The Finance Ghost: Reits vs retailers — investors follow SA’s consumer value chain

The retail and property sectors on the JSE are jam-packed with companies competing for the attention (and capital) of the investment community. This represents an interesting value chain, as the retailers are the customers of the landlords.

The other way to vertically integrate is based on products rather than space, which means seeking out the FMCG names (such as Tiger Brands, Premier or Libstar) instead of the real estate investment trusts (Reits).

The ultimate exposure is the same: the South African consumer. But the routes to access that economic profit pool vary considerably, with different risk-reward dynamics and moats.

In the past week, we saw updates from two local property funds that have completely different strategies: Spear Reit and Dipula Properties. We also had numbers come in from Woolworths and Mr Price. This gives us a great way to see these strategies playing out.

From tourists to taxi routes

There are many property funds on the JSE that are primarily or exclusively exposed to South African properties. Although retail properties tend to feature prominently here (remember when it felt like shopping centres were springing up everywhere?), you’ll also find funds that focus on other sectors, or on regions rather than types of properties.

Spear Reit is the best example of a regional focus. The fund has always positioned itself as a Western Cape specialist. It obviously doesn’t hurt to be focused on the investment gem of South Africa, with plenty of capital continuing to pour into the province.

Instead of fighting over Sea Point apartments, Spear Reit invests mainly in industrial assets. It will selectively acquire retail assets as well. This is important capital discipline, as it means that the Reit is enjoying the overall upswing in the province, but without getting involved in the types of properties that have bidding wars that inspire TikTok videos complaining about digital nomads.

For example, Spear’s recent retail acquisition is Maynard Mall, which isn’t on anyone’s list of top retail destinations in Cape Town. Therein lies the opportunity for some active property management expertise to create value.

With distributable income per share growth of between 5% and 6% for the year ended December 2025, Spear has generated above-inflation earnings growth. Combined with the capital gains in the region over time, that ticks the box for investors.

Another example of a local property fund that has tried to carve out a niche is Dipula Properties. It isn’t as razor-focused as Spear, but 70% of its portfolio is attributed to retail properties near townships, on busy commuter routes or in rural areas.

This means that Dipula is participating in one of the more interesting trends in South African retail: the adoption of formal retail by consumers who are moving up the LSM curve. In simple terms, this means shopping at a Boxer or Shoprite instead of the local spaza store. Transport is a huge cost for low-income South Africans, so proximity to these shoppers is key. If you know anything about the success of those grocery names, then you’ll know that this is a lucrative shopper category that shouldn’t be ignored.

Dipula has noted a 5% increase in retail turnover in the portfolio for the quarter ended December 2025, so this is a totally different way to still achieve above-inflation returns. It’s also a world far removed from the investment gem of South Africa.

You see, Dipula’s regional exposure is the exact opposite to Spear. Instead of reading about growth in the Western Cape, you’ll see provinces such as KZN and Eastern Cape (up 10% and 8% respectively). Limpopo, North West, Gauteng and Free State all grew by between 3% and 6%. Mpumalanga was the ugly duckling, down 1.5%.

Dipula’s share price is up 26% in the past 12 months and Spear is up 23%. The strategies couldn’t be more different, yet the performance has been so similar,

Offshore headaches, new and old

We begin the retail section with Woolworths. The company released a trading statement for the 26 weeks to 28 December. The group numbers are tough, but that’s thanks almost entirely to the poor performance of Country Road in Australia. That market continues to humble and terrify even the most experienced retailers.

Back home in the land of biltong rather than billabongs, Woolworths is doing well these days. Importantly, the sales performance is consistent across the two main streams: Woolworths Food (up 6.8%) and Fashion, Beauty and Home (known as FBH and up 6.2%).

To achieve this, Woolworths has had to shrink into prosperity in FBH through deliberately reducing trading space over time. To make up for it, trading space has been expanding in Woolworths Food. Consumer tastes and shopping habits change over time. As a retailer, you adapt or die.

Speaking of consumer behaviour, the Woolies delivery offering Dash grew by 23% as online adoption continued. Online is now 7.2% of Woolworths Food’s sales. That’s ahead of the FBH online contribution of 6.6%, a stunning outcome that few would’ve predicted at the onset of the pandemic.

The gap in online sales contribution across the two segments is going to widen, as FBH could only manage online growth of roughly 3%. Woolworths didn’t even disclose this number – you have to work it out using the change in online contribution from one period to the next and the overall retail sales growth. When companies choose to leave out a number, it’s usually for a reason.

Moving on from simple algebra to calculations that no one can understand, we come to Mr Price and its push to do the NKD deal. It is going ahead with the deal despite the local investor community protesting as publicly as possible. The latest numbers from Mr Price give us a clue as to why this confidence (hubris?) has crept in around acquisitions, as the businesses it bought in South Africa are the highlight of recent trading.

Group sales for the quarter ended 27 December 2025 grew by 3.6%, an okay-ish outcome in the context of a very tough base period of two-pot withdrawals. Apparel sales are weak in the mid-market and value space, with Mr Price’s focus on cash sales (90.9% of total sales) making it harder for them to grow when consumers aren’t spending on clothing. The credit lever is limited here, for better or worse.

Online sales at Mr Price increased by 3.5%, a very similar percentage to the store sales growth of 3.6%. With a similar tepid growth rate at Woolworths, it looks as though these names are struggling to compete with the online specialists (Bash within Foschini Group, Takealot as the more diversified player and of course, the Chinese names like Temu for the cheap stuff).

As for the acquisitions made in recent years, Studio 88 and Yuppiechef both stand out as strong choices. Studio 88 grew 7.7% in this period despite a tough base where growth was 12.3%. Yuppiechef is even better, up 10.1% in this period after growing 26.5% in the base period.

The legacy businesses at Mr Price aren’t exactly telling an exciting story. But instead of putting the focus on the core business and how to win market share at a faster rate, Mr Price is pointing to the South African acquisitions and using them as justification for the NKD deal. Woolworths remains a cautionary tale here.

There’s a lot to be said for just buying the landlords instead. DM