What next for anchor tenancy in malls as retailers struggle?

Lake Basin Development Authority (LBDA) Mall in Kisumu has struggled to sign on an anchor tenant

Christine was a regular shopper at a supermarket in a mall located along Mombasa Road. She was drawn in by the easy access to the supermarket that stocked most of the items on her shopping list.

A recent visit, however, left Christine a dejected mother. Most of the shelves were empty, except for some larger items that did not fit in with her budget. Its closure, she reckoned, might be imminent.

What she may not have known is that her favourite supermarket is facing liquidity problems similar to what has befallen other outlets in major malls.

The supermarket’s problem, however, heralds a much bigger problem to the developer who might lose his anchor tenant in the near future. In Kenya’s retail business, it has become common to have supermarkets as anchor tenants, yet, when things fall apart, mall owners and managers are left scratching their heads as they look over the horizon for the next big catch.

While existing malls are losing key clientele, other malls are having difficulties signing an anchor tenant. A classic example is that of the Lake Basin Mall in Kisumu completed in 2017. Despite gobbling up Sh4.2 billion in construction, it is yet to sign up its first anchor tenant.

The question begs, is it time to rethink the anchor tenant model beyond a supermarket? But first, why should a mall sign in an anchor tenant?

A key reason for signing in an anchor tenant is to bring in the requisite footfall in a mall. In addition, such a client brings in the credibility that a new mall desperately needs.

Benefits

Without this, malls will be no more than dead spaces. Owing to the importance of this client, an anchor tenant normally gets to enjoy lower rent in comparison to space occupied as well as subsidised services.

According to an American mortgage experts firm Commercial Real Estate.Loans, if a potential tenant in the smaller shops knows that a big name in retail is moving into a mall, he is far more likely to feel comfortable signing a long term lease there. Small eateries, gaming shops, clothes stores or entertainment joints are more likely to follow suit. The benefits of a strong anchor tenant are immediate.

“For instance, a family may decide to go grocery shopping at a mall, get a quick bite to eat at a casual restaurant there, and then pick up medication at the pharmacy, all without leaving the shopping center itself,” states the realtor.

In Kenya, however, the proliferation of malls seems to water down the status of an anchor tenant. Every neighbourhood has its own ‘mini mall’ where residents in nearby estates dash for daily provisions.

Here, rents are much lower than in the big malls. They are also easier to access than their big brothers. Realtors, however say despite the changing faces of shopping in Kenya, we are yet to read the last chapter in anchor tenancy guidebook.

Ashmi Shah, the Retail Portfolio Manager at Knight Frank Kenya says an anchor tenant does not necessarily have to be a supermarket “so long as the alternative anchor can draw adequate footfall to support other tenants in a shopping mall.”

She says the mall culture is what drives the need to have anchor tenants in malls across the world with a view to changing the way people shop. The players may change, she says, but the field remains the same.

“Whilst many shopping malls globally are anchored by large department stores or supermarkets, new shopping centre developments are incorporating leisure facilities that in themselves attract traffic by promising and delivering upscale consumer experiences,” says Shah.

Shah’s idea is to separate the supermarket woes with that of the mall.

When  local retail players faltered, she adds, landlords had the option of approaching local and international supermarket brands to take up the vacated spaces if it suit their strategies. She has the names to prove her point.

Alternatives

“Over the last two years or so, home-grown brands such as Naivas and Tuskys have replaced other retailers as anchor tenants in some malls. For instance, Naivas replaced Uchumi at Capital Centre and Nakumatt in Likoni, while Tuskys took over space vacated by Uchumi at Westlands Square, replaced Nakumatt at Crossroads in Karen and Oasis Mall in Malindi. Any brand category can be an anchor tenant so long as it is deemed to have the drawing power to drive business for the other tenants in a mall development,” she says.

Francis Gichuhi, the principal architect at A4architect says mall developers ought to pool resources and offer better services and options to their key clientele.

Such incentives, he says, can be extended to other players besides a supermarket such as fast foods joints, hospitals or utility firms as long as they have a high visitor presence.

“As the old adage says, you catch more flies with honey than with vinegar. Thus the trick with the malls world over is to improve on attracting the flies (anchor tenants) and result in more customers,”