Clicks bucks the trend, speeds up store roll-out
Clicks Group, the JSE’s fourthlargest retailer by market capitalisation, is taking advantage of rising vacancies in shopping centres to accelerate its store roll-out.
The beauty and health retailer, which usually opens 25 to 30 stores annually, plans to open 41 outlets during this financial year.
This is in sharp contrast to its peers, which are cutting costs and reviewing expansion strategies as a result of the sluggish economy.
The difficulty in the sector can be seen in the country’s biggest clothing retailer, Edcon, planning to reduce its space by about a third over the next three years.
New Clicks CEO Vikesh Ramsunder said the lethargic economy had led to more attractive retail space coming to market, giving it the opportunity to place stores in locations it had been targeting for a while.
Ramsunder said the group’s long-term goal was to eventually have a national footprint of about 900 stores.
It had opened 17 in 2019, bringing the number of shops it operated to 640.
The increased availability of store space is evident in the retail sector’s vacancy rate of 4.2% for March, which was above its long-term average of about 3%, according to the SA Property Owners Association.
Ramsunder said the group wanted to have a larger national footprint so it could become the retailer of choice for fastgrowing consumer sectors, such as the 60-plus demographic. The group said people in this age group and older tended to go to a pharmacy often, and Clicks could provide this service to them through its own dispensaries.
Gryphon research analyst and portfolio manager Casparus Treurnicht said the accelerated expansion came as a surprise as Clicks, under previous CEO David Kneale, was known for being a conservative operation.
Ramsunder, the former COO, took over from Kneale when he retired at the beginning of 2019.
Treurnicht said that if the group wanted to reach its footprint of 900 stores in five years it would have to roll out 44 outlets a year.
INCREASE STRESS
He said this was “very aggressive” and its performance needed to be monitored closely, as this rate of expansion could increase the stress on Clicks’s management team.
Treurnicht was nevertheless impressed by its performance for the half year to end-February. Group turnover was up 6.2% to R15.24bn, operating profit rose 11.3% to R1.04bn and headline earnings increased 12.9% to R763.3m for the period. “This is a tremendous result.” Treurnicht said its focus on its female customers had paid off. “They continue giving their female shoppers a good onestop shop for a multitude of items core to their needs.”
Clicks closed 4% higher on Wednesday at R184 per share, its biggest rise in a month.
Could we finally be seeing a turnaround for Mediclinic? After three years of relentless selling that forced it out of the JSE’s top 40 index, the hospital group appears to have found something of a bottom and Wednesday’s trading update sparked a 6% rally in the stock.
That’s notable because a mere 3.5% gain in full-year revenue and a 1.5% drop in earnings before interest, tax, depreciation and amortisation would not ordinarily cause a share to jump to such an extent.
However, steady (read flat) sales and profit are better, clearly, than falling revenue and earnings and Mediclinic has now met its own guidance for the year to end-March, with profit margins holding steady at about 21%.
At one point, Mediclinic appeared to be battling on all fronts except its Southern African division. But its Swiss operation Hirslanden is emerging intact from a period of major regulatory change; and the Middle East has steadied with margins there expected to move up to 14% for 2020, from its current 13%. Only its investment in UK group Spire Healthcare continues to look sickly.
To be fair, all three major hospital groups on the JSE Mediclinic, Life Healthcare and Netcare have been thoroughly roughed up over the past three years, and all are showing signs of a rebound.
Mediclinic, however, is trading on a more palatable price to earnings ratio of 11 than Life, on 25.5, and Netcare, at a fairly breathtaking 49 times.
CLICKS
B eauty and health retailer Clicks has always followed its own path. Where other local retailers have opted to expand abroad, it has chosen to remain in SA. When other chains aggressively rolled out stores, it was happy to bide its time.
This cautious approach to its expansion, however, has seemingly come to an end. The group is now looking at increasing the number of stores it rolls out, with 41 planned for this financial year, significantly higher than the 25-30 it usually opens.
New CEO Vikesh Ramsunder says this move is not the execution of a new strategy; rather, it is the acceleration of its existing one, of increasing the number of stores it operates.
It noticed that a slowing economy had led to an increase in vacancies. The group is now using this to its advantage by getting into prime locations where it aims to target the 60plus age group, which is the fastest-growing consumer market in the country.
The idea behind this is that people in this age group need to go to a pharmacy often, and Clicks could provide this service to them through its store-based dispensaries. It is hoping that these clients, who are often overlooked by other retailers, will become a serious growth driver for the group.
When the group introduced its Clicks Club Card years ago, it took a while for the market to take it seriously.
It has since evolved into the largest consumer loyalty programme in the country.
Clicks’s plan to target this market may be just what the doctor ordered.
MEDICLINIC, LIFE HEALTHCARE AND NETCARE HAVE BEEN ROUGHED UP OVER THE PAST THREE YEARS