Advertise with fastmoving.co.za
 
 

The Foschini Group is the notable exception in SA.
The Foschini Group is the notable exception in SA.

The Foschini Group - the notable exception in SA

RETAILER NEWS

By Amelia Morgenroodt - Jul 16th, 08:23

The Investment Analyst Society recently presented an Analysts Masterclass with an emphasis on the retail and consumer goods sector of the JSE. Much insight was provided by veteran analysts Syd Vianello and Chris Gilmour, featured on the panel discussion. They unpacked several topics like the size and diversity of the sector, the impact of foreign players, consumer behaviour, and retail companies venturing offshore, and notably into Australia, often terminating these ventures in the graveyard. 

Early 2018 retail stocks had a rally on the JSE, and share prices rose substantially thanks to the momentum created by Cyril Ramaphosa’s ascent to the presidency. The gains started in November 2017, when the market began to price in the expected positive political changes. Ever since it lost steam and investor demand faded away. Traditionally offshore investors favoured retail stocks, but statistics show foreign investors remaining net seller of the JSE to the value of R37 billion. The South African economy is experiencing the most prolonged downturn since 1945, and for the retail sector, this is the worst situation ever. They are stuck in a low growth environment, and there are few exceptions, so far the only one unscathed is The Foschini Group (TFG).

It does not seem like the retail environment will get much easier soon, with households under immense pressure from higher taxes, higher petrol price, unemployment, high debt levels, and low confidence levels. Everybody expected a consistent improvement after the election, but this did not materialise. In a low inflation environment, the food retailers' margins come under pressure, and their opportunity for high stock profits disappear.

Online shopping threatens the traditional retailers in the developed markets, but it doesn’t seem to be a real threat in South Africa and the rest of Africa yet. It varies from country to country; in South Africa, it is still a low 2 to 3 percent of retail sales while it is for example, much higher in the UK closer to 30 percent. In Africa, there are delivery issues, and the traditional shopping centre is not as much under threat as in the developed world. Even when Stuttafords blew up, it didn’t take long for all the space to be filled up by smaller retailers and pop-up shops. In the UK, USA, and Europe it is different; shopping will decrease dramatically in the future, and there is a vast oversupply of retail space.

The South African landscape changed in the last couple of years and quite a few of the global brands have already left. Some came in on a franchise basis, but they didn’t make it. The franchise mark-up, import duties and margin for the retailer made the clothes too expensive. There is just too much competition in South Africa.

For many years retailers were boosted by the up and coming middle class and ever-increasing social grants, but the growth in both are questionable for the foreseeable future.

Foreign investors used to love SA retailers because we have world-class management and high-profit margins, not necessarily found in other emerging markets, but are management still considered to be good?

The question is probably yes to retailers like Mr Price, PicknPay, and TFG.

Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity.
IOL 

Related News

Checkers brings world-class retail to Constantia with new flagship store
27/11/2019 - 13:01
Checkers has opened the doors to its state-of-the-art 2 330 m² flagship supermarket at the Constantia Emporium as the retailer continues to take innovation to new heights.

Woolworths carves out market share in SA
27/11/2019 - 10:11
In Australia, David Jones's sales declined 2.1%, with the company saying a store refurbishment contributed to the decline.

Push and pull strategies work together to keep consumers coming back for more
26/11/2019 - 10:20
The retail sector is under increasing pressure as consumers have shrinking disposable income in a strained economy. Maintaining share of wallet is critical. Relying solely on a push route to market strategy from manufacturers into retailers is not enough to get consumers buying products. A pull strategy needs to coexist with the push to drive brand consumption. Integrating these strategies requires intelligent and insightful decision-making. This, in turn, requires data generated through smart technology which provides line of sight across the value chain from manufacturer to distribution, retailer to the consumer.

Exclusive leases must fall: Commission cracks whip on Shoprite, Pick n pay, Spar, Woolies
26/11/2019 - 09:57
The Competition Commission Inquiry into Grocery Retail, published on Monday, called for an end to the exclusive leases negotiated by national retail chains in all shopping malls across the country in a bid to open up access to markets for smaller players.

Today’s customers are loyal to speed and convenience, not brands
25/11/2019 - 11:15
Consumer expectations are rapidly shifting as technologies such as mobile, geolocation, social media and increasingly, Internet of Things devices and wearables, connect people to a world of easily accessible information and convenient services. With the ability to browse, compare and order with a few swipes and taps, consumers are becoming trained to value convenience and service above nearly anything else.