1% Growth 2009

10 207 037

2 259 140

1% Growth 2015

10 621 483

2 350 870

1.5% Growth 2009

10 618 350

2 350 177

1.5% Growth 2015

11 269 929

2 494 392.

Source: Census 2001, adjusted for 2009/15

7.3.2 Socio-Economic and demographic profile of KZN households Mainly one source was used to get a better understanding of the socio-economic and demographic profile of a particular area, namely: • Stats SA Population Census 2001, giving an indication of the socio-economic and demographic profile of the households. This is still regarded as the most important source of information and adjustments are made annually to update the monthly household income figures. This is based on Stats SA’s average salary increases and the South African Reserve Bank projections.

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In the following graphs, the comparison was drawn between the total KZN population and the total RSA population. The reason behind this is to indicate how KZN compares to the rest of the RSA population. KZN could also be compared to other provinces, but the national picture is the more important comparison to understand.

According to Table 7.3 and the associated graphs, the following statistics are of importance:

GRAPH 7.6

The KZN population consists of 47% people <20 years. This is 4% higher than the 43% reflected for the whole of SA. The high proportion of young people was also confirmed in terms of high fertility rates.

GRAPH 7.7

The most noticeable difference in the composition of the population in KZN is the fact that many more Asians live in the province (10% vs 3% for the whole country).

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GRAPH 7.8

Zulu is by far the most dominant language group in KZN, with 84% of the population in this language group.

GRAPH 7.9

Fewer economically active people are employed compared to the rest of RSA.

GRAPH 7.10

White collar occupations are higher than in the rest of SA, indicating a strong local economy.

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GRAPH 7.11

The economic base of KZN is mainly made up of manufacturing workers, community services and retail and wholesale.

GRAPH 7.12

27% of all residents have matric and higher qualifications, which is in line with the rest of South Africa.

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GRAPH 7.13

The only distinct difference between KZN and SA is in the larger proportion earning no/lower salaries. This emphasises the rural nature of a large proportion of households in KZN.

GRAPH 7.14

KZN represents a slightly higher LSM 2-3 grouping because of the lower income. There is a lower level of representation in KZN as far as the upper LSM categories are concerned.

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TABLE 7.3 SOCIO-ECONOMIC AND DEMOGRAPHIC PROFILE KZN VERSUS SA 2001 â&#x20AC;&#x201C; ADJUSTED FOR 2009 KZN

SA

Age Groups

%

%

Individual Monthly Income

<19 years 20 - 34 35 - 54 55+

47 25 19 9

43 26 21 10

81 1 10 8

77 8 3 13

1 14 84 0

13 8 78 0

No income R1-400 R410-800 R801-1600 R1601-3200 R3201-6400 R6401-12800 R12801-25600 R26501-51200 R51201-102400 R102401-204800 R204801+

28 26 46

37 24 39

5 6 11 11 10 3 11 10 25 8

3 6 11 8 10 5 11 8 33 5

33 23 44

27 23 50

9 1 17 1 5 15 5 8 20 0 9 11

10 4 13 1 5 15 5 9 19 0 10 9

22 17 6 29 20 7

18 16 6 31 20 8

Population Groups Black Coloured Asian White

Language Groups Afrikaans English African Other

Employment Employed Unemployed Not economically active

Occupation Legislators, officials and managers Professionals Technicians Clerks Service Skilled agriculture Crafts/trade Plant and Machinery Elementary occupations Undetermined

Occupation White Collar Blue Collar Low Skilled

Sector Agriculture Mining Manufacturing Electricity Construction Retail/Wholesale Transport Financial/Insurance Community Other Private household Undetermined

KZN

%

SA

% 3 15 19 22 19 14 7 2 1 0 0 0

2 14 17 23 19 14 8 3 1 0 0 0

27 12 26 20 16 12 8 4 1 0 0 0 15 362 28 433 2 369

24 11 23 21 17 12 9 5 2 0 0 0 16 898 26 815 2 235

38 20 16 7 19 9 426 027 2 086 278

34 21 13 16 21 44 819 783 11 205 692

44 9 3 3 30 8 1 0

56 5 3 4 19 12 1 0

Annual Household Income No income R1-4800 R4801-9600 R9601-19200 R19201-38400 R38401-76800 R76801-153600 R153601-307200 R307201-614400 R614401-1228800 R1228801-2457600 R2457600+ Median hh income 2001 Median hh income 2009 Median hh income pm 2009

LSM Groups LSM 1-3 LSM 4 LSM 5-6 LSM 7-9 LSM 10 No of people in sub place No of hh in sub place

Dwelling Unit House Flat in block Townhouse House in back yard Traditional/informal dwelling Informal unit not in back yard Room/flat on shared property Caravan/tent/other

Education No schooling Some primary Complete primary Some secondary Std 10/Grade 12 Higher

Source: Stats SA Census 2001, adjusted for 2009/15

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There are major resemblances between the KZN households and those of the rest of South Africa. The major differences however, are: • • • •

a larger proportion of younger people; a strong rural character and fewer households in the upper LSM categories (LSM 7 -10) many more Indian households.

7.4 Monthly Expenditure on Consumer Goods Table 7.4 gives an indication of the average monthly household income according to different LSM groups.

From this table it is clear that a large proportion of KZN households are still representative of LSM 1-4, with an average monthly household income of R2 369 per month. The top-end of the market (LSM 10) has a monthly household income of >R23 000 per month.

TABLE 7.4 KZN AVERAGE HOUSEHOLD INCOME LSM Group

Ave Household Income

1-3

1 401

4

2 536

5-6

4 254

7-9

12 337

10

23 054

Source: SAARF, 2009

Table 7.5 gives an indication of the retail spent per month per LSM group. The statistics is mainly obtained from Urban Studies’ own databank, but correlates very well with the latest information from the Bureau of Market Research, Unisa.

Tables 7.4 and 7.5 clearly indicate that the expenditure on retail products represent between 33% and 50% of the total disposable household income. The lower the monthly household income the higher the proportion of retail spent, especially on food products.

TABLE 7.5 SA TOTAL RETAIL SPEND PER LSM GROUP PER MONTH: RSA Total Retail Spend % of Total Household Income

LSM 10+

LSM 10

LSM 7-9

LSM 5-6

LSM 4

LSM 1-3

10 878

7 170

6 700

2 200

1200

870

±25

31

54

51

47

62

Source: BMR, 2008 adjusted

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7.5 Estimated annual retail expenditure for KZN According to Table 7.6, the number of households (based on the latest population projections) is broken down into the different LSM groups.

TABLE 7.6 NUMBER OF HOUSEHOLDS IN EACH LSM GROUP: KZN LSM Group

% Households in KZN

Number of households in LSM Group

1-3

38

853 311

4

20

449 111

5-6

16

359 289

7-9

7

157 189

10

14

314 378

10+

5

112 278

Total

100

2 245 556

The estimated annual demand “spend” on retail products is R79 billion per annum (see Table 7.7). The total retail spent in SA is R510 billion. KZN therefore represents ±15% of the total retail spend, which is in line with the GDP contribution made by the province to the rest of SA. This demand will grow according to the growth in expenditure levels, disposable income, and the number of households within KZN. The current retail performance figures are negative, but will recover with an upswing in the local and national economy.

TABLE 7.7 TOTAL ANNUAL SPEND ON RETAIL PRODUCTS PER LSM GROUP LSM Groups

% Population

Households

Ave retail spend

Annual Spend

% of total

1-3

38

853 311

870

8 908 565 796

11

4

20

449 111

1 200

6 467 198 400

8

5-6

16

359 289

2 200

9 485 224 320

12

7-9

7

157 189

6 700

12 637 983 540

16

10

14

314 378

7 170

27 049 057 308

34

10+

5

112 278

10 878

14 656 288 374

19

Total

100

2 245 556

79 204 317 738

100

Source: Urban Studies 2005-2009

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8.

SUPPLY OF RETAIL SPACE IN KZN

In recent years there has been considerable growth in retail space. This was the result of high economic growth worldwide, as well as locally during 2004-2007. This section will focus on the supply of retail in KZN, as well as trends in retail development during the last 4 years.

8.1 Current Supply of Retail Space in KZN The total amount of retail space in KZN is unknown. The retail space consists of planned and unplanned facilities. The focus will mainly be on planned facilities, because this information is available. (Not 100%, but a very good indication).

There are currently 184 shopping centres in KZN listed in the Shopping Centre Directory 2009/2010. The total Gross Lettable Area (GLA) shopping centre space in KZN is 2 191 247 m² (see Table 8.1 below). According to the directory, the total GLA for the country as a whole is 16 563 307m². Therefore, KZN represents 13% of the total shopping centre space in South Africa. This is slightly lower than the GDP and the retail proportion of the total KZN market, and clearly indicates an under representation because of the rural nature of the province.

TABLE 8.1 KZN SHOPPING CENTRE SPACE ACCORDING TO THE DIFFERENT SIZE/TYPE CLASSIFICATION13 Type of centre according to SACSC classification

Size of Centre (m²)

No of Centres

GLA (m²)

% of Total

Cumulative %

Local Convenience

<5 000

47

155 801

7

7

Neighbourhood centre

5 000-12 000

89

694 343

32

39

Community centre

12 000-25 000

33

524 724

24

63

Small regional

25 000-50 000

14

468 953

21

84

Regional centre

50 000-100 000

2

118 244

5

89

Super regional

100 000+

2

229 182

11

100

Total

187

2 191 247

100

-

Source: Shopping Centre Directory 2009/10

13

It should be noted that the growth in retail space could be overestimated for earlier years because not all information was captured prior to 2007.

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8.2 Retail Supply in Townships and Rural Areas Only 21 of the 184 shopping centres in KZN are located in rural/township areas (See Table 8.2). Many informal retail facilities are not accounted for. It is a fact that in South Africa, most rural/township areas have only recently started with shopping centre development. Currently the rural areas are still under represented as far as shopping centre developments concerned.

TABLE 8.2 RETAIL SUPPLY IN TOWNSHIPS IN KZN Shopping Centre

GLA

City

Suburb

Developed Date

Ithala Centre - KwaMashu

9 500

Durban

Kwa Mashu

1980

KwaMashu Centre

11 070

Durban

KwaMashu

-

Ithala Centre – Estcourt

9 889

Durban

Umlazi

1992

Ingwavuma Shopping Centre

4 403

Ingwavuma

Ingwavuma

1998

Ixopo Mall

4 500

Ixopo

Ixopo

1992

Ithala Centre – Jozini

2 050

Jozini

Jozini

1996

Ithala Centre – Madadeni

9 381

Madadeni

Madadeni

1980

Ithala Centre – Makhatini

4 256

Makhatini

Makhatini

2000

Sundumbili Plaza

13 809

Mandini

Mandini

1991

Renckens Spar Centre

11 000

Mandini

Mandini

1962

Ithala Centre – Manguzi

7 975

Manguzi

Manguzi

1997

Ithala Centre – Nkandla

3 071

Nkandla

Nkandla

2003

Nongoma Plaza

10 238

Nongoma

Nongoma

1992

Isizwe Centre – Nongoma

9 280

Nongoma

Nongoma

-

Nquthu Centre

3 839

Nquthu

Nquthu

-

Nquthu Plaza

14 972

Nqutu

Nqutu

2007

Ithala Centre, Ulundi

14 903

Ulundi

Ulundi

1986

Umlazi Mega Mall

28 000

Umlazi

Umlazi

2006

Umlazi Mall

10 850

Umlazi

Umlazi

1997

Rhino Plaza – Umzimkhulu

5 410

Umzimkulu

Umzimkulu

1997

Umzimkulu Centre

5 410

Umzimkulu

Umzimkulu

1996

Source: Southern African Shopping Centre Directory, 2009/2010

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8.3 Growth in Retail Supply in KZN (2003-2009) The increase in retail shopping centre space reflects a very high growth during the period 2003-2009. A large number of centres were completed all over the province. The latest increase in KZN from 2007 to 2009 was 9.2% to 2.2m² GLA, which is a very good indication of the annual growth in the province. The annual increase of 9.2% is slightly above the national average of ±8%. (See Table 8.3 and Graph 8.1)

TABLE 8.3 GROWTH IN RETAIL SPACE IN KZN 2003-2009 Year

GLA (m²)

% Growth per annum

2002/3

953 907

-

2005

1 453 405

23.4

2007

1 839 206

12.5

2009

2 191 247

9.2

Source: Southern African Shopping Centre Directory

GRAPH 8.1

Source: Southern African Shopping Centre Directory, 2009/10

8.4 Retail Development Potential in KZN There are various methods to calculate the development potential for retail, and especially shopping centre development. The technique basically consists of demand and supply models, and advanced statistical techniques.

The one technique that is easy to use is the per capita retail space warranted per annum. The calculation is based on the monthly spend per person on retail products, and to convert this spend to warranted floor area.

The availability of existing retail space in a particular area should be known to indicate the gap between demand and supply.

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8.4.1 Retail apace per capita The warranted retail space per area per annum is a good indication of what could be used. It is however difficult if there is a lot of cross shopping between the different areas, and if the retail supply is not fully known.

Based on Table 8.4, the warranted space for the whole province is estimated at 5.28million m². This represents shopping centre space, unplanned retail facilities and gaps that may exist.

TABLE 8.4 ESTIMATED ANNUAL SPEND ON RETAIL PRODUCT CATEGORIES LSM Groups

No of Households

People in LSM Group

Annual Spend (R)

Annual per Capita Spend (R)

Warranted Retail Floor area (m²)

1-3

853 311

3 839 899

8 908 565 796

2 320

593 904

4

449 111

2 021 000

6 467 198 400

3 200

431 147

5-6

359 289

1 616 800

9 485 224 320

5 867

632 348

7-9

157 189

550 161

12 637 983 540

22 971

842 532

10

314 378

1 006 009

27 049 057 308

26 888

1 803 271

10+

112 278

359 289

14 656 288 374

40 080

977 086

Total

2 245 555

9 393 157

79 204 317 738

5 280 288

The retail space that can be warranted per capita per annum is indicated in Table 8.5. This varies from only 0.15m² per capita for the lowest LSM categories to 2.72m² per capita for the highest LSM category.

TABLE 8.5 WARRANTED M² PER PERSON ACCORDING TO LSM GROUPS LSM Groups

m² per person p.a.

1-3

0.15

4

0.21

5-6

0.39

7-9

1.53

10

1.79

10+

2.72

8.4.2 Various other models There is a variety of retail potential modelling techniques available to help developers and retailers in calculating the potential and size of a centre or a particular store.

These techniques have been supplemented in recent years by major advances in data availability and processing, and in computerised functionality. In all sectors of retailing and shopping centre development, location analysis software is being employed - together with shopper data and information on competitors, geo-demographics and consumer spending - to facilitate the evaluation of new retail locations.

The focus in the KZN evaluation will be on the broad indication of the calculation of additional retail space, based on the warranted retail floor space per capita as indicated above. This probably not the best model, but can be easily used to obtain early indication of development potential THE NATURE OF THE INTERNATIONAL, NATIONAL AND KWAZULU-NATAL RETAIL AND SHOPPING CENTRE INDUSTRY

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9.

PARTICIPATION OF PLANNING AND DEVELOPMENT STAKEHOLDERS

The main objective of this section was to send questionnaires to the various planning and development stakeholders in KZN as well as to hold a workshop to establish the following: • • • •

To receive comments on the process and the preliminary guidelines content; To emphasise certain aspects already included in the document; To emphasise aspects that were not covered in the document; To obtain specific recommendations and requirements from the different stake holders.

9.1 Questionnaire Phase A letter/questionnaire was sent to all the different planning and development stakeholders, indicating the following: • the process focusing on 2 phases namely historical and theoretical background of retail development; • the latest trends in retail development internationally and locally and • the focus on KZN as the specific study area.

The approach followed in formulating the guideline document was explained to the respondents, focussing on the following: • the macro environment which included the whole of KZN • the meso level where the urban /rural trade area are demarcated, and • on the micro level to identify specific sites for development.

Respondents were asked to comment on the following aspects: 1. Understanding the demarcation of a trade area and the site evaluation of a specific stand at a specific location; 2. To define specific retail types as part of the retail hierarchy; 3. To identify specific town planning issues and aspects as far as retail development is concerned; 4. To provide specific planning and development guidelines to direct future applications.

The following list of people was asked to comment on the subsequent planning guidelines letter. Ø Ø Ø Ø Ø Ø Ø Ø

Ivan Scholtz Lindani Khoza Jan Van der Vegte Johan Van der Walt David Gengan Atkins Khoali Lihle Phewa Neville Warrington

(Newcastle) (Richards Bay) (Dorpspruit) (Port Shepstone) (Umsundusi) (Umsundusi) (Ethekwini)

Feedback was received from most of these participants.

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Response from different Stake holders involved in the Process Table 9.1 gives an indication of the different comments and recommendations made by the stake holders.

TABLE 9.1 COMMENTS AND RECOMMENDATIONS BY STAKE HOLDERS ADD/INCLUDE THE FOLLOWING

COMMENTS BY URBAN STUDIES

Give the economic growth rate of a particular catchment area

This information is not available on the micro level. The latest economic indicators are only available on provincial level.

Target market of a particular catchment area must be indicated.

Very important. Forms part of the trade area demographic information.

Understanding of competition/existing centres.

Very important. Forms part of the trade area demographic information.

Need and desirability.

Forms part of the whole market survey and the site selection.

Anticipated foot traffic through the centre.

This is a function of the size and tenant mix of a particular centre.

Use the following guidelines: Low volumes: 8-10 people/m²/month.

Average volumes: 12-16 people/m²/month.

High volumes: 18-20 people/m²/month.

Very high volumes: >24 people/m²/month.

Architectural themes.

This must be considered by the developer and the architect. The architectural style can add extra drawing power to a centre

Changes to transport routes.

Part of traffic engineers: Take note of all road changes and upgrades and the impact on shopping centre development.

Financial responsibility for new physical infrastructure requirements.

Town planning to consider and implement.

Historical buildings.

Adhere to the requirements.

9.2 Workshop A workshop was held on 30 June 2009 and was attended by 22 delegates (see attached list.)

The same process was followed and the content and detail of the proposed guideline document. The following comments were made and incorporated in the guideline document.

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TABLE 9.2 WORKSHOP NOTES Issue

Retail development potential Warranted floor space per person Site evaluation

Trade area demarcation

Comment Explain in detail how the model works and the application thereof

Action to be taken Give a descriptive explanation of how to use this model as a guide. It is important for the market profile to be known and also used correctly

There needs to be two approaches • Site as a destination • Site as a unit form where certain services would be offered.

The following needs to be considered: • Town planning rights • Bulk services • Sewerage systems • Taxi rank facilities • Safety and security • Design and architectural guidelines • Parking bays for deferent types of retail facilities Correctly structure this list and focus need to be on both proposed- and existing facilities Explain this in broad terms, and not to specific Add future growth prospects The market influence is important Comprehensive analysis and description for each retail type. Focus on different tiers depending on the population size and LSM profile.

Two approaches • New developments • Existing trade area Overlapping trade areas • Parking requirements Description per • Market information for each type need retail type to be highlighted.

• Ideal main tenant for each type of centre, and the approximate space the main tenant will take up.

• What is the optimal tenant mix for optimal profit?

• Add examples to each retail type Outline of retail • Clear understanding of lifestyle types centres • Mixed-use vs. multiple use • Add fresh produce markets • Add retail as catalyst for further Retail Strategies development • Add marketing and investment strategies • Retail does not form part of BEE • Informal settlements/townships what is its future and is there a need to hold back development?

• Focus on two main approaches Recommended namely: maintenance and development Application Process • Refer to: methodology to put a plan together • Various comments were raised, and Comments by all comments will be considered in the planners guidelines (in one way or another) • What exactly is the aim for planners Way forward and developers with these guidelines?

• Is there a need for a second study?

72

Give an understandable definition of each type of retail

Start guidelines with strategies, to get a clear understanding/base of what needs to be done.

There needs to be a differentiation between planners and developers.

Explain how the issues will be addressed in terms of planners and developers perspectives.

Provide the council with two documents • An in depth guideline report • Guide book – that will act as a summary of all the important and relevant information from the first document

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TABLE 9.3 LIST OF WORKSHOP ATTENDEES No.

Name

Municipality

Tel

E-mail

1

AN Khoali

Msunduzi Local Municipality

033 392 2135

Nyakane.khoali@msunduzi.gov.za

2

SL Magotovlela

Ulundi Municipality

035 874 5157

3

NLH Buthelezi

Ulundi Municipality

035 874 5203

nbuthelezi@ulundi.co.za

4

E Danaedseu

Mkhansodlini Municipality

031 785 9300

Elained4@gmail.com

5

D Mbongwa

Greater Kokstad Municipality

039 7976610

Dumisani.mbongwa@kokstad.org.za

6

MS Moonsamy

Hibicus Coast Municipality

039 315 9240

malcolmsm@hcm.gov.za

7

JI Mhlongo

Maphumulo Municipality

032 481 2047

8

M Kaha

KZN PDC

9

V Naidoo

Msunduzi Municipality

033 392 2096

10

A Ngobo

KZN PDC

033 3952645

11

P Shanmugom

KZN PDC

033 395 3067

12

DS Rajah

KZN PDC

031 301 8851

13

H Smit

Uthangulu Municipality

035 799 2603

smith@uthungulu.co.za

14

C Coetzee

KZN Treasury

033 897 4538

Clive.coetzee@kzntreasury.go.za

15

L Phewa

Ethekweni Municipality

031 311 7887

phewal@durban.gov.za

16

D Vilakazi

Umgeni Municipality

033 239 9266

manager@umngeni.gov.za

17

V Mhlongo

Mahumulo Municipality

032 481 2047

vusim@lgnet.org.za

18

N Msomi

Ladysmith Municipality

036 637 2091

npmsomi@ladysmith.co.za

20

M Khathide

Ladysmith Municipality

036 637 2091

mpkhathide@ladysmith.co.za

21

H Diadia

Mtshezi Munccipality

036 342 7800

elphas@mtshezi.co.za

22

SM Sikhakhano

Endumeni Municipality

082 0472752

caroline@endumeni.gov.za

Vasu.naidoo@msunduzi.gov.za Priscilla.shanmugam@kznlgta.gov.za

10. CONCLUSION All the above mentioned aspects have an influence on shopping centre development to a greater of lesser extent. South Africa is very well provided with shopping centres for the affluent market. Many of the centres on this level compare to the best in countries like the USA, UK and Europe.

The challenge is to provide quality retail and shopping centre facilities to the middle and lower LSM markets.

The growth in the middle LSM markets will ensure that more centres are provided to satisfy their specific shopping needs.

The most important challenge is to provide a very large portion of the rural market (40% of the total South African market) with quality shopping centre facilities as well. This process has already started, but will have to expand to cater for the different rural communities.

The impact of centre development in all these areas is very positive in terms of job creation, the expansion of the tax base and the general impact shopping centre development has on local communities.

The second report is the guideline report focussing on the development of existing as well as new retail facilities. A large number of different types have been included in this guideline document to make provision for all possible development options. This document also spells out specific strategies/actions that can be incorporated to streamline retail development from the smallest rural village to the largest metropolitan super regional centre. The guideline report will restructure this process to ensure that the majority of the KZN population is serviced by shopping centre facilities by 2020.

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11. TERMINOLOGY AND DEFINITIONS Shopping Centre A single architectural unit of planned retail outlets and associated services and facilities, designed and managed as a fully integrated retail system.

Segmentation An approach to target market selection in which a distinction is made between various groups of consumers.

Speciality goods Goods which are bought infrequently, and are exclusive and demands great effort and involvement to acquire Speciality centre A centre which has the special purpose of providing speciality goods to specific consumer segment, and often does not have a specific anchor Superstore These stores sell a similar but smaller range of goods as a hyper, but offer more than 2500m² of space.

Supermarket Self-service shops with a distinct food bias in its merchandise range, operating on between 400m² and 2 500m² of space Shop A shop unit is a retail unit of less than 400m² of space.

Store A shop unit larger than 400m² of space Service Trades Group of service providers operating from retail units, usually in underutilised or non-selling space Theme Centre Any centre designed according to a specific theme Tenant Retailer, merchant who occupies/paid for space Tenant Mix The pre determined blend of centre occupants based on a range of distinguishing criteria, and which adds value to centre.

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12. BIBLIOGRAPHY / REFERENCES Allan, J., Massey, D. & Pryke, M. Unsettling Cities. Movement/Settlements. Routledge, London, 1999.

Berry, B.J.L. Geography of market centres and retail distribution. Prentice Hall. London, 1967.

Bureau of Market Research. Total household cash expenditure patterns, 2005/2008.

Carter, H. The Study of Urban Geography. Arnold. London, 1995.

Clark, D. Urban World/Global Cities. Routledge. London, 1996.

Davies, R.L. & Rogers, D.S. 1985. Store Locations and Store Assessment Research.

John Wiley & Sons, Inc. New York, 1985.

Dawson, J.A. Retail Geography. John Wiley and Sons. New York, 1980.

Development Bank of South Africa, 1998.

DeLisle J. R. US Shopping Centre Classifications: Challenges and Opportunities.

Research Review. Volume.12, no. 2, 2005.

Ghosh, A. & Mclafferty, S.L. Location Strategies for Retail and Service Firms. Lexington Books. Toronto, 1987.

Ghyoot, V.G. Feasibility Analysis for Proposed Shopping Centres with special emphasis on trade area demarcation. D.Com. University of South Africa. Pretoria, 1992.

Hall, T. Urban Geography. Routledge. London, 1998.

Herbert, D.T. & Thomas, C.J. Cities in Space City as Place. Third Edition.

David Fulton Publishers. London, 1998.

Herbert, D.T. & Thomas C.J. Cities in Space, City as Place. David Fulton Publishers, London, 1997.

Hines, M.A. Shopping Centre Development and Investment. John Wiley & Sons. New York, 1987.

International Council of Shopping Centres. Shopping Centre Definitions: Basic Configurations and Types for the United States. New York, 2004.

International Council of Shopping Centres (ISCS). Towards a Pan-European Shopping Centre Standard. Excerpt from ISCS Research. A framework for International Comparisons. New York, 2005 and ICSC Research, 2005.

Jones, K.G. & Simmons, J.W. The Retail Environment. Routledge. New York, 1990.

Kahn, M. Change and Evolution of Shopping Centres. Paper delivered at the 1988 Conference of the Institute of Town and Regional Planners. Sun City, Oct 1988.

Mason, J.B. Mayer, M.L. & Ezell, H.F. Retailing. Third edition. . Fulton, London, 1998.

McGoldrich, P.J. Retail marketing. McGraw Hill. London, 1990.

Roca, R.A. et al. Market Research for Shopping Centres, International Council of Shopping Centres. New York, 1988.

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Rogers, D.S. Retail Location Analysis in Practice: Retail site analysis is much more than “location location location”. Research Review. Volume 14, no 2, 2007.

Shopping centre development handbook. Second edition. Urban Land Institute. Washington, 1985.

South African Advertising Research Foundation (SAARF). Living Standards Measure Classification (LSM) 2008/9.

South African Council of Shopping Centre Directory. Johannesburg, 1993-2009/10.

Urban Studies own database, 2006-2009.

Stats SA Population Census, 2001.

White, J.R. & Gray, K.D. Shopping centres and other retail properties: Investment, development, financing and management. Wiley. New York, 1996.

Wringley, N. ed. Store Choice, Store Location and Market Analysis. Routledge. London, 1988.

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NOTES

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NOTES

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