3 Driving Forces Fuelling International Retail in South Africa

H&M Store Opening V&A Waterfront Cape Town

The opening of the new 4 700 square meter H&M store in Cape Town’s V&A Waterfront in 2015. It is reported to be one of the busiest H&M stores worldwide. Image credit, H&M and The V&A Waterfront.

 

This article was updated on 15 June, 2017

Our Love for Spending and Malls

It is no secret that South Africans are notorious spenders and poor savers. In 2016, The Alliance Global Wealth Report estimated South Africa’s debt per capita at R31 856 (€2 070) – which is significantly higher than the average of other emerging markets at R24 777 (€1 610). Our spending patterns combined with our preference for shopping in a secure and controlled environment has partially helped drive the continued supply of premium retail property in South Africa.

Over the decade ending 2015, retail property delivered an annualized total return (income and capital growth) of a substantial 16%, as measured by MSCI’s Independent Property Databank (IPD) index. Mall of Africa in Waterfall Business Estate in Johannesburg and the R1.8bn Menlyn on Maine in Pretoria are both recent examples of new supply in Gauteng.

Despite fears of a potential oversupply of retail property in South Africa as well as the current economic outlook, retail developments continue to break ground around the country. Data from the first quarter of 2017 suggests that vacancies in the retail market are currently the lowest across all property sectors.

South Africa’s Growing Middle-class

Over the past four years, international retailers have been willing to put up with South Africa’s red tape to tap into the country’s strong mall-culture and lucrative opportunities such is the growing need for international and affordable ‘fast fashion’. According to JLL, more than 12 new international clothing and shoe retailers have established a presence in South Africa including Zara, H&M and Forever 21 – all competing for South Africa’s growing middle-class alongside established South African retailers. International retailers are leveraging vertically integrated supply chains, fast merchandising strategies and big data analysis to quickly adapt their product offering to international trends and the changing needs of consumers.

The market’s positive response to the many new value propositions introduced by international retailers has motivated further expansion. H&M has already rolled out four new stores across South Africa since its first store opening in 2015, with Australian-based Cotton On identifying South Africa as a key growth market. The Fast Food Industry is also set to see a significant increase in international competition. North Carolina-based Krispy Kreme Doughnuts reportedly plans on opening more than 30 outlets in South Africa within five years, as well as Seattle-based Starbucks planning on opening 12-15 stores over a two year time-period. The significant impact of e-commerce and omni-channel shopping behaviour also plays a significant role, as featured in our latest report published in June 2017 detailing this trend. 

The globalization of retail brands

According to Accenture, globalization of retail is not a one-way street. Retailers from emerging markets who have achieved economies of scale at home are also seeking new growth opportunities abroad in efforts of positioning themselves against global players. A prime example is South African retail giant Woolworths acquiring a number of Australian fashion brands including Country Road, Trenery, Witchery, Mimco, David Jones and the more recent $60 million acquisition of men’s fashion brand Politix. The David Jones brand was only acquired in 2014, and showed an 8,4% increase in sales in Australian Dollar terms over the year ending June 2016.

Therefore, globalization is inadvertently motivating retailers to become “glocal” brands – a blend of global and local. Balancing home and other market opportunities at an international scale whilst adapting product offerings to the unique tastes and cultural preferences of country markets are becoming standard practice. The many new retailers pursuing growth opportunities in South Africa outside their domestic market is, therefore, a global phenomenon – one with which established local retailers will have to keep up in order to remain competitive.

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