Retailers are increasingly looking at big data to understand their consumers better and improve not only their product offering, but also the consumers experience with the brand. Ultimately, the future of retail seeks to speak to “you” personally. Under the theme collectively individual, the South African Council of Shopping Centres (SACS) Congress which took place between the 13th and the 15th of September 2017, focused on the retail sectors move to personalisation, individualism and innovation.
Innovation in South African retail
We have seen innovative offerings such as Airbnb and Uber disrupt the hospitality and transportation industries, placing retailers on their toes as looming threats of disruption persist. Change is inevitable and retailers are having to become more innovative in adapting to fast changing retail trends. The pace of change in the South African market has often lagged other developed markets with retailers operating in a low growth economic environment with consumers continuing to tighten their belts as sentiment remain low and consumer debt remains high.
The World Bank has recently downgraded South Africa’s economic growth rate forecast for 2017 to 0.6% with growth expected to pick up to 1.1% and 1.7% in 2018 and 2019 respectively. Despite the country exiting a recession in Q2 2017, the projected growth for the next two years highlights continued pressure in the economy with the retail sector not immune to the tough operating environment.
Without disregarding future trends, retailers are focusing on thriving in the current economic climate with the added difficulty of increasing competition as international brands continue to enter the South African market, the latest being Miniso. We anticipate greater emphasis on operational efficiencies, a cautious approach to expansion plans, and more conservative shop sizes.
Online shopping in the South African market represented less than 1% of total retail sales in 2016 indicating the relevance of traditional retail centres in the market. Despite e-commerce’s small contribution to total sales, the growing trend cannot be overlooked as South African consumers increasingly embrace the convenience of shopping online. This may lead to fewer tangible goods bought in stores with implications of declining trading densities and less inventory on the shelves.
Threats of online shopping disrupting traditional brick and mortar retail have been extensively discussed and often cited as one of the reasons retailers have filed for bankruptcy (the most recent being Toys R Us) or closed shop. However, the quest for physical stores by Amazon (a predominantly online retailer) and Walmart’s aggressive acquisition of online platforms are prime examples of how retailers seek to marry the convenience of online shopping with the retail experience of traditional bricks and mortar centres; a key trend going forward.
Outlook for the future
The good news has been the 0.25 basis points (bps) interest rate cut which is expected to give some relief to household debt service costs. Moderating inflation will also have a positive effect on consumer purchasing power which may see slight increases in retail trade sales going forward. Landlords and developers remain optimistic about the future of the retail sector in South Africa which has proven to remain defensive through fluctuating economic cycles.