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[TOP STORY] Post-pandemic retail and shopper trends

Shoppers are excited to get out, but may start reconciling their accounts towards mid-year; it’ll be interesting to see where it goes: John Jack – CEO, Galetti Corporate Real Estate.

SIMON BROWN: I’m chatting now with John Jack, CEO of Galetti Corporate Real Estate. John, I appreciate the early morning time. We are talking around retail and generally shopping patterns. We saw during the pandemic a number of trends emerge around shopping, and a number have remained and stuck around. I want to get to those in a moment.

But against all odds the retail sector is actually looking quite strong, with shopper activity back at pre-pandemic levels. I say ‘against all odds’. I was just with my previous guest and inflation is out there and hurting, [yet] people are out and shopping.

JOHN JACK: Yes. it’s an interesting one. I think you might be getting a bit of a false early run to an extent because, with inflation continuing to rise and with sort of low growth and the petrol price and all of these things impacting the consumer, you might have seen an early run, everyone excited to get out there. Then maybe they start to reconcile their accounts towards the middle of the year. So it’s going to be interesting to see where it goes.

SIMON BROWN: I take your point. As our wallets get emptier we may be staying at home. But one of the big trends during lockdown was … ‘everyone’s shopping online’ – and we were, because we couldn’t leave the home. And we still are, to a degree.

I was looking at Amazon numbers where they had this huge spike, and it’s returned to a higher level than pre-pandemic. But we actually like the going out – particularly in South Africa where it’s a bit of an experience, it’s a day’s outing. It’s not just [for] errands.

JOHN JACK: [Chuckling] The other thing is that the shopping centres have generators.

SIMON BROWN: Good point!

JOHN JACK: Not everyone in South Africa has a generator, so it’s actually quite a nice place to be in. What you’ve seen is a huge spike in that convenience retail. The smart guys of Retail Africa, for example, noticed that and went and picked up these older sort of crummy convenience centres and turned them around into these beautiful spaces. You put [in for example a] Woolworths Convenience and a nice coffee shop [there], and people like to go and hang out there.

SIMON BROWN: Yeah. The phrase was ‘strip malls’. Pre-pandemic I would go to the bigger centres. During the pandemic there’s a little strip mall around from me. As you point out, it’s got a little Woolies, it’s got the little deli and coffee shop and the like – and that trend has stayed. That mall is busy, and is always busy.

JOHN JACK: One hundred percent, and [there’s] big demand as well. So you’ll find those big shopping centres, depending on where they are. Sandton City obviously continues to be a force, but the other bigger shopping centres that aren’t so much of an attraction are in much less demand. It’s really strange how the retailers [have] completely changed, or the consumers [have] really changed where they go.

And so you find people having to sort of panic, to change their centres and make them cool, really. That’s really what it is. You’ve got to make it a cool place to be, a nice environment.

SIMON BROWN: That comes back to the entertainment point. I’ve been chatting with a couple of Reit CEOs – yourself and others – over the years. It’s ways of changing that experience. It can be small things like just free parking, creating events, children’s entertainment centres, sort of bringing some of the outside in so that it becomes more than just sitting in a giant building. You can maybe wander around some trees as well, and the evolution of what it is.

JOHN JACK: I listened to a lecture years ago by the late Rudolf Pienaar, who was a director of Growthpoint Properties, talking about what they were doing with the Waterfront. They’d obviously taken it over years ago, but it’s all about creating little experiences, small experiences all over the place. So you’ll see the Waterfront has that frame where you can have a photograph behind you and Table Mountain , for example, and different pieces of art to go and look at.

It really is about creating experiences and drawing the consumer in. And then from there the retail ends up happening, people end up spending money.

SIMON BROWN: Yes. I hadn’t thought about that, because I love the V&A. They’ve got that big wheel and almost different pods around. The other thing, of course – and it kind of ties in to what we said up front with people perhaps being squeezed – there’s a lot of moving to sort of the value fashions. It’s also going to be your mix of retailers. People like Mr Price, they like Cotton On, because they get bang for their buck – and that’s important.

JOHN JACK: I think it’s a South African context, definitely, because if you look at Will Ridge, head of Investec Equities, his comment is that it’s going to be high-end brands. Look at Bidcorp, look at AB InBev – those type of businesses where you see this huge return to the market in Europe, and people are out and travelling to Europe and spending in Europe, and it’s the high-end brands and all of that, whereas in South Africa it’s slightly different.

People are actually going to shop and it’s still about the affordability to an extent, and places to be. But definitely there’s a lot of money being spent in convenience again. So yes, it’s an interesting space. People like taking photos of where they are.

SIMON BROWN: Well, absolutely, the selfie generation. You mentioned up front you own generators and that’s a great point. You haven’t got power at home, and you can go to a shopping centre and [have power]. That of course is a huge cost for the shopping centre, particularly with diesel at record levels. Are we seeing a trend? I know some of the malls we’re looking at are almost going independent power, getting solar, battery backup and the like.

JOHN JACK: Very much so …. Solar is big at the moment. You almost have to be, because there was a comment out, if you looked, from TechCentral this morning, there’s a comment out [from] Growthpoint saying it’s actually becoming difficult to buy diesel for their centres because Eskom’s using so much of it.

Read: Growthpoint struggles to secure diesel amid load shedding

And so, if you’re [getting] diesel shortages and people can’t actually fire up their generators to run the precincts or whatever it might be, you have to have solar as a backup. And what you’re also finding is that diesel is getting very expensive.

The price of fuel has gone up significantly and so those costs are now getting pushed onto the tenants as well. So solar really starts to make a lot of sense.

It’s a big upfront cost – that’s been the problem. That’s a massive capital outlay, but what’s happened is people have come in and found clever funding structures. So you’ll have funders who actually come in and fund the solar, and then you almost buy the power from them. It might not save you money in terms of the cost of the power, but it will certainly make it more sustainable and probably a little more reliable.

SIMON BROWN: More reliable and more green. That’s the other thing. The younger generation is probably a lot more socially conscious, certainly than I was at that age. That might not be why you go to a shopping centre, but it’s part of, again, ‘that experience’.

JOHN JACK: For sure, yes. I definitely think that those funds investing in more sustainable properties and sustainability in their properties are attracting tenants.

And what you’re finding is these P-grade [prime grade] properties which ultimately have lower operating costs are attracting more tenants. You find a low vacancy – and I’m talking across all sectors, office as well,

…but you’ll find that P-grade office properties, which are very efficient in terms of the power usage and air conditioning, etc, actually find far lower vacancies, and [there are] far higher vacancies in older properties where you are spending a lot on power.

In some of these older properties you’ll be spending – just to put a comparison in – about R50-plus a square metre for electricity, whereas in the newer properties you’re spending sort of R18 a square metre. So it’s quite significant.

SIMON BROWN: Wow. That is significant. And of course at the same time you’re saving money and you’re saving a planet, which is two wins.

We’ll leave that there. John Jack, CEO of Galetti Corporate Real Estate, I appreciate the early morning insights.

Listen to the full MoneywebNOW podcast every weekday morning here.

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