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Amelia Beattie on the performance of SA’s super-regional shopping centres

Sandton City had its best March in five years, showing that shoppers are back and that not all mega malls are struggling. The CEO of Liberty Two Degrees shares her views …

SUREN NAIDOO: Hello. This is the Property Pod with Moneyweb. My name is Suren Naidoo and I’ve been covering the broader South African property industry for over 15 years.

In this episode I speak to Amelia Beattie, CEO of Liberty Two Degrees, which is the joint owner of landmark malls and precincts in South Africa such as Sandton City, Eastgate Shopping Centre, Liberty Midlands Mall in Pietermaritzburg and Liberty Promenade in Cape Town. Liberty Two Degrees, or L2D as it’s also known, also has a small stake in Melrose Arch.

We are chatting to Amelia today about the performance of regional and super-regional shopping centres in South Africa. Even before Covid-19 there was talk, especially in the US and UK, about the retail Armageddon and the end of major shopping centres as we know them. This, as the sector has seen massive store closures, retail failures and downscaling of retail space with the growth of online retail. Welcome, Amelia. I know you have strong views on this. I’m looking forward to our chat.

AMELIA BEATTIE: Thank you, Suren. I certainly feel very passionate about this, and I look forward to sharing some of it with you.

SUREN NAIDOO: Before we delve into the broader topic, Covid-19 naturally has caused quite a bit of craziness in the retail property industry in particular, as well as for retailers. But you have seen somewhat of a recovery after the hard lockdowns last year. How is Liberty Two Degrees doing on the retail property front? I see you put out a strong trading update recently. A lot of it is around the performance of your flagship property, Sandton City, which showed record growth in March.

AMELIA BEATTIE: Yes, we were very encouraged by the recovery that we’ve seen over the last while. We spoke about it during our results in February – that we started seeing it at the end of last year, in the last quarter. We then had a little bit of a lockdown again early in the year. But as the economy opened again and people could return …

I think it’s evident that people in South Africa are social beings and love to go back to malls.

I think this has been a time when people really longed to be back in the environments they love to be in, and we’ve seen good recovery in March. April also looks good.

Sandton City, as you say, had the best March in five years from a turnover perspective. That’s quite extraordinary in a year like this, where a centre has mostly remained the same size. We didn’t make it significantly bigger. But what’s more encouraging for me, actually, is that all categories showed good performance – not only Sandton.

Amelia Beattie, CEO of Liberty Two Degrees. Image: Moneyweb

We talk a lot about luxury and I don’t want to leave the idea that we have all our growth coming from luxury. Yes, a lot of it comes from that and there’s a lot of pent-up demand in the environment, but certainly we are seeing that it comes from all categories that are starting to recover.

What is important for us is to keep our occupancy high. Our occupancy remains ahead of 95% in our retail portfolio.

I think there’s nothing more depressing than shops that are papered up when you walk through a mall.

I think that has a huge psychological impact on people. And if we can keep our malls alive, keep them full, I think people will continue to come back. We’ve probably lost some people who’ve changed their shopping habits, but with the turnover recovering, it’s evident that people are perhaps coming less often; but when they are there they stay longer and they spend more. And that I think is contributing to our recovery.

Read: Liberty Two Degrees hit by R1.5bn portfolio devaluation (Jul 2020)

SUREN NAIDOO: We will get deeper into the topic, especially with how smaller and rural and township malls are performing. That seems to be the hot topic in the retail space at the moment. But maybe it’s a case of well-located and prime shopping centres. You would have heard and read about other regional and super-regionals that might not be performing on a par with Sandton City.

Sandton City goes back a long way. It’s a super-regional mall of 140 000 or so square meters if you include Nelson Mandela Square. What are your thoughts on this, because Sandton City plays in a bit of a special space. Not only is it in the economic hub, the financial hub of Sandton, it also has a strong fashion component and it has retailers. Checkers has their new supermarket there. So maybe talk a little bit about that, because not all shopping-centre landlords are performing as well as L2D.

AMELIA BEATTIE: Suren, you’d have heard me say this many times – that it has become a lot less relevant whether it’s a super-regional or a regional or a neighbourhood or community centre; it’s about the quality of the actual asset. You can have great super-regionals and you can have not such great super-regionals.

But in the same breath you can have great community and neighbourhood centres and you can have not such good community and neighbourhood centres.

So I really believe that centres that will continue to stand out are those that are good-quality assets and are well occupied.

We talk a lot about green buildings. Now, green buildings have become a somewhat topical thing that the industry is talking about now. There are a lot of conversations that around ESG – Environmental, Social, and [Corporate] Governance – and in the ESG space green buildings are one aspect of it.

SUREN NAIDOO: You talk about the success of upmarket brands, the big-name brands in the Diamond Walk section, for example, of Sandton City. One would have thought, in the light of tourism still being under pressure, those sectors might not do well. So is it a case of those people who would have gone overseas actually spending locally?

AMELIA BEATTIE: Yes. If you talk to the retailers, they will tell you that a lot of their customers are those from South Africa. They are not able to travel. They’re not able to go and buy their things overseas, so they come to the Diamond Walk and get them there. It’s very encouraging to see that we continue to attract these new brands. It’s not that those that are there are the only ones. There are brands that continue to be interested in that space.

It’s really great to see how we could branch out from luxury to affordable luxury, because it’s also a very strong category. Not everyone can afford a Louis Vuitton bag, but maybe a Michael Kors is something that somebody would really aspire to have. You get all those different brands in the super-regional mall in Sandton.

SUREN NAIDOO: Coming back to the original topic, even before Covid-19 there was talk about this growth in online sales and the impact on retail centres as well as retailers who need to change with the times. Covid-19 has accelerated this, but in South Africa it’s still relatively low. Maybe you want to talk about this and how shopping centres are adapting to the online space, because you are still doing well.

AMELIA BEATTIE: I think online retail is certainly something that is very topical for us and something that we think about a lot and strategically position ourselves to have online and physical that can live together. I don’t think that in the context of our environment the one will ever take over the other one. Certainly physical retail is not the only thing that will continue to thrive.

Read: Bigger spike in SA online retail amid Covid-induced ‘explosion’ in home deliveries (May 13)

I’m sure many people have seen the new Amazon video, where you just walk in, you take your stuff and you walk out; you never go through a cashier. Everyone points to the online, the digital nature of that, but the important thing is that that is still a physical store. You still have to go there; you get the frictionless experience but the physical store is still there.

If you think about Nike, which has its 5 000 square metre store in New York, you are actually encouraged to come there, look at the store and then shop online. So what super regionals, and specifically Sandton, do is they give us the opportunity for retailers to have those statement stores.

Statement stores are really important and we are shortly going to open the new Adidas Halo store.

It’s going to be significant and magnificent, and it will be the first on the African continent. It is those statement stores that you will continue to get in our environments.

SUREN NAIDOO: It sounds very exciting. I know TFG has a flagship Sportscene store at Sandton City, and it even has a basketball court. So it’s quite innovative.

On a broader topic, going back to my original intro regarding the comments, especially out of the US and the UK, about this retail Armageddon and the end of shopping centres, South Africa – while it competes with the US and the UK, with world-class retailers – has shopping centres on a par with many of those countries as well. But our retail scene is slightly different. Maybe you want to talk about that.

In the context of South Africa we have crime, we have different issues to deal with, which has meant that from an upmarket or mid to upmarket level, you have a lot of South Africans not shopping on the high street; they’re shopping in shopping malls, and that’s where they not only shop, but also have their leisure experiences.

AMELIA BEATTIE: I think there’s so many elements to that, specifically in the South African market. Shopping centres are safe, and that in our country is important. We’ve spent a lot of time and energy making sure that we really have the highest safety and security standards in our malls, and we’ve been recently certified by the international Safe Asset Group in terms of that. If you can come to a mall and you know it’s safe, you know you can get everything there, and it complies with all the Covid requirements, you, I think, will be more likely to spend more time there.

What makes a shopping centre successful is feet and spend; the longer people spend there – having their entertainment, drinking coffee – it’s said [people are] much more likely to buy something after having a meal. So all those elements together make for a successful shopping environment. Yes, of course, I think this is a very emotional topic …

There are a lot of people feeling emotional about shopping centres not going to continue to survive, but I can only counter that with facts.

I spoke about Adidas; we’ve got Chanel opening its first cosmetic brand. We’ve got ARC, which is going to open a Sephora-like brand. We’ve got Alexander McQueen coming into the old Prada space.

Those are facts, things that are happening, stores that are opening. Nobody’s going to open a new store, spend that amount of money in fitting it out in an environment that they believe will die.

SUREN NAIDOO: It sounds very exciting – some of the names you mention, even in this market. But people who might disagree or might rebuff you would talk about the challenges and failures, even in South Africa, with the likes of Stuttafords closing down a few years ago, Edgars, and Edcon with its woes. Obviously there’s been a business rescue there. And we see the closure of DionWired and some of the major listed retailers which might not be in the state of Edcon, which are also downgrading space. For example, you have Pepkor reducing the space of Incredible Connection. However, we reported just a few weeks back that Pepkor is opening a whole lot of stores as well.

Read:

Maybe you want to talk about how you are balancing that … One of your competitors, Hyprop – the CEO Morné Wilken there – before Covid hit, at one of their results mentioned to me they were very excited about what you’d achieved in Sandton City, with the turnaround of the Stuttafords space, for example. How do you balance that, because it seems like it’s one challenge after the other for retail-property landlords?

AMELIA BEATTIE: The challenges are there every day. This is not an environment without its challenges, but that’s why we are here. We are here to fix them and make sure that we take one step forward every day because we can either wallow in these challenges or we can put our heads together and find solutions. I really owe it to our extraordinary teams that we have. They work tirelessly to come up with solutions that can thrive in these environments.

We mind the mall, we are making sure that we look at what customers want. Stuttafords closed down. We did a lot in bringing new environments in there, but that doesn’t always work. LC Waikiki came in there, and that space is now going to be taken over by the Halo brand from Adidas.

But it’s just staying close to our retailers, understanding what it is that they want, and making sure that we understand our customers.

We’ve just launched a new artificial intelligence camera system in our mall, so not only will we be able to track foot count, we’re going to be able to track customer count and customer behaviour so we’ll know how many of the people who come to a mall in a month come more than once, and how many come only once. We’ll know where they go, how they shop; that information we can give to our retailers and help them to improve their offerings.

Read: Covid-19: Priority is to save smaller retailers, say landlords (Mar 31)

This is a holding-hands relationship that we have. We can’t do anything without good tenants. Tenants can’t do anything without good malls. And that wealth of information that we can collect from the behaviour of people who come into the environments can certainly help us fill the space. Vacancies are expensive. It’s really a very big focus of ours to keep our malls occupied.

SUREN NAIDOO: As a concluding note, I know you talked about 95% occupancy rates. Maybe you want to highlight some of your vacancy levels in the different malls. Are all your malls performing as well as Sandton City, because you have a little bit of diversity. You have the Liberty Midlands Mall in the middle of KwaZulu-Natal, and then you have Liberty Promenade, which is near Mitchell’s Plain in Cape Town. Those are not super-regional malls. So you do have some insight on the convenience side as well.

AMELIA BEATTIE: Yes, we have that. And we also have Botshabelo [Mall] outside Bloemfontein, which for not one single month since the beginning of Covid has recorded negative growth. It has had positive growth throughout. But Midlands and Promenade, those two malls perform like super-regionals. They are always full. They are always busy. I’m really encouraged about the turnaround that I’ve seen there as well.

Those two malls are completely different. Midlands represents somewhat of an aspirational getting together for that community in Pietermaritzburg. There’s a lot happening there. If you drive past to Durban, you’ll always see that parking lot full. We’ve recently opened an iStore there, which is really great for that community.

Promenade is something different altogether. It’s the get-together place of that community. If you’ve ever been there over the weekend, I’m sure it has the highest foot count per square metre environment that you will find. Those people love those brands – affordable luxury there is starting to do really well because those people aspire to be in a great environment and the Promenade environment gives them that. Absolutely we really pay a lot of attention to safety there, which is important to that community.

SUREN NAIDOO: That’s all the time we have, Amelia. Thanks a lot. That was Amelia Beattie, CEO of Liberty Two Degrees.

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“ We’ve just launched a new artificial intelligence camera system in our mall, so not only will we be able to track foot count, we’re going to be able to track customer count and customer behaviour so we’ll know how many of the people who come to a mall in a month come more than once, and how many come only once. We’ll know where they go, how they shop; that information we can give to our retailers and help them to improve their offerings.”

I don’t think that is necessarily a good thing.

Surely that is in contravention of this POPIA Act?

With listed property in SA still down 40% from the highs, with Covid-19 hitting new waves and steam running out of the dead cat bounce in the markets, this is like calling a summer after seeing the first swallow.

Yes, we are social beings, but we don’t have to trall through or be tracked and traced through malls to prove it.

Sandton City is a sterile box.

So entire article basically Liberty and Sandton City punting their offerings, wish it said “paid content” before i clicked.

last time i made a comment on one of Amelia Beatties articles,it was published and then deleted.She had belittled me for no good reason many years prior to that

South Africa is a decade behind first world countries like the USA where super effeciant online merchants coupled with low courier costs and cheap data has made online shopping boom. The writing is on the wall for malls..

Liberty 2 Degrees is a penny stock compared to the others.

End of comments.

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