Syd Vianello, independent retail analyst. Picture: BDTV
Syd Vianello, independent retail analyst. Picture: BDTV

Syd Vianello is a retail analyst on the South African retail space

BUSINESS DAY TV: According to research done on behalf of the South African Council of Shopping Centres, real household consumption expenditure growth in 2017 is forecast to come in at 1.70% compared with the estimated growth of 1.2% for this year. Retail analyst Syd Vianello joins us in the News Leader studio with his perspective of SA’s retail space.

Syd … we were just saying that we can’t believe the extent to which sales are happening ahead of Christmas. To what extent is that illustrative of just how tough a trading environment it currently is?

Syd Vianello: I guess it speaks for itself. In the retail business, especially in the fashion business, you must remember at the end of the season — which would typically be, let’s call it the end of February, before the early autumn stuff comes in — if you haven’t sold the stuff you might as well take it off the shelves and actually give it away to charity because its worthless, it’s worth nothing.

Now retailers have these organised computer models that work on predictive forecasts, particularly of stock and sales. So they know in advance, they obviously know what their current sales are, they know what stock is coming in and they know what they anticipate or want to have left at the end of February. Remember the shelves can’t be completely empty at the end of February, there has to be some stock, but you don’t want too much stock to be there. Obviously if you can see if the sell-off rate of a particular line is much slower than anticipated, than according to your model, you know that you need to start discounting the stuff to get rid of it so that hopefully by the end of the season you will have the correct amount of stock that you originally anticipated to have.

Now the reason why we have these sales early — they started in November already — is clearly because the retailers could see that their sell-off rates were much slower than anticipated.

BDTV: Despite this though, and despite the October retail sales number coming in negative, there seems to be some cautious optimism about 2017’s trading conditions, with positive signs regarding SA’s broader economy slowly starting to emerge. Are you sitting in that camp as well?

SV: Bear in mind we are a commodities-driven economy first and, in the context of that statement, have a look at some of our major export commodities. In some categories of coal, for argument’s sake, the price has doubled. In the case of iron ore the price from its low point has already doubled, and in fact in some cases maybe slightly more than 100%. So I understand the price of manganese is also significantly above last year.

It’s true the platinum prices are down, the platinum mines have been reorganising for some time, so if we look at it in that context, there is reasonable optimism that from the commodity perspective, things will be better, there will be more money around, employees will earn more money, they may even employ more people, which of course just adds to the circle of increased income.

Plus the fact that the agricultural situation is forecast, and I use the word forecast and you must look at it in the context of that word, it is forecast to be better than last year’s terrific drought. Now I know that I read only two days ago that some parts of the maize growing area haven’t had the right amount of rain but there are many other areas where the rainfall seems to have been pretty good. But on balance, it seems as if the maize crop particularly will be quite a bit better than last year. Maybe not the records we’ve had in the past, but certainly better. That means the maize farmers may employ more people, certainly pay their existing employees more money. So things are possibly a little bit better than what we anticipated, the weaker rand should boost exports, should, I don’t know if it will, but should …

BDTV: Okay so that’s potentially what 2017 is opening us up to, also opening us up to a more competitive landscape and within that landscape we’ve got the Shoprite-Steinhoff deal finally having been struck. What have you made of the move and does it make sense in your books?

SV: It does make sense from the perspective of what I would always have called the final step on the Steinhoff realignment process because what this exercise will do is turn Steinhoff, on its own, into a purely international business with an investment, maybe a controlling interest, in a domestic South African business. Which could be spun off to its shareholders in time, leaving Steinhoff International Holding NV as a pure play European or global furniture and household goods retailer and Retail Africa as a pure play furniture, food and household goods retailer, but a pure play African version. This I believe will attract a lot of emerging market investors who may have been a bit reluctant to get into Steinhoff for emerging market purposes because it really isn’t an emerging market play, and also reluctant to get into it as an emerging markets play because it isn’t one of those either.

BDTV: What do you make of the concern doing the rounds that Shoprite could potentially overpay with the share price under pressure? Could Shoprite potentially be getting this instead at a decent price?

SV: It’s a tricky situation. I look at it from Christo Wiese’s perspective. If Shoprite overpays for the Pepkor assets, they’re going to have to pay for it with Shoprite paper which, of course, has now been devalued since that’s been marked down as well. This means that Wiese’s interest in Shoprite is going to be diluted more than what he would have anticipated. So maybe, I say to myself, isn’t that the balancing figure or part of the balancing process that if you overpay on the one hand, the major shareholder in both companies loses out on the one side and then that, of course, depends what happens to the Steinhoff price …

BDTV: Opening us up to a very interesting 2017 …

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