Mr Price finds the right fit for customers
New, direct sourcing strategy credited with group’s turnaround
Walking through Sandton City’s MRP store, Tshiamo January, 27, browsed the new spring/summer collection.
“I love colour, and they’ve got bright colours,” she said while holding up a floral wrap dress, her pick from the displays on the shop floor.
January has shopped at MRP for what she described as “forever” and has seen it morph into what it is today.
“There’s so much more open space, you know where to find things like shoes and you can see what you want to buy . . . and it’s cheaper than Cotton On,” she said.
It’s hard to believe that just two years ago the darling of the retail sector had its worst year, reporting zero growth in its MRP apparel division.
Since the same period last year, Mr Price Group’s share price has gained more than 30%.
Atiyyah Vawda, a retail analyst at Avior Capital Markets, said this had partly to do with the group’s improved product offering, “after compromising on quality and changing the sourcing system, which resulted in underperformance”.
Vawda said the change in the sourcing strategy would benefit the group in the long term. The group had embarked on a direct sourcing strategy to increase the proportion of products obtained directly from manufacturers.
Part of the problem for the Mr Price Group’s apparel division was the unseasonably warm weather in the winter of 2017. Now the group is covering its bases by, for example, displaying summer stock at the front of the store as an early spring sets in, but retaining some winter wear in case there is a late cold spell.
“The new sourcing strategy will yield cost savings for the group. MRP plans to invest the cost savings into the quality of products and to improve GP [gross profit] margins,” Vawda said.
The changes have begun to yield results. In a trading update this week, the group reported that during the first four months (18 weeks to August 4 2018) of the financial year ending 30 March 2019, retail sales and other income grew 7.4% to R7.4bn over the corresponding period in the prior year.
Total retail sales, including sales to franchisees, of R6.9bn were 6.5% higher for the first four months of the financial year.
Mr Price is uniquely positioned with its aim of high fashion at low prices. It has a strong product offering, is improving quality and has a high-value proposition, creating a high-revenue-growth profile, Vawda said.
When Mr Price was at its lowest point, in 2016, its women’s brand, Miladys, reported an 11.2% decline in retail sales.
This week the group said Miladys had the highest retail sales growth in the apparel division at 9.1% for the first four months of the financial year, while like-for-like sales were up 8.9%. This brand’s internal inflation was 5.8%, the highest out of all the group’s divisions.
Zaid Paruk, a portfolio manager and analyst at Aeon Investment Management, said: “The MRP core customer is still shopping at MRP for value fashion. In this difficult economic environment, consumers are valueconscious in their purchases — looking for fashionable goods at a reasonable price.”
Paruk said Mr Price’s large store footprints and diverse brands had allowed it to remain resilient.
“MRP have managed to get their fashion right at good price points. The stronger exchange rate has also helped their ability to keep the product affordable.”
The group has 1,258 stores across its brands — MRP, MRP Sport, MRP Home, Sheet Street and Miladys.
Its rest-of-Africa business has also remained resilient. Sales in non-SA corporateowned stores grew 9.1% to R520.8m, aided by the inclusion of the previously franchised Kenyan stores from late May. Excluding Kenya, corporate-owned store growth was a muted 1.8%.
The group’s expansion into Poland and Australia is in the trial phase, with plans to open the first MRP Home test store in Poland in October.
Vawda said: “The success in the region is dependent on the ability of the group to replicate the SA business model in these countries, with the focus on value. A key factor would be to transform its supply chain via dual sourcing and direct shipping.”
Paruk said that “SA companies have generally proved poor allocators of capital in developed markets, especially in Australia. MRP are paying school fees rather than the costly mistake such as the Woolworths’ purchase of David Jones.
“A cautious approach to test the market before increasing investment offshore is prudent.”
But perhaps the group should also be looking at growth in other African markets.
A Malawian shopper in the shoe section at the MRP store in Sandton City, who did not want to be named, said: “The price is affordable and what is in the store is different from what we have back home — they follow what’s trending.
“Back home we only have Pep and other smaller retailers. But it’s mostly SA retailers such as Game and Shoprite. But this is affordable,” she said, admiring a pair of summer sandals.
Miladys had the highest retail sales growth in the apparel division for the first four months of the financial year