No pep in consumers’ step as Pepkor takes a knock
Pepkor’s trading performance weakens in fourth quarter, and Massmart plans to close Dion Wired stores
The poor state of the economy, which has forced consumers to cut back on hardware, furniture and electronics, took its toll on Pepkor’s trading performance in the year’s peak trading period.
In the December quarter, sales income was up 7.2% at R20.9bn compared with those of 2018's matching quarter. The increase was largely due to increased revenue from clothing in Pep and Ackermans brands. Like-for-like sales in the JD Group — housing furniture brands Russells, Bradlows and Rochester as well as electronics retailers HiFi Corp and Incredible Connection — were down 0.7%. New stores included, overall sales rose 3.2%.
The news of the muted sales of electronic goods comes soon after the announcement by Massmart that it has begun consulting unions on closing all 23 of its Dion Wired stores.
In SA, online sales make up only a small part of retail income, but shopping mall electronics stores have struggled under withering consumer demand and competition from online retailers such as Takealot, which is owned by Naspers.
Takealot has a large range of televisions, laptops and other electronics, and offers varied delivery and pick-up options.
Tech analyst Arthur Goldstuck said: “In an era where every potential customer is walking into a store with a smartphone in hand, price comparisons are a standard part of buying electronics. When there is a large disparity and not too much inconvenience in getting the low-cost option, the more expensive option will always lose.”
It can be cheaper for retailers to sell online as warehouse storage and IT systems can cost less than rent in high-end shopping malls.
Pep Africa, which includes stores in Angola, Nigeria and Zambia, had a 6.4% decrease in like-for-like sales in the final quarter of 2019, but with currency depreciation taken into account, there was a 12.7% decline in income measured in rand terms. The weakening African performance is mirrored by other SA companies struggling in Africa due to hyperinflation and wild currency swings.
Shoprite’s Africa division reported a 3.1% decline in rand value sales in the last six months of 2019, noting that the Angolan kwanza had weakened 40.6% against the dollar compared with the end of 2018. The Zambian kwacha fell 20.8% and the Nigerian naira 18.2% in the corresponding period.
The clothing front brought some good news for Pepkor, with a 6.4% increase in Pep and Ackermans revenue and same-store income growth of 3.2% compared with the end of 2018.
The increase came even as clothing inflation in the company hit 9.1%, much higher than Truworths’s 1.1% for the six months of 2019, while Mr Price recorded no inflation across its home and clothing brands in the last quarter of 2019.
Shoe sales in the last quarter of 2019 suffered. Pepkor said: “In the current economic environment consumers tend first to reduce spending on higher-priced products such as footwear, resulting in a very challenging trading environment for the footwear brands. Tekkie Town continues to focus on improving stockholding and other inefficiencies in the business which continues to affect performance.”
Pepkor said that with school starting later in 2020 compared with 2019, uniform sales were not included in its December sales figures. It reported a strong performance in early January with “double-digit growth”, as parents bought uniforms.
The Building Company, which has many wholesale stores, reported a drop in sales and like-for-like sales of 4.1% and 2.9%, respectively. Pepkor said: “Sales performance in the retail division improved during the quarter but performance in the wholesale and specialist divisions were negatively impacted by the challenging market conditions in the construction sector.”
Pepkor’s building division is not the only hardware retailer struggling with consumers, who are not buying property, while those who already own it are delaying renovations.
Competitor Cashbuild’s trading update for the December quarter experienced an overall 4% fall in sales compared with those of 2018's last quarter.
Pepkor said it did not expect an improvement in economic conditions soon.