Cash is king as Foschini limits credit

THE growing proportion of cash sales at The Foschini Group (TFG) helped bolster first-half profit at the retailer, highlighting the importance of cash as fewer consumers, many of whom are overindebted, get access to credit.

A decade ago, credit sales exceeded 75% of sales, but cash sales for the half-year to September were 44.2% of total sales from 40.3% previously.

“Fundamentally, if you have a good product to buy and because a lot of customers are credit strapped at the moment and don’t have access to credit but want to buy, they will still make a plan to buy with cash,” TFG CEO Doug Murray said.

Broadening merchandise with sought-after and defensive products such as cellphones and cosmetics has helped propel sales.

“Also, we’ve moved into brands that probably appeal to the higher LSMs” he said, referring to @home, Fabiani, G-Star Raw, Duesouth, Totalsports and Sportscene. “That consumer group at the moment prefers to buy cash.”

Murray said trading conditions on the credit side of the business were likely to remain challenging until the current level of consumer indebtedness

We’ve moved into brands that appeal to higher LSMs

normalised. Consumers are finding it tough to pay their accounts, and bad debt rose to 12.9% of the debtors’ book from 12.4% in the previous year.

Credit sales grew only 5.9% at the group, with the company rejecting almost 55% of customers seeking store credit. “If you were just a mass middlemarket retailer who sold on credit, you’d have a really tough time at the moment.’’

While there are early signs of improvement in debt collections, recent postal strikes have affected collections. For the first five weeks of the second half, retail turnover growth has been stronger, growing by 13%, with cash growth of 23.5% and credit growth of 5.9%.

First-half headline earnings a share from continued operations grew 8% to R4.033. An interim dividend of R2.63 a share was declared, up 8.2%.

TFG has 17 brands. Its jewellery chains, American Swiss and Sterns, are the country’s largest and Totalsports is the top retailer of big sports brands.

The group had a cash injection after the sale of its 55% interest in RCS was completed in August, which is being used to reduce borrowings while the company evaluates its options.

The group opened 109 stores in the first half and a further 100 will be opened across all its trading formats in the second half. This will increase its store base from 2 205 to 2 300 stores.