Rate hikes – bad news for new shopping malls

THOUSANDS of shoppers swamped the opening of one of the largest malls in South Africa last week.
The Mall of Africa housees more than 300 shops, including global brands such as Inditex’s Zara, Hennes & Mauritz (H&M), Cotton On and coffee chain Starbucks.
They want to attract the rising num­ber of young consumers in Africa’s most developed economy which has thrived on
demand for commodities.
But the opening of the mall comes as the outlook for the South African econ­omy worsens with rising interest rates and prices putting a squeeze on spending while demand for exports such as gold and other metals is largely depressed. Political uncertainty has also unsettled the rand, making imports more expen­sive and investors nervous.
Retail sales have stayed robust, how­ever, comfortably beating expectations in February and retailers at the mall were in an optimistic mood.
“We see a lot of potential in South Africa and Africa, this is our third flagship store that we have opened in a matter of seven months,” Amelia-May Woudstra at H&M South Africa said. “We will be opening three more stores towards the end of the year.”
Shiny malls have sprung up, creating thousands of jobs.
But they come amid a back­drop of rising debt. Nearly half of all credit-active South Africans, or 9.9 million peo­ple are overindebted, accord­ing to debt counselling firm Debt Rescue and the number will swell as interest rates and inflation rise while the economy slows.
Retail sales grew by 4.1% year-on-year in February, but are expected to slow. The Treasury expects the econ­omy to grow by 0.9% this year, down from 1.3% last year and the central bank is expected to raise interest rates further to rein in inflation that has been driven higher by wage hikes, a depreciating rand
and surging food prices after the worst drought in decades.
The bank has raised benchmark lend- ing rates by 200 basis points in the last two years and analysts see rates rising even further by year end from 7% now.
“Interest rate hikes and slower salary increases will limit the employee’s abil­ity to spend. This is bad news for large item sales like cars and furniture. It is likely that retailers will struggle for real growth in the next few months,” economist Mike Schtissler said.
This could be bad news for malls such as Mall of Africa, set in the sprawling Midrand suburb housing many of South Africa’s newly middle-class black con­sumers around 20km away from its nearest upmarket rival.
“The good malls will do well but there is a risk that there has been over building in SA. Is there really another mall that size required in South Africa? I am not sure,” portfolio manager at Gryphon Asset Management Reuben Beelders said.
But with more mature markets slow­ing. retailers are on the hunt for any­where offering a faster return.
Zara opened in South Africa in 2011. followed by Australian no-frills chain Cotton On. Britain’s TopShop, Forever 21 and more recently H&M.
Cotton On said SA was the group’s fastest growing market globally and aims to double its business in the coun­try over the next three years to 350 stores.
“Our operations here have reported double-digit growth every month since opening our first store here in 2011. The region is a key contributor to reaching our overall growth target of 20% year on year,” Cotton On’s SA country manager Johan van Wyk said.
Lured by opening-day bargains for their favourite global brands, shoppers in the new mall showed no sign of con­cern.
“It seems like this mall is going to be a success even though things aren’t going so well,” an office manager in Johan­nesburg, Christa Noi, 25 said. – Reuters

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