- by: Reinier van Den Bergh (Essential Group)
The property Sector
According to a 2016 PWC Report, the world, including sub-Saharan Africa, is undergoing the largest wave of urban growth in history. More than half of the world’s population now lives in towns and cities, and by 2030 this number will swell to about 5 billion. Much of this urbanisation will unfold in Africa, bringing huge social, economic and environmental transformations. This will of course lead to a growth in property development and focussed retail requirements. Former Finance Ministers have opened the door for business during budget speeches, showing that there is hope for the way forward in areas such as the property sector, which is critical to the various Essential Group Members’ target market. Positive aspects from the budget speech laid out specific plans relating to property, which include amongst others:
- improving the productivity of South Africa’s urban areas. Achieving this will require us to re-think approaches to South-Africa’s urban development challenges, and to find new ways to stimulate faster and more inclusive growth.”
- Creation of more development zones, which includes: “six special economic zones that will make qualifying companies subject to a reduced corporate tax rate and enable them to claim an employment tax incentive for workers of all ages.
- Revisiting the usage of government owned properties (with an estimated combined value of more than R40-billion), which could unlock new revenue streams and opportunities for property re development. Despite the improved business confidence and apparent new opportunities in the property sector, the property construction industry faces continuous challenges from increasing prices for material and increased labour costs for skilled staff. In order to remain competitive and to overcome these challenges, the various role players will have to look at innovative ways to reduce cost baselines, while simultaneously improve the level of quality, waste control and uplifting skills.
Notwithstanding the positive outlooks, South African consumers remain generally under pressure due to high unemployment, over indebtedness and steep fuel and utility costs. According to the 2016 PWC Report the two main opportunities within the retail sector are the following:
• Opportunities for smaller-format discount chains targeting the lower end of the market.
• Leveraging technology to drive sales and improve customer engagement.
When we look closer to “home” and the hardware retail sector it is evident that retail remains under pressure, but that the PWC report may be on to something. It is evident that growth in rural areas, and even the informal segment is currently higher than that of the formal segment.
The informal segment and the formal segment are either heading for a showdown or a mutually beneficial arrangement. The potential for sub-distribution to the informal retailers surrounding our Essential Member stores should be tapped and formalised. This can only transpire through the development of specific enablers, such as focussed channels and appropriate technologies. If one looks at the Building, Hardware and D.I.Y. retail areas, projecting growth is very difficult, unlike the FMCG markets. This may seem obvious at first, and is already common practice for many Essential members, however, a structured, systemised and well resourced formalisation of such a practice can result in exponential results.
Growth in new retail brands in this area however, are likely to be limited to that of lateral growth of existing players, as well as possible types of cross industry mergers for suppliers to grow, create sustainability and be competitive, to support the various communities we operate within, we need to face the market challenges and take advantage of the above opportunities, which could only happen through the development and implementation of specific capabilities.
We welcome the opportunities that even a challenging retail outlook brings, and firmly believe that those that innovate, are well resourced for inevitable change, and operate from a values driven position, will realise that partnerships for exponential growth is key to future success.
Essential aim to be at the forefront of this exciting new era.