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Retail environment remains tough

May 21 2017 06:29
Justin Brown

Johannesburg - The environment in the local retail sector was “very tough” and there was talk of the current situation being the worst since the 2009 recession, Kirsty Laschinger, an Investec retail analyst, said this week.

“‘Tough’ is the word that every single retail management team that I interact with uses over and over again,” she said.

“Most retailers are using recessionary language,” Laschinger said at the SA Retail and Shopping Centre Research Conference held in Johannesburg this week.

“New-space roll-out [in the retail sector] has slowed dramatically in most cases,” she said.

“The much tougher environment looks like it is here to stay,” Laschinger said, adding that local disposable income was at its lowest level in a decade and retail volumes are under pressure across the board."

Volume growth has been hard to achieve in most retail categories, but more defensive categories have been holding up better than discretionary spend.

Among grocery retailers, Shoprite and the informal sector are taking the share for the rest of the industry.

“Since 2014, downtrading to the informal market has taken market share from the formal sector. That reverses the long-term trend from 2000,” she said.

In the pharmacy trade, independent pharmacy shops are shrinking, with DisChem and Clicks muscling in following the move in 2003 to allow corporate ownership of pharmacies.

“Independent pharmacies have shrunk from a 100% share in 2003 to 50%,” she said.

In the furniture trade, independent retailers seem to be taking more share from the large chains.

The clothing retail sector has been hurt by depressed consumer spend, including the credit squeeze, the lack of job creation and elevated inflation.

Laschinger said that potential disruptors for clothing retailers over the next five years included a new and changing competitive environment, online retail and a new credit environment.

The biggest six clothing retailers – the Foschini Group, Mr Price, Truworths, Woolworths, Edcon and Pepkor – have grown their market share from 62% in December 2007 to 73% in December last year.

“Large, listed groups and Pepkor have, arguably, benefited more from the squeeze in the smaller retailers than from Edcon’s lacklustre sales performance,” Laschinger said.

Over the past eight years, Edcon has shed 6% of market share to just above 14%.

New entrants in the local clothing sector included Cotton On with 200 stores, a 1.3% market share and R2 billion in local sales, and H&M with nine stores, a 0.6% market share and R972 million in local sales.

Other new entrants include Zara with eight stores, Topshop with seven, and Forever 21 and Superdry with three stores each. Laschinger said that Japanese fashion retailer Uniqlo could also enter South Africa.

Edcon remained a “formidable business”.

“Edcon’s new management team has articulated a coherent strategy to reduce space given to international brands and reprioritise private labels,” Laschinger said.

Cotton On and H&M have hurt Mr Price, while H&M and Zara have had a negative effect on Woolworths’ Country Road and Witchery.

“Mr Price is shifting its mix back towards more core product defence,” Laschinger said.

Internet retail, which is constrained by access to infrastructure, cost and literacy, only makes up 1% of local sales.

Laschinger projected that local online retail would rise to 3% of total sales in the years ahead.

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