Incorporating Small Retailers in Shopping Malls A Comparison

Incorporating Small Retailers in Shopping Malls; A Comparison Between a Mature (Dutch) and an Emerging (South African) Market Ingrid Janssen (TU/e) Jan Martijn Buruma (TU/e) Jos Smeets (TU/e) Francois Viruly (University of Cape Town)

Today’s shopping centres…. / name of department 2/21/2021 1

Introduction The general retail landscape: • Over 90% of the leasable space in newly developed shopping malls is leased by retail chains. • Small retailers will disappear. • Is that a problem? / name of department 2/21/2021 2

Introduction The importance of small retailers: • They play a central role in local economic growth and job creation; • They contribute to local welfare; • -> reduce leakage effect; • They improve social welfare of the community; • -> increase social cohesion (by building relationships, social events, etc); • More diverse shopping centres are more attractive for consumers; • Innovation. / name of department 2/21/2021 3

Introduction South African townships The Netherlands Only 10% of the space in newly developed malls is leased by small retailers Causing social unrest & tempers economic growth Small retailers -> Focus on local market / name of department 2/21/2021 4

Introduction South African townships The Netherlands Stimulating small businesses (government): Development of local businesses is a key element of SA policy: f. e. stimulating small businesses by educational programs Dutch policy: decreasing administrative work load of small businesses The role of shopping mall owners: CSBD: “Newly developed business centres such as the Maponya mall in Soweto were not doing enough to stimulate and sustain local economic growth. ” / name of department Detailhandel Nederland: “Corio should do something about the high rents in order to retain small retailers. ” 2/21/2021 5

Research questions • How can the low share of small retailers in shopping malls be explained? • What is the role of the shopping mall owner’s strategy? • How do market conditions effect the share of small retailers? • Are there institutional limitations for incorporating small retailers in shopping malls? Methodology: • Explorative / descriptive research based on the comparison of (case studies in) two different market and institutional environments: • The Netherlands (mature) • South Africa (emerging) / name of department 2/21/2021 6

Conceptual framework Market conditions Shopping mall owner’s strategy Share of small retailers Institutional framework / name of department 2/21/2021 7

Shopping in South African Townships South Africa: • Highest income inequality in the world -> market segregation • First economy (modern suburbs) • Second economy (rural areas and townships) Townships: • Outcome of racial segregation • Mainly populated by blacks and coloureds • Spacial excluded -> poor infrastructure • High unemployment • High crime • Differentation in living environments between and within townships / name of department 2/21/2021 8

Shopping in South African Townships Township economy is characterised by: Low levels of economic activity: • Soweto household make up 43% of households in Gauteng, only contribute for 5% to Gross Geographic Product Economic activity mainly exist of informal retail Strong leakage effect: • People work and shop outside the area Establish economic growth by: • Increase cash-flows within the area (reduce leakage effect) • Increase cash-flow towards the area (investments from outside) / name of department 2/21/2021 9

Shopping in South African Townships Consumer landscape Overall increase of income and living standards & emergence of black middle class: Characteristics of black middle class: • Strong social and cultural bonds with townships • Strong drive towards household appliances, vehicles and aspirational assets • Low levels of debt • Highly brand sensitive -> Status / name of department 2/21/2021 10

Shopping in South African Townships Retail supply trends Increase of shopping mall developments: Caused by: • Changes in consumer landscape • Stagnating first economy markets Most malls achieve above average trading densities Yields between 10% and 11, 5% / name of department 2/21/2021 11

Conceptual framework Market conditions Shopping mall owner’s strategy Share of small retailers Institutional framework / name of department 2/21/2021 12

The shopping mall owner’s strategy Reasons to prefer retail chains: • Retail chains have lower mortality rates compared to small retailers, they increase the stability and security of the cash-flow; • Retail chains secure quality and image of the mall; Reasons to prefer small retailers: • Small retailers create diversity between and within shopping malls; • Small retailers add value through offering specific formats or / and aiming on specific target groups; • The presence of small retailers affect the Corporate Social Responsibility of shopping mall owners. / name of department 2/21/2021 13

Corporate Social Responsibility CSR= “The duty of an organization to respect individuals’ rights and promote human welfare in its operations. ” (Lerner & Fryxell, 1988) “. . a program of action where a firm’s objective is to maximize its profits and, at the same time, to contribute to the improvement of social welfare” (Hediger, 2010) • CSR is merely used by managers as a responsive tactic to avoid critics. (Tullberg, 2005) • CSR awareness of shopping mall owners has grown. However, the increased performance of CSR can largely be contributed to “sustainability”(Sardinha et. al. 2011) / name of department 2/21/2021 14

The shopping mall owner’s responsibility South African townships The Netherlands Incorporating small retailers to: -create support from local community (responsive CSR) Incorporating small retailers to: -Increase the attractiveness / distinctiveness of the shopping center -Increase market share by increasing loyalty within the community. -Increase added value for the consumer -Prevent leakage effect -Prevent informal retailers from hindering the formal retail process / name of department Incorporating small retailers is NOT an important aspect of their CSR! 2/21/2021 15

The shopping mall owners strategy Two options to accomodate small retailers: 1. Accomodate informal retailers near or within the mall 2. Formalise informal businesses so they become regular tenants / name of department 2/21/2021 16

Market conditions • How do market conditions effect the role of small retailers? (Thurik & Wennekers, 2004; Kelley et. al. , 2011) / name of department 2/21/2021 17

Market conditions / name of department 2/21/2021 18

Institutional restrictions / South Africa Consumer Protection Act (CPA) Legal restrictions to incorporate small retailers: Cancellation of contracts: Private persons cancel lease contract within 20 working days Decreases the stability of the cash-flow -> decreases investment value Right of first renewal: Existing tenants have the right to re-negotiate a new lease contract when their old lease contract expires Discussion: Should shopping mall owners be obligated to offer market conform rent? Decreases the possibility of tenant mix management Mistrust between shopping mall owners and small retailers / name of department 2/21/2021 19

Institutional restrictions / The Netherlands Dutch lease legislation Background • Developed in 1970 when shopping malls were a relatively unknown phenomena • Protect ‘humble’ tenant from the ‘almighty landlord’ Lease terms • Retailer can terminate lease contract after 5 and 10 years • Shopping mall owners need a court order to terminate lease contract • Protect retailer from having to move its premises and lose its customers Rent review • Opportunity to review the rent once every 5 years -> comparable units • Prevents unfair competition between retailers Business acquisition • Retailers may sell their business including the lease contract to others • Gives small retailers the opportunity to sell their business for retirements income / name of department 2/21/2021 20

Institutional restrictions / The Netherlands Dutch lease legislation Example: • Small retailer that sells authentic wooden toys Lease terms: • If the concepts fails -> no way to ‘get rid of’ the small retailer Rent review: • Offer lower rent -> other retailers can have their rent reviewed Business acquisition: • Bart Smit could take over the shop -> affecting initial ideas of added value Restrictive lease legislation limits the tenant mix management -> shopping mall owners choose for familiar concept: retail chains Creates mistrust between shopping mall owners and small retailers / name of department 2/21/2021 21

General determinants share of small retailers / name of department 2/21/2021 22

Conclusions South African case: • • • Market conditions affect the relationships between shopping mall owners and retailers in such a way that they lack willingness to incorporate more small retailers; Institutional framework does not affect the relationship: could change when CPA gets adjusted -> further decrease of willingness to incorporate more small retailers; Small retailers’ accessibility increases after a certain efficiency point is reached. Dutch case: • • • / name of department Market conditions affect the relationship between shopping mall owners and retailers in such a way that shopping mall owners are willing to incorporate more small retailers; Institutional framework prevents shopping mall owners to incorporate more small retailers; Small retailers accessibility increases when the restrictiveness of the lease legislation decreases. 2/21/2021 23