Pepkor braces for soft economy

Pepkor, the owner of Incredible Connection and Shoe City, is bracing itself for a constrained retail environment, blaming the effect of Covid-19 and the recent civil unrest for the state of the economy. On Friday, the company reported fewer sales on credit, which is an indication that retailers continue to struggle in the weak SA economy.

Pepkor, the owner of Incredible Connection and Shoe City, is bracing itself for a constrained retail environment, blaming the effect of Covid-19 and the unrest for the state of the economy.

On Friday, the company reported strong trade in May followed by weak sales in June and fewer sales on credit, which is an indication that retailers continue to struggle in the weak SA economy. In a trading update for the nine months to end-June, Pepkor said the fragile economy put it in a good position as a discount retailer, with low-cost brands such as Ackermans and Pep, which tend to deliver resilient performance as consumers “buy down”.

Pepkor said revenue in the nine months to the June 30 year-end grew 13.9% to R53.9bn. Pep and Ackermans sales were up 15.5% year on year it said, but the growth in stealing market share has slowed from 2020.

In response to constrained consumer spending, the firm reduced the granting of credit at its Capfin loan business, which is aimed at lower-income consumers and in its tech and furniture division, the JD Group, which houses brands such as Rochester furniture and Incredible Connection.

Almost 10% of sales on credit were at the JD Group, down from 14% in the comparable period. It also granted less credit at Ackermans and in its speciality clothing business, which includes the Refinery and Dunns brands.

Its tech and furniture division boasted good growth for the nine months to end-June, with revenue up 29.3% year on year as consumers invested in working and socialising at home.

Pepkor also gave an update on the sale of its division, The Building Company. The proposed sale to listed building materials company Cashbuild, was blocked in June by the

Competition Commission, who argued the merger would create a monopoly in certain areas and make it impossible for smaller businesses to compete in the hardware retail space.

Pepkor said it would appeal the decision before the Competition Tribunal, which makes the final decision on company mergers, but no date for the tribunal hearing has been set.

The company reported that 529 out of 4,000 stores were burnt in the wave of violence and unrest, This is up from its previous count of 489, confirming that about 10% of stores including brands such as Timbercity, Refinery and Shoe City were damaged.

The statement highlighted that reopening stores would be held back by the availability of glass and shopfitting material.

“The pace at which stores will be reopened is dependent on access to materials and equipment for store refitment purposes and the ability of property owners to restore premises which suffered extensive damage.”

It said merchandise teams were working with their geographically diversified supplier bases to address any potential stock shortages.

It was already helping furniture and tech division stores in KwaZulu-Natal restock goods from alternative warehouses after its JD Group warehouse in the province was looted.

The statement also highlights the increased costs all companies are facing, saying it was spending more on security.

THE FIRM REDUCED THE GRANTING OF CREDIT AT ITS CAPFIN LOAN BUSINESS