Retail under pressure: Spending shifts reshape malls

• Discretionary income is shrinking, squeezing apparel, luxury and non-essential retail categories across most shopping centre formats.
• Online gambling is absorbing a significant share of discretionary spend, diverting money away from traditional retail environments.
• Essentials, food and health categories outperform as consumers prioritise value, convenience and necessity over discretionary purchases.

A market normalising under pressure

‍The MSCI SAPOA Retail Trends report, presented by Eileen Andrew recently, highlights a retail sector that has stabilised post-COVID, but not without strain. 

While interest rates have eased and inflation has moderated, the damage from prior inflationary spikes remains embedded in the system. Prices have not reversed, and household costs are structurally higher than three years ago.

The key consequence: real discretionary income has shrunk.

‍Consumers are still earning, but after covering essentials: housing, transport, food, utilities; there is significantly less left to spend in shopping centres. This is the central pressure point shaping retail performance today. 

Key insights from the report‍

1. Trading density growth is uneven

‍Since 2022, trading density has recovered, but not uniformly:

• Apparel: Flattening or declining, especially in smaller centres
• Food (essentials): Continued growth across formats
• Food service: Strong in super regionals; softer in smaller centres
• Health & beauty: One of the standout growth categories

The message is clear: necessity-driven retail is winning; discretionary retail is losing momentum.

2. Discretionary spend Is the Real Constraint‍

A critical distinction highlighted in the report:

• Disposable income = income after tax
• Discretionary income = what remains after essentials

It’s this discretionary portion that fuels retail and it is under severe pressure.

Key drivers:

• Inflation outpaced salary growth (especially during 7 - 9% inflation period)
• Cost of living remains elevated
• Consumers are prioritising essentials and cutting back on non-essentials

3. The Gambling Shock: A New Competitor for Retail‍

One of the most striking findings:

• Around 54% of discretionary income is being spent on online gambling

This is a major structural shift. Implications:

• Gambling is not competing within retail, it is extracting spend entirely from the ecosystem
• Unlike apparel, dining or electronics, this spend never enters shopping centres
• It represents a direct leakage of consumer spending power

This trend is now a growing concern across:

• Shopping centre owners
• Retailers
• Telecom and digital platforms

The big question: How much of declining retail spend is not just reduced, but redirected?

4. Tenant pressure is rising in discretionary categories‍

Tenant affordability metrics show a clear divide:

Under pressure (rising rent-to-sales ratios):

• Apparel
• Books, stationery
• Luggage
• Specialty retail
• Outdoor and sportswear

More resilient (improving ratios):

• Food retailers
• Health & beauty
• Food service

This reinforces the structural shift:
 Retailers tied to discretionary spend are feeling the squeeze first and hardest.

5. Space allocation is diluting performance in some categories

The report highlights an often-overlooked issue:

In categories like:

• Sportswear
• Electronics
• Homeware

Increased floor space has not been matched by increased demand. Result:

• Sales are being spread across more stores
• Trading density appears weaker
• Growth is diluted, not absent

This is particularly evident where:

• Brands expand aggressively
• Tenant mix becomes saturated
• New space does not attract new spend

6. Black Friday is reshaping the retail calendar‍

Black Friday continues to grow in importance, but with consequences:

• Strong shift of spend from October to November
• Reduced growth in December peak trading
• Consumers are timing purchases around promotions

Key takeaway: Black Friday is not just additive, it is redistributive, pulling spend forward and flattening traditional peak periods.

7. Structural changes in Shopping Centre design‍

Post-COVID investment has reshaped how centres operate:

• Increased capex (up to around 2.5% of asset value vs around 1.5% norm)
• Reconfiguration for convenience access (e.g. easier grocery entry)
• Repurposing of underperforming space (e.g. cinemas)
• Reduction of “shadow vacancies”

Importantly: Large centres are now competing on convenience, not just variety.

Consumer Spending Breakdown

‍Based on the report insights, discretionary spend is being allocated roughly as follows:

Major allocations:

• Online gambling (around 54%) - Dominant and growing
• Clothing & apparel - Under pressure
• Entertainment & leisure - Selective spend
• Fitness & sports - Stable but discretionary
• Pets & lifestyle categories - Niche but resilient

Essentials (Non-discretionary, but driving footfall):

• Food & groceries
• Health & beauty
• Basic services

Key Insight

‍Most discretionary categories still exist within shopping centres,
except gambling, which diverts spend completely outside the retail ecosystem.

A retail market being rewired

‍South Africa’s retail sector is not collapsing, it is rebalancing.

What’s changed is not just consumer confidence, but where and how money is spent:

• Less discretionary income available
• More competition for that limited spend
• New digital channels (like gambling) extracting value
• Consumers prioritising essentials and value

Retail Reset: 5 moves Shopping Centres must make now

1. Double down on essentials and services
 Drive footfall through necessity-based anchors.

2. Rethink tenant mix
 Reduce overexposure to discretionary categories under pressure.

3. Optimise space, not just fill it
 Avoid dilution from oversupply in saturated categories.

4. Lean into experience and convenience
 Compete not just on product, but on ease, access and engagement.

5. Understand new competitors
 The biggest threat isn’t always another store, it’s where the consumer’s money is going.

Bottom line

‍Retail is no longer just competing for footfall. It’s competing for a shrinking and increasingly fragmented wallet.

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