The impact of size and profitability on retail format choice in South Africa

M.Com. (Financial Management)The growth in the retail sector has forced property management teams to start focusing on financial benchmarking of formats when expanding operations. The purpose of this study is to investigate and compare the profitability of three different retail formats, with specific focus on the occupancy cost components. Size was identified as an important determinant of rent and this relationship is also investigated. Data from a large South African retailer, with stores in various formats was obtained. The profitability was calculated - using an adjusted profitability model - for three retail formats; large shopping centres, small shopping centres and stand-alone outlets. All data, including size details were obtained for a period of five years. The expectation of a negative relationship between store size and rent was rejected for individual stores as well as format groupings. The profitability analyses delivered mixed results between „rand value‟ and „percentage to sales‟ outcomes, but concluded that large shopping centres were the least profitable of the retail formats under review