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Strong interims from Pepkor

The company has benefited from the down-shopping trend during the pandemic by offering customers good value at affordable prices: CEO Leon Lourens.

SIMON BROWN: I’m chatting with Leon Lourens, Pepkor CEO. The company had results out for the six months ending March. Revenue up 8.1%, debt down R8 billion, headline earnings per share up 50.6%. Leon, I appreciate your time today. Really a strong, strong set of numbers, in part perhaps helped a little by the pandemic in and of itself. I’m imagining some customers are shopping down into that sort of value-discount space that a lot of your brands operate in.

LEON LOURENS: Yes. We’re obviously very satisfied with those results. And yes, I think that our market positioning obviously plays a big role in the numbers that we’ve produced. There’s definitely a trend towards down-shopping into affordability and our strength is the fact that we offer discounted and value products to customers – and we do that at very affordable prices.

SIMON BROWN: Part of the government’s response to the pandemic was an increase in grants, also an R350 grant to pretty much anyone. That has now come to an end. Is your expectation that a lot of that would have gone into your brands, or was that more consumers spending on food and perhaps transport?

LEON LOURENS: I do think that  a sizeable portion of that would have come to retailers like us, who are especially in the lower end of the market. We’ll have to see what the effect is now that it’s not being paid any more. From my information, the grants for the 2021 year will come down compared to last year, but there’s still been a considerable rise if you compare it to 2019. So yes, I suppose there will be a little less money in the market and we’ll just have to try to gain more market share in the process to keep our numbers growing.

SIMON BROWN: You do mention that you are picking up market share. Is that a fact of the down-shopping you mentioned, or is that against your sort of like-for-like competitors as well?

LEON LOURENS: Obviously it’s partly due to the down-shopping, and compared to the competitors. We’ve been very fortunate over the last number of years, but especially in the last year since Covid started, to have been gaining huge amounts of market share. As you would have seen in the numbers we gained, just in the last year, 296 basis points of market share, which is phenomenal. I think it’s people down-shopping. I think it’s the positioning. I think it’s people trending towards more basic product-replenishment type products. There are a number of factors that I think play out to our advantage.

SIMON BROWN: Well, one of them, which we saw, is that your clothing was strong. Your clothing always was, but your furniture brands, appliances, electronics, that was up 12.8%; 16.4% on like-for-like. That would have been to a degree, I imagine, the working from home. But then added to that was market-share gains and just the desire on the part of some folks who were stuck at home to say, “I want a new couch, I need a new TV”. 

LEON LOURENS: Yes. You hit the nail on the head. That plays a big role in those numbers – people working from home, spending more time at home, using more computer equipment, and so on definitely played in our favour in that particular business. But then also we have to take into account that about a year-and-a-half ago one of our major competitors closed its stores; that also contributed to the results. But overall I have to say that the team has done a great job and the numbers are very positive.

SIMON BROWN: You have 108 new stores. This is net. Obviously, there were closures, there was a disposal as well. Which brands are most of your new stores that are being opened? Are there particular brands you are focusing on or is it broadly across the stable?

LEON LOURENS: Simon, that number is not a net number, it’s a gross number. So that’s the number of openings. We closed one of the chains called John Craig. So that’s basically 79 stores that we closed. So on a net basis, we are probably negative. But I think the point there is quite rightly that we still expanding. We’re expanding mostly in Pep and Ackermans, which are our strongest and most robust brands. And we’ll continue doing so. We opened 100 stores in the first six months, and I’m forecasting that it will be considerably more than that in the second six. So that’ll be between 200 and 250 stores for the year, which I think in the current environment is a very good expansion plan and execution to have.

SIMON BROWN: I imagine in negotiations with landlords — because Pepkor will perhaps always be easier than the average tenant, but in the pandemic, when retail has been under pressure, Reits have been under pressure – are lease negotiations a little bit easier for you?

LEON LOURENS: It’s always difficult. We’ve got very strong landlords in South Africa, and it’s always tough. But the circumstances or the environment has played in our favour – and these things go in cycles. You get times when the landlords have a better bargaining position, and then times when it’s the other way round. We are now in a phase where I think we’ve had the sort of better bargaining position over the last few years, and maybe for another year or two. But, as I say, these things work in cycles and I’m sure it will change in future.

SIMON BROWN: I take your point there. It’s in your favour now, but it won’t be forever. We’ll leave it there. Pepkor CEO, Leon Lourens, results for six months ending March. Leon, I appreciate the time.

Listen to Thursday’s full MoneywebNOW podcast here.

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