Cellular shops are disappearing from South African malls — even though they make money

Disproportionately high rental costs, low profit margins, and changing consumer habits are forcing more mobile retail stores to close their doors throughout malls in South Africa.

A senior industry source who spoke with MyBroadband on condition of anonymity explained that mobile retailers in malls are often charged up to four times more than stores of similar sizes.

“The capital cost of building a store with marginal returns and high rentals are forcing the mobile store closures,” they said.

“A mobile retailer can pay up to R1,500 to R1,800 per square meter, whereas a TFG or large retailer similar in size only pays R350 per square meter for the same space.”

The source said that since margins have dropped significantly in mobile retail, landlords’ increasing rental costs over the last 28 years have become entirely unsustainable.

“I would guess that 50% to 60% of mobile stores in malls, including franchises, are unprofitable or breaking even now.”

They said that unreasonably high turnover clauses compound the rental costs, putting increased pressure on mobile stores to shut their doors.

“The malls insist on 7% to 8% turnover. However, the net margin on prepaid airtime is only 4%, excluding credit card fees.”

“There is no margin on handsets for contracts and upgrades, and any cash sales of mobile devices typically only have 6% to 8% turnover,” they said.

“The landlords are double-dipping by charging 300% or more for space and then layering a turnover clause on top of that.”

“There is no question that some landlords are better than others and understand the threat. However, many are uncompromising and banking on these high returns.”

Jacqui O'Sullivan
Jacqui O’Sullivan, MTN SA executive for corporate affairs

MTN SA executive for corporate affairs Jacqui O’Sullivan said that the shift in consumer habits brought on by the pandemic has also influenced retail store profits.

“We have been working closely with our landlords to review store rentals and our dealers to ensure our stores remain profitable,” she said.

“Store performance is closely monitored. Should a store start trending to become unprofitable, steps are taken to assist in the form of additional marketing funding, rental support and so forth,” O’Sullivan said.

Although MTN closed 14 stores over the past 12 months,  O’Sullivan said this was due to the 2021 July unrest in Kwazulu-Natal.

O’Sullivan also noted that underperforming stores often close and are relocated to better sites to ensure sustainability.

Andre Ittmann
Andre Ittmann, Cell C chief operations officer

Cell C chief operations officer Andre Ittmann said the mobile operator had closed 128 stores over three years.

“In 2019, Cell C made an informed business decision to adopt a hybrid retail model by reducing its physical retail footprint and put more emphasis on engaging and servicing customers through digital channels.”

“Cell C still believes there will continue to be a need for retail store environments and is continually exploring retail opportunities for expansion where it makes commercial sense,” Ittmann said.

Vodacom also had to trim its portfolio.

“In line with our omnichannel strategy and making sure our footprint remains optimal for our customers and business partners, certain stores were optimised in the past financial year,” a Vodacom spokesperson said.

Despite these challenges, Vodacom and MTN said they would continue to invest in the mobile retail industry.

“Retail still remains our strongest acquisition channel and will continue making significant investments in this space to ensure franchise stores remain relevant and attractive in support of our customers,” Vodacom said.

“For instance, Vodacom launched stores in Fourways and Vodacom World Midrand late last year, and more recently in Mall of Africa.”

MTN’s O’Sullivan noted that the operator has opened eight stores over the past year and plans to add 20 more points of presence in the following year.

“Currently, no stores are planned for closure in the short term,” O’Sullivan said.

Telkom did not provide any comment at the time of publication.

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Cellular shops are disappearing from South African malls — even though they make money