How South African retailers have been navigating the recent choppy economic waters

Lockdowns – whether in SA, Australia or the UK – have exacted a heavy toll on retailers. Add riots, electricity shortages and poor consumer sentiment, and it’s clear that SA retailers have their hands full.

However, Mr Price, Truworths, Woolworths and The Foschini Group (TFG) have released wildly differing trading updates over the past week. Faring the best are Mr Price and TFG. Faring the worst, surprisingly, are those that sell into the more affluent market – Truworths and Woolworths.

Mr Price reported a healthy 7.2% growth in retail sales and other income of R8.3-billion for the third quarter (3 October 2021 to 1 January 2022) of its financial year, which ends on 2 April 2022.

The rise is not massaged by poor results in the previous period. On the contrary, in the third quarter 2021, the value retailer grew its sales by 5.8%.

Recent acquisitions by Mr Price, notably Power Fashion and Yuppiechef, have added significantly to turnover, which jumped a healthy 19.2% to R9.3-billion.

Unlike some retailers, Mr Price did not turn to heavy discounting to drive sales in the period, instead concentrating on selling at full price. The consequence, the company noted, was a short-term loss in market share in October and November, but it expanded its gross profit margin by 60 basis points and expects to restore its market share.

TFG also reported strong performance in its third quarter, with group retail turnover growth of 17.3% compared with Q3 FY2021.

“Mr Price and Foschini are defensive businesses that fare well in tough economic times,” says Zinhle Mayekiso, an equity analyst with Anchor Capital. Supporting this is the fact that people who are relatively well off will shop down into these stores when there is uncertainty in the air, she adds.

Truworths, on the other hand, has been losing market share consistently. It reported turnover growth of 2% to R9.9-billion, relative to the R9.7-billion reported for the 26week period to 27 December 2020.

“Truworths is a very focused, high-margin, high-price operator that is not as diversified as its competitors,” says Chantal Marx, the head of external research and content at FNB Wealth and Investment.

“Sales growth may be in the single digits, but management is comfortable with its operating model,” adds Mayekiso. “When sales are tracking in the right direction, it does very well.”

Upper-end competitor Woolies disappointed investors. Its turnover for the 26 weeks to 26 December 2021 decreased by 2.1% compared with the previous comparable period. This was because of the extended lockdowns in Australia and the civil unrest in SA, the company said. Its sales in the last six weeks of the period increased by 3% and by 3.5% in constant currency terms.

It was the South African side of the business that alarmed investors.

The Food business grew turnover by 3.8% for the half, accelerating its momentum to 5.8% in the last six weeks of the period. However, if new stores are excluded, sales grew by 2.8%, with price movement of 2.6% and underlying product inflation of 3.7%.

The Fashion, Beauty and Home (FBH) business grew turnover and concession sales by 4.2% and by 4.7% in comparable stores, with price movement of 5.4%.

“We haven’t seen the Shoprite results yet, but it does seem Food is losing out to Checkers,” says Marx. “They have a strong brand in food, but they need to up the delivery game and focus on what they are good at, such as Fresh.”

Of interest was the fact that all four businesses provided e-commerce updates, despite the fact that in most cases, the sales generated were not significant.

Mr Price noted that online sales increased by 51.8%, which equates to 2.7% of total retail sales. TFG noted online turnover growth of 17.8% for the nine months to December 2021, adding that this was off a very high base in the comparable prior period.

Truworths’ online sales increased by 32% but contributed 2.2% to the segment’s total retail sales.

Woolworths shows a similar trajectory in SA, with Food sales increasing by 55.8% and FBH growing by 19.2%.

Combined with significant space reductions, there could be the potential for a turnaround in at least one retailer.