South Africa’s Big 12 Retailers Shift From Expansion To Tech Investment

Written by Staff

Most South African retailers are no longer speaking about African expansion and aggressive store roll-outs, an expert says.

Data from the big 12 retailers in South Africa show that they are putting their money into store refurbishments and information technology.

Africa is falling off the immediate radar of local retailers after the region posted its slowest growth rate in two decades in 2016. With the outlook for 2017 looking like more of the same, most companies are changing their focus from expansion to improving customer experience through IT.

From Business Day Live. Story by Colleen Goko.

Growth in the sub-Saharan Africa region slowed to 1.5 percent in 2016. The risk outlook weighed heavily to the downside due to heightened policy uncertainty in the U.S. and Europe and continued weakness in commodity prices, according to the World Bank.

African expansion is just not something most retailers are looking at, said Derek Engelbrecht, EY lead consumer products and retail partner at the EY retail sector overview on Tuesday.

“Compare this to five years ago, the picture was very different. There was talk of aggressive store rollouts,” Engelbrecht said. “The publicly available data from the big 12 retailers in South Africa show that they are putting their money into store refurbishments and into their IT capabilities.”

The 12 big retailers include Massmart, Mr. Price, TFG, Pick n Pay, Shoprite, Woolworths, Clicks, Spar, Dischem, Edcon, Truworths, and Holdsport.

These companies account for nearly 600 billion rand ($44.68 billion US) in annual sales.

Data collated from these companies showed that in the latest six months, they grew merchandise sales an average 10.2 percent, while headline earnings increased 0.4 percent. Capital expenditure grew an average 6.4 percent.

“Some companies expanded into Europe and the U.K. to diversify their earnings,” Engelbrecht said. “When the rand strengthened in their latest six-month period, we saw that those companies lost out. But the general trend has been a renewed focus on the customer and investment in technology.”

The strong customer focus was grounded in technology, Engelbrecht said. IT played a critical role in investing in a single view of the customer; building online capability; enhancing efficiencies – especially across supply chains and distributions; and reward programs to enhance client insights.

Rising interest rates and currency depreciation will put a further strain on consumers’ disposable income, EY said. Retailers with more diversified geographic earnings will be better positioned to withstand the pressures.

Read more at Business Day Live.