How shopping malls survive in the age of online shopping

By Leani Wessels 

For years, retail landlords have nervously watched as an indebted consumer is knocked about by the petrol price, Eskom’s failures and low economic growth. Although malls have held up to some extent, close calls like the Edcon bankruptcy scare and the advent of online shopping have led investors to tread lightly around retail REITs.

And then two things happened that made us feel a little more positive about the sector: retail results showed a surprising bit of growth for February, and Yuppiechef, a leading online retailer did something very rebellious and opened a couple of physical stores. From reports and interviews, it seems that South Africans still love shopping at malls.

Retail sales from February were a little better than expected, growing 1.1% year on year, according to Statistics SA. However, seasonally adjusted retail sales decreased by 1.8% in the three months to end-February, compared with the previous three months. December registered a surprise 5.2% month-on-month decline (perhaps as consumers did much of their Christmas shopping over Black Friday).

The retail property industry has been treading water for a while, hanging in there as consumers take the brunt of another petrol price hike. However, Yuppiechef, an online kitchen and homeware store which has been around for 13 years, recently opened four retail stores in the Western Cape. Bucking the trend towards physical retail space letting.

‘For a number of years we had customers arriving at our offices wanting to buy products, and not understanding why we couldn’t sell to them! Eventually, we opened a small store connected to our warehouse, and it did surprisingly well,’ says Andrew Smith, co-founder of Yuppiechef.

‘Even though our online sales had been growing steadily for a decade, we still felt like there was a huge portion of the market that weren’t shopping with us. Less than 2% of retail transactions are online and, despite the growth, that number is not going to be 100%, or even 10%, in the foreseeable future.’

According to Smith, Yuppiechef opened its first store in a mall to test the waters, and the reception was very good. ‘It confirmed our hypothesis that sometimes customers want to shop online, sometimes they want to shop in a store, and sometimes it is a fluid combination of both. Doggedly sticking to pure ecommerce was not the experience our customers wanted from us.’

Smith caused much excitement at May’s South African Shopping Centre Council’s conference in Sandton with a slide showing how it took the group over two years from August 2006 to achieve R1 million I turnover online, versus a few days at its V&A Waterfront store.

‘When you open an ecommerce store in 2006, with 32 kitchen products, in South Africa, and with no money for marketing, the only person who visits the site is your mom. Our primary marketing strategy was providing great products and remarkable service (like a hand-written card and free delivery with every order), but word-of-mouth only works when enough people have had their first experience. We grew quickly, but it was off of a tiny base,’ says Smith.

According to Smith, malls are (generally) a safe place to take the family, meet friends, be entertained, eat out, as well as shop. ‘We mustn’t think that shopping online will replace all the reasons that South Africans go to malls,’ he says.

South African shopping centre trading performance continues its recovery since bottoming out in the fourth quarter 2017, according to the MSCI South Africa Quarterly Retail Trading Index. This recovery is driven by Super Regional and Community Malls. For the year ended December 2018, these centres recorded a trading density growth of 2.5%, well off the lows of mid-2017 when growth bottomed out at -6.6%, according to the March Retail Trends Report by the South African Property Owners Association (Sapoa).

 

REImag’s Q&A with Yuppiechef co-founder Andrew Smith: 

Andrew Smith, co-founder of Yuppiechef

 

Why did you decide to launch Yuppiechef online (without a physical store) 13 years ago? 

AnswerYuppiechef was started by Shane Dryden and myself in a lounge in Cape Town, with no experience in retail and no cash. Landlords weren’t going to give us a lease, and we weren’t going to be able to afford one! Ecommerce was a way of starting a retail brand from nothing with little overhead cost. 

Selling online also gave us a differentiator – we could list more products from more brands than physical stores could. Even though the number of people willing to shop online was few, we could reach the whole country and provide hard-to-find products. 

 

How has the online retail industry changed since Yuppiechef opened?  There’s been a gradual take-up of online shopping in SA – when did you start noticing this shift and what can you attribute it to? 

Answer: The growth in online shopping has been consistent, both in terms of new people willing to transact, and the frequency of transactions from existing customers. We saw a significant shift in the market when Groupon was pushing hard in South Africa and giving customers huge discounts that helped overcome some of the fear and apathy around ecommerce. 

 

At what point did you decide to add a physical presence to your offering? 

Answer: For a number of years we had customers arriving at our offices wanting to buy products, and not understanding why we couldn’t sell to them! Eventually, we opened a small store connected to our warehouse, and it did surprisingly well. 

Even though our online sales had been growing steadily for a decade, we still felt like there was a huge portion of the market that weren’t shopping with us. Less than 2% of retail transactions are online and, despite the growth, that number is not going to be 100%, or even 10%, in the foreseeable future. 

In 2017 we decided to open our first store in a mall to test the waters, and the reception was very good. It confirmed our hypothesis that sometimes customers want to shop online, sometimes they want to shop in a store, and sometimes it is a fluid combination of both. Doggedly sticking to pure ecommerce was not the experience our customers wanted from us. 

 

Quote from the conference: ‘It took more than two years from August 2006 to get to R1m of turnover online.’ Could you explain why? 

Answer: When you open an ecommerce store in 2006, with 32 kitchen products, in South Africa, and with no money for marketing, the only person who visits the site is your mom. Our primary marketing strategy was providing great products and remarkable service (like a hand-written card and free delivery with every order), but word-of-mouth only works when enough people have had their first experience. We grew quickly, but it was off of a tiny base. 

 

Turnover is higher, but rentals are astronomical: are you planning on opening many stores across the country or is the idea that they act more like showrooms for the online offering? 

Answer: Rent is high in good retail locations, but so is delivering an online order to Kuruman. We have found the total costs of physical versus online retail to be similar. 

Our stores are not showrooms, but they do only contain about 10% of our full range due to space limitations. We make a lot of sales – in stores – of products that are then delivered to the customer, or back to the store for collection. 

 

How do you ensure your competitiveness and market dominance in the online retail sector, when the economy is down and buyers strapped for cash?  

Answer: Online retail makes it very easy for customers to shop around and find the cheapest price on any product. This can be a slippery slope for retailers, particularly in a tough economic season. We have tried to find affordable products in as many categories as possible, but we also differentiate on aspects other than price, such as the uniqueness of our range and the service we provide. 

 

What new technology (in the online shopping space) are you particularly excited about? 

Answer: I am excited when friction is taken away from the shopping experience, particularly during checkout. Paying online with credit cards has been difficult and scary for customers, so mobile payment offerings like Snapscan and Zapper are helping to make checkout much more seamless. 

 

What do you think shopping centre landlords need to do to avoid low sales and eventually vacancies? 

Answer: Landlords and tenants need to get together more often in order to strategise on how to create a better shopping experience for customers. We have found that there is intense discussion during the lease negotiation, and then silence for the years that follow! We all stand to benefit if we work together, and not to squeeze each other for short-term gain. 

 

Which type of your items do well online and in the physical stores, respectively? 

Answer: A lot of our popular products do well in both channels, but broadly speaking, appliances do better online because customers know what they’re looking for, and giftable products do well in stores because customers like to be inspired by what they see in person. 

 

Where is your biggest market located, CT or Gauteng? 

Answer: Gauteng is our biggest market, but Cape Town has always punched above its weight, particularly online. We have always felt that there is less of a mall culture in Cape Town, and so shopping online was embraced quicker. 

 

Do you do your shopping online?  

Answer: Whenever possible, but in many categories the experience is still poor in South Africa.  

 

Why do you think South Africans love malls so much? 

Answer: Malls are a (generally) safe place to take the family, meet friends, be entertained, eat out, as well as shop. We mustn’t think that shopping online will replace all the reasons that South Africans go to malls. 

 

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