New wave of change on horizon for retail
Once economy stabilises, expect disruptors to arrive
● Some of SA’s big retailers are bringing in fresh ways of keeping shoppers engaged as consumers globally abandon department stores for speciality stores and spend more of their money online.
TFG’s Sportscene this month opened a concept store in Sandton City with a DJ recording studio, a tattoo parlour and a mini basketball court.
Builders Warehouse opened a new flagship store in Boksburg in April offering practical help for customers in getting wood and metal cut, as well as the latest in technology trends.
There’s a 3D printing service, and shoppers can pay without waiting to queue for a till.
Local retailers are starting to tap into more features of “retailtainment” but they lag behind global companies that are pushing the boundaries more aggressively to cope with tough times.
Out with the old
The way consumers shop for clothing, for example, is being changed by industry disruptors such as Stitch Fix, a personal styling service with revenues of more than $1bn (about R14.6bn), and Rent the Runway, a service that hires out, rather than sells, designer dresses and accessories.
The South African retail sector, while it is not alone in going through troubled times, is finding it tough to pass cost increases on to consumers in a very weak economy.
Figures released this week by Stats SA show retail sales were up 2% year on year in real, inflation-adjusted terms in July.
This is slightly lower than the previous month’s increase of 2.4% and below the market’s expectation of 2.6%, suggesting that the pressure on consumers has yet to ease.
Yet the sector’s growth is more or less in line with trends overseas.
Says Abhishek Kapur, consumer industries leader for EY, Africa: “Our five-year growth rate is the same as the global retail growth rate. The entire retail world is struggling.”
The difference is that in other countries it is technology companies that are disrupting traditional retail markets, whereas in SA the weak economy is the constraint — and it’s not yet clear how established retailers will handle the radical changes ahead.
“What will happen when our economy calms down is we will get the disruptors coming into the market,” Kapur says.
“Can we leapfrog? The biggest question here is whether we will hold onto legacy businesses, or will we learn from the rest of the world and leapfrog, like we’ve done with telecommunication companies very successfully?”
Kapur says there are challenges to shifting consumers to online retail, but habits are a lot easier to break when prices are 10% to 15% lower.
Consumers seek an ‘experience’
“Whoever cracks the last-mile challenge in an economic fashion and provides an experience on e-commerce or online, as opposed to just a channel to transact, is one who’s well suited to drive this game forward.
“The point here is it’s ripe for the taking and the question is whether somebody has the capital and vision to get this done.”
Kapur cites Amazon as one of the leading disruptors in retail.
Retail a key growth driver
EY’s analysis shows how important the retail sector is in driving economic growth and employment in SA, and how spending patterns are changing.
The retail sector accounted for 6.7% of GDP in 2017, up from 6.2% in 2000.
Retailers employed 960,000 people in the first quarter of this year, double the number in the mining sector. In the same period, retail sales grew 1.1% even though the economy went into a sharp contraction.
Retail sales growth last year averaged 2.1% year on year following 3.1% in 2017, above GDP growth in the local economy.
The numbers show growth has slowed at speciality retailers (such as hardware and paint stores, jewellers, sports equipment and book stores), while sales across general retailers remain flat.
Pharmacies and clothing have been driving overall retail sector growth. Consumers are spending less on home maintenance, but more on furnishings.
Perhaps surprisingly, household goods and furnishings were the best-performing sector last year, with growth of 9.8%.
Kapur says people invested in products in their homes. “In the cosmetics market you’d call this the ‘lipstick effect’, where you do your interiors or buy a nice duvet or improve your patio.”
Tough times for small guys
By contrast, general dealers have been hard hit and the sub-category of smaller retailers has had the toughest time.
Pharmaceuticals and clothing have been the best performers in the sector.
EY research shows pharmaceuticals grew 2.8% last year, 3.1% over the past five years and 3.9% over 10 years. Clothing last year grew 3.9%, with sales driven by an emerging, aspirational class, as well as by the availability of credit.
Hardware has been hit hard but food and beverages have been the worst performers.
The hardware and paint sector was down 0.3% and this, Kapur says, reflects the tough property market. “Because of the uncertainty around policy, people were holding [off on] purchases and extensive repairs.”
Will we hold onto legacy businesses [or] learn from the rest of the world?