Disproportionately high rental costs, low profit margins and changing consumer habits are forcing more mobile retail stores to close in malls across South Africa.
A senior industry source who spoke to 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 rents is forcing mobile store closures,” they said.
“A mobile retailer can pay up to R1,500-1,800 per square meter, while a TFG or similarly sized large retailer only pays R350 per square meter for the same space.”
The source said that since margins have dropped dramatically in mobile retail, the increase in landlord rental costs over the past 28 years has become totally unsustainable.
“I guess 50% to 60% of mobile stores in malls, including franchises, are not profitable or break even.”
They said excessively high turnover clauses were driving up rental costs, putting more pressure on mobile stores to close.
“Shopping centers require 7 to 8% of turnover. However, the net margin on prepaid airtime is only 4%, excluding credit card fees.
“There is no markup on handsets for contracts and upgrades, and any cash sale of mobile devices typically only has 6% to 8% revenue,” they said. declared.
“Landlords are doubling down by charging 300% or more for the space and then adding a turnover clause on top of that.”
“There is no doubt that some owners are better than others and understand the threat. However, many are intransigent and bet on these high returns.
MTN SA’s head of general affairs, Jacqui O’Sullivan, said the change in consumer habits caused by the pandemic has also influenced retail store profits.
“We have worked closely with our owners to review store leasing and our resellers to ensure our stores remain profitable,” she said.
“Store performance is closely monitored. If a store starts to become unprofitable, action is taken to help it in the form of additional marketing funding, leasing support, etc. said O’Sullivan.
Although MTN has closed 14 stores in the past 12 months, O’Sullivan said this was due to the July 2021 unrest in Kwazulu-Natal.
O’Sullivan also noted that underperforming stores often close and are moved to better sites to ensure sustainability.
Cell C chief operating officer Andre Ittmann said the mobile operator had closed 128 stores in three years.
“In 2019, Cell C made the informed business decision to adopt a hybrid retail model by reducing its physical footprint and placing greater emphasis on customer engagement and service through digital channels.”
“Cell C still believes there will always be a need for retail store environments and is continually exploring retail expansion opportunities where it makes business sense,” Ittmann said.
Vodacom also had to do some trimmings.
“In line with our omnichannel strategy and ensuring our footprint remains optimal for our customers and business partners, select stores have been optimized over 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 remains our strongest acquisition channel and will continue to make significant investments in this space to ensure franchise stores remain relevant and attractive to support our customers,” Vodacom said.
“For example, Vodacom launched stores at Fourways and Vodacom World Midrand late last year, and more recently at Mall of Africa.”
MTN’s O’Sullivan noted that the operator opened eight stores in the past year and plans to add another 20 points of presence the following year.
“Currently, there are no stores scheduled to close in the short term,” O’Sullivan said.
Telkom provided no comment at the time of publication.