Incorporating Small Retailers in Shopping Malls: A Comparison Between a Mature and an Emerging Market

1. 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)

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

3. 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

4. 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

5. Emerging market • Small retailers: informal • Mature market • Small retailers: <10 employees 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

6. 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 • CSBD: “Newly developed business centres such as the Maponya mall in Soweto were not doing enough to stimulate and sustain local economic growth.” Dutch policy: decreasing administrative work load of small businesses Detailhandel Nederland: “Corio should do something about the high rents in order to retain small retailers.” The role of shopping mall owners: / name of department

7. 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

8. Conceptual framework Market conditions Share of small retailers Shopping mall owner’s strategy Institutional framework / name of department

9. 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

10. Shopping in South African Townships • Townshipeconomy is characterisedby: • Low levels of economic activity: • Sowetohousehold make up 43% of households in Gauteng, onlycontributefor 5% to Gross Geographic Product • Economicactivitymainlyexist of informalretail • Strong leakage effect: • Peoplework and shop outside the area • Establisheconomicgrowthby: • Increase cash-flows within the area (reduceleakage effect) • Increase cash-flow towards the area (investmentsfromoutside) / name of department

11. 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 culturalbondswithtownships • Strong drive towardshouseholdappliances, vehicles and aspirationalassets • Low levels of debt • Highly brand sensitive -> Status / name of department

12. Shopping in South African Townships • Retail supply trends • Increase of shoppingmalldevelopments: • Causedby: • Changes in consumer landscape • Stagnating first economymarkets • Most mallsachieveaboveaveragetradingdensities • Yields between 10% and 11,5% / name of department

13. Conceptual framework Market conditions Share of small retailers Shopping mall owner’s strategy Institutional framework / name of department

14. 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

15. 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

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

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

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

19. Market conditions / name of department

20. Legal restrictions to incorporate small retailers: Institutional restrictions / South Africa Consumer Protection Act (CPA) Cancellation of contracts: Private persons can 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

21. 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

22. 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

23. General determinants share of small retailers / name of department

24. 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: • 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. / name of department