Dis-Chem to expand into the vacuum created by recent turmoil
Pandemic has highlighted the importance of health care, says CFO Rui Morais
Dis-Chem plans to expand its network of pharmacies in 2021 and believes it can take advantage of lower rentals resulting from the rising number of vacancies in malls.
CFO Rui Morais said that while the economy was weak, health care had proven to be a “resilient” business.
Morais said landlords would battle with vacancies even after the lockdown lifted, giving it a “strengthened” position in negotiations over new store rental rates. There is concern that some cinemas and some restaurants will be hit hard by the lockdown and may never reopen after months of closure.
New Dis-Chem stores are planned to be smaller than the current big box store formats. During the year to February, it opened 18 stores and bought three independent pharmacies, bringing the total number of stores to 170.
Dis-Chem made headlines when it told landlords at the beginning of April that it would pay lower rent for the month based on lower trading levels.
Morais said trading in the first few days of lockdown from March 27 plummeted and it then told landlords it would to pay utility bills in full and pay rents based on trade levels.
It has now paid landlords an average of 83% of April’s full rent in line with the percentage of product lines it was allowed to sell. Some goods such as perfume and sports supplements were not permitted for sale.
“We assumed everyone would go down that route. Everyone went down that route,” said Morais.
Dis-Chem was down 1.44% to close at R19.86.
He defended its rental decision saying every retailer had paid rent based on trade levels, with food retailers not paying rent for their bottle stores, for example. Clicks has said it was seeking rental reductions for stores such as Musica that could not open in April. “We can’t be treated differently to other retailers.”
The rent for May was paid in full.
In its annual results to end-February, Dis-Chem generated retail revenue growth of R21.8bn, an 11% increase from the prior year.
Due to uncertainty around the coronavirus pandemic’s impact on the economy, it has decided to defer paying dividends, with a decision expected at a later time. Its headline earnings per share were down 16.7% to 69.6c.
While admitting the economy was facing tough times, Morais said the company didn’t only plan its expansion outlook from “an economic perspective”.
“Consumers will be constrained but the truth is the coronavirus pandemic has highlighted the importance of health care,” he said.
Since the awareness of the coronavirus pandemic spread, patients on chronic medication were being more adherent and coming to fill their scripts every month.
Dis-Chem data shows people often fill scripts for chronic conditions such as diabetes and hypertension, which are often symptomless, every second month.
Global data has shown more than 80% of people who died from Covid-19 had more than one chronic condition such as diabetes.
Morais said Dis-Chem had seen a huge growth in people buying vitamins in what he terms “preventive health care”.
Dis-Chem’s retail stores experienced a “substantial increase” in revenue of 45.6% in the weeks before the lockdown as customers stocked up on health, medication and food, compared with the period in 2019. Sales during the lockdown were 20.9% lower than the same period in 2019.
From May 1 to May 16 sales were 2.8% higher than the same period last year.
Retail revenue for the 11 weeks ending on May 16 increased by 6.3% compared with the same period in 2019, the company said.
Dis-Chem said the planned R430m purchase of Baby City, announced last week and subject to competition authority approval, had been two years in the planning.
If the purchase goes ahead, it will open Dis-Chem clinics in baby stores to offer nursing to mothers before and after pregnancy and provide baby vaccinations.
They will use the Dis-Chem loyalty programme to entice existing customers who are expecting a baby to buy goods including prams and cots at Baby City stores.