JD Group Shoots the Lights Out

  

JD Group “shot the lights out” in the ten months to June 2012 and looks forward to a “great” 2013, Chairman and Founder David Sussman told analysts at the presentation in Johannesburg on 27 August 2012. Sussman seemed unbothered by the factors that have qualified other recent results presentations such as rising unemployment, consumers borrowed to the limit and many unable to pay. His presentation was titled “It’s all coming together”. CEO Grattan Kirk said JD Group had been through a storm for the past three years. He pointed out that in 2006 before the National Credit Act (NCA) came into force, headline earnings were 823c a share, well ahead of the 409.9c just reported in the ten months. With all divisions now in good order, it was not unrealistic to expect further growth. Other positives are that the group is in a good position to extend more finance prudently and that the R250 million spent on SAP and R750 million on distribution centres should yield a return. “The heavy spending is now behind the group”.

• Comparable numbers have been provided and these reflect good growth. Revenue up 11,2% to R25,285 billion, operating profit 8,9% to R1,86 billion and headline earnings per share (heps) up 22% 

Source:

Moneyweb, dated 27 August 2012

The 3 big furniture retailers are under the spotlight where Lewis has shown a 7% growth year on year, JD Group 11,2% and we look forward to the Ellerines Group results.

Massmart on the move

Massmart profit up 38%

Massmart is showing other retailers how it should be done despite tougher trading conditions for all retailers earlier in this year.

 

Massmart reported a 38% increase in its headline earnings for its financial year ending 24 June 2012, it said on 22 August 2012. “Massmart's first year as a Walmart subsidiary has delivered strong sales growth,” the company said in a statement. Sales grew by 15,6%. “Trading space increased by 7,3% to a total of 1,350,300 square metres and the group now has 348 stores (with 25 stores opened, 15 acquired and five closed).” Massmart CEO Grant Pattison said: “The results reflect the group's continued investment for growth across all divisions, but specifically for food retail. “This has driven sales and market share growth, while suppressing margin growth in the short term.” He said Massmart's high comparative sales growth suggested consumers were “in pretty good shape”.  The retailer had seen an increase in competition for market share in most product categories. “Most major retailers are being highly innovative in their search for growth, whilst independent retailers remain nimble, exploiting gaps in the market,” he said.

 Source:

Business Report, dated 22 August 2012

Lewis Results

Lewis 4-month sales up 5%

Furniture retailer Lewis Group said on 17 August 2012 that sales for the four months ended July 2012 increased by 5%‚ from the same period a year ago. "Trading in April 2012 was challenging mainly as a result of the Easter holiday period. However‚ sales improved steadily from May onwards‚ with sales for June and July 2012,showing an increase of 6% for the two months‚” said CE Johan Enslin at the company’s annual general meeting held in Cape Town on 17 August 2012. Collections during April 2012 were also affected by the holidays but had improved since May 2012. This had resulted in debtor costs for the quarter to June 2012 of R134.8 million‚ which was consistent with the figure for the corresponding period last year (2011)‚ he said.

Source:

Moneyweb, dated 17 August 2012

Currently it is anticipated that similar to Lewis, House and Home a division of the Shoprite Checkers Group as well as the JD Group will show positive YOY growth, however on the other hand, EHL which is part of ABIL may be trading behind its competitors and results could be flat to even down on the previous years trading. We wait in anticipation to see the other furniture retailers results.

Volatile Rand impacting on Retailers

Tech importers deal with the volatile Rand

The liquidity of the Rand means a “roller-coaster ride” for companies which depend on importing products for retail in South Africa, “but big tech retailers are quick to point out that such a big component of their businesses is definitely factored into the equation”. A movement in the greater global economy, powered by more stable markets such as the USA, the eurozone and Asia, are reflected in the fluctuations in the local unit, which can prove chaotic to some local companies. Tech retailers and distributors such as Incredible Connection, Hi-Fi Corporation and Esquire, who import tech and electronic goods from overseas, weighed in on the impact the volatile Rand has on their businesses. JD Group CEO, Grattan Kirk, opines that exchange rate movements are all part of its business, and as such, the group takes out forward cover for all items imported when orders are place. JD Group houses two of South Africa’s largest tech and electronics retail brands, Incredible Connection and Hi-fi Corporation. “In the case of tech products, as has been seen over the last three or four years, the dollar input prices have been coming down as well,” Kirk said. Reflecting on the impact of the rand, Kirk notes that manufacturer efficiencies, lower dollar component prices, coupled with a stronger rand, has led to a consistent lowering of retail prices for items such as TVs (LED,LCD) computers, computer printers and monitors, HiFi and audio equipment, already.

The cost of volatility

 §     The most obvious impact the Rand has on tech retailers shows up in the form of pricing. “Naturally the volatility of the Rand affects pricing, as it is more difficult to plan and to buy stock,” said local tech and hardware distributor, Esquire. 

§     “If the Rand dips, it is possible to increase the prices on products; but if you have made a big order of a certain product line at a certain Rand price, it is hard to recoup some costs if the value of the Rand suddenly drops, and this drop had not been factored in.”

§     “If there is substantial volatility in the Rand, which we were unable to predict, or factor in, then we do our best to hold our prices steady to the benefit of our clients,” Esquire said.

§     Incredible Connection and Hi-Fi Corporation, being much larger brick-and-mortar retail outlets, also build much longer-term security measures into their stock-piles to buffer any unexpected twists in the local currency’s performance.

§     “As a rule of thumb, we keep about two months stock in store or in our warehouses and the suppliers probably have between 30 and 60 days stock in their logistics infrastructure. That effectively means we have between three and four months stock in the “system” to cover short term exchange rate movements,” Kirk said.

§     “Thus, it’s possible to cope with weekly short-term movement in the exchange rate without having to change selling prices daily or weekly.”

§     But even when retailers and distributors take currency fluctuations into account, they are not immune from the effect of long-term trends or unexpected dips in the Rand’s value.

§     “Longer-term movements in the exchange rate do, however, end up being priced into the selling price. This is either effected by an increase or decrease in selling prices,” the JD Group head added.

Size matters

 Rand fluctuation has a contrasting impact on businesses, depending on the size of operation, while long-term movements in currency will hit both large and small tech importers, the sudden dips and peaks are more likely to impact smaller outlets, “for better, or worse”. 

§     “We have to manage our business with the exchange rate being an integral part thereof,” JD’s Kirk said. “We have been doing it for many years and have policies and procedures to accommodate the exchange rate risk, etc. Practically, you can manage exchange rate movements either up or down when they move slowly.”

§     “The real issue is when the rates move aggressively one way or the other and remain there for 2/3 months and then back again. That plays havoc with procurement and buying and stock holding, particularly for a large group like ours.” 

§     “Smaller players get an advantage if they are not holding a lot of stock when the rand exchange rate strengthens, as they can quickly buy cheaper.”

§     However, as Kirk pointed out, this could also work against smaller companies if the rand weakens: “Then they are forced to buy stock at a higher price, where we are carrying stock at the older, better exchange, hence, we have a pricing advantage.”

§     Esquire also highlighted the impact of such sudden Rand movements. “In the ICT distribution market, a 1% shift in price in any direction can have a real impact on profits,” Esquire said. “Careful forward planning is necessary and one has to try and peg the Rand at a certain trading rate over a period of time, such as taking a three month view.”

§     “It makes it more difficult. But one should not expect business planning to ever be easy. There are always unexpected occurrences which sometimes necessitate a modicum of improvisation.”

Source:

http://businesstech.co.za, dated 30 July 2012

Retailers use social media to identify trends

With the explosion in communications technology through mobile devices, tablets and applications, ever more consumers are willing to share information with each other online, and also with their favourite retailers and brands, a survey by IBM showed recently. This means companies need to influence customers to also influence other potential clients, which to a large degree can only happen by harnessing digital media. 

"The speed of technology innovation, consumer adoption and access to information has created an environment where everything is known and the consumer is truly the one in power, coalescing around shopping communities of ‘we’," said Jill Puleri, global retail leader of IBM Global Business Services. Increasingly, savvy retailers are responding to this and using technology to make sure that interaction with customers is spot-on, based on individual preferences, location and lifestyle. 

• Woolworths and Pick n Pay actively engage with customers on Facebook and Twitter. 
• FNB’s social media strategy aims to build sustainable relationships with customers.
• "It’s quite innovative that banks and insurers follow their clients on social media. They are doing so to try and understand the trends, to see what customers are thinking and spending on, with the view to come back into their organisations and asking what products and services they need to adjust," Colin Daley, associate director for advisory services at Ernst & Young said. 
• Gerard Dumont, IBM SA retail sector lead, believes there is a big opportunity for retailers to engage within these technologies.  
• "Mature markets have fairly developed internet economies and online shopping capabilities, whereas in growth markets these areas are less established. 
• "The uptake of social media through devices by younger generations and the growing middle class in growth markets means that social media is leapfrogging this lag they have in the internet gap," Dumont said.

Source:

Business Day, dated 13 July 2012

Retail "needs BEE Charter"

The Government must introduce a broad-based Black economic empowerment (BEE) charter for retailers to ensure they were fully compliant with BEE codes of practice, empowerment experts said on 11 July 2012. Despite BEE programmes by retail giants such as Spar, Pick n Pay, Massmart, Woolworths, Cashbuild, Clicks and JD Group, there has been general criticism that the retail sector is not fully compliant with BEE standards. Ajay Lalu, the MD of Black Lite Consulting, said that the government had little or no leverage on broad-based BEE in the retail sector. He criticised the sector’s enterprise development programmes and employee share schemes, saying some of them were used to sugar-coat empowerment programmes as they did not fundamentally transform the supply chain.
§     Lalu said retail empowerment programmes, including enterprise development, were inadequate unless retailers were prepared to establish a transformed and sustainable supply chain with real benefits flowing to Black people. 
§     Lalu stressed that more attention should be given to the manufacturing and retail sectors.
§     Andile Thloaele, the CE of consultancy Inforcomm, said the reason retailers lagged behind with BEE programmes was because they were not incentivised. He also added that BEE guidelines were too diluted to get the sector to fully comply. 
§     Lalu said deals such as the Massmart and Walmart merger would not have been opposed by the government if Massmart had good empowerment programmes or better employee relations. “In my view the merger would have received support from (the) government had Massmart been more proactive on its empowerment programme,” Lalu said. 
§     The retail sector, unlike other industries, does not have a transformation charter with set targets to be achieved by particular dates. 
§     Instead of full partnerships with Black-owned businesses, retailers have put in place a number of enterprise development programmes and broad-based employee share ownership programmes.
§     Massmart spokesman Brian Leroni said the company had placed 18 million shares in the Thuthukani Employee Trust, and staff was awarded units in the trust at a price of R49.98.
§     The retailer said the Walmart transaction resulted in the payment of R439 million to staff shareholders when Walmart acquired 51% of Massmart’s share capital at a price of R148 a share.
§     The retailer had also established a youth development trust to assist unemployed youth to set up Hot Dog Cafés at Builders Warehouse stores.
§     Clicks allocated shares to 7,965 permanent staff members, with Black employees receiving 71% of the shares.
§     Through its enterprise programme, Woolworths said, it had appointed Stuart’s Joinery, a Black family-owned company, as its preferred shop-fitting supplier for the company’s African stores and it supported BEE suppliers.
§     Pick n Pay’s chairman Gareth Ackerman said its employee share trust held 3,4 million shares in the company.
§     “Procurement from Black-certified businesses remains a priority and targets have been set for all buyers in all categories to ensure that they have an element of black procurement within their respective portfolios.” The company had also established an enterprise development foundation and a franchise academy.

Source:

Business Report, dated 12 July 2012

Retail Skills Shortage

The African continent is made up of 54 Countries, and despite the fact that 9 out of the top 10 of the worlds poorest countries are all in Africa, we are facing a dilemma regarding human capital, especially with regards to skills shortage and in particular within the retail sector.

Although Africa is the poorest continent in the world, it is also one of the few emerging markets still left. Due to this situation it is receiving more and more international attention from foreign investors. This coupled with the fact that many international retailers are also starting to reach saturation point in their native countries, they  are looking to Africa and in particular South Africa for growth opportunities.

• Currently Samsung is on track to meet $10bn target. According to CEO Park Kwang Kee. Samsung is targeting a 100% growth in West, East and Southern Africa. 
• China is now Africa's largest trading partner. Bilateral trade grew more than 43% to nearly $115bn in 2010. 
• Social media apps are being developed purely for the African consumer, and has already surpassed 60 million users.
• Africa is currently the fastest growing mobile phone market in the world, dominated by MTN.

Did you know, foreign investors already own in the region of:

 54%                       Woolworths

 60%                       Mr.Price

 70%                       Truworths

 90%                       Massmart

South Africa is already facing a serious shortage in retail skills, and situations where retailers like Shoprite, Mr Price and Truworths, who are planning new stores from Angola to Nigeria, to benefit from rising African wealth is just adding fuel to the fire.

According to a 2010 report by McKinsey, Africa’s swelling middle class may boost household spending by 63% to $1,4-trillion by 2020.

Truworths already have 21 stores throughout Africa, Shoprite, Africa’s largest super-market chain has 123 stores in 15 countries and are looking to spend R1,5bn over the next 3 years on expansion.

To give an example of just one of the many retailers, Shoprite opens more than 50 new shops annually, which creates  jobs and a demand for skills in the sector.

According to CEO Joel Dikgole of the Wholesale and Retail Sector of Education and Training Authority (W&RSETA) states that “More than 42000 store managers will be needed in the next five years to meet demand in the rapidly expanding industry.” - This is in South Africa alone.

For every store manager there are a host of other skilled retail positions required. The question is where are all these skilled individuals going to come from? The wholesale and retail sector already contributes in the region of 15% of our GDP and employees in excess of 25% of our economically active population.

If this situation is not addressed in the present, then we are undoubtedly going to have problems into the future.

The Master Retailing Team