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After continental retreat, SA retailers strain for profits at home

Forays marred by currency risk, high duties.
Home pivot challenging in weak economy. Image: Supplied

After a losing bet on the potential of economies across the African continent, South African retailers are in retreat to their home market – and their timing could hardly be worse.

In recession-hit South Africa, consumer spending is shrinking as unemployment has hit a record high.

At the same time, foreign rivals, possibly helped next year by the opening of the African Continental Free Trade Area (AfCTA), could find profits in the very markets South African players have had to abandon.

Food sellers are best placed to execute a homeward pivot.

Johannesburg-listed supermarket chains, including Shoprite Holdings and Woolworths, told Reuters they were seeking to win over South African consumers with new financial services offerings, product lines and store layouts.

“The food retailers at least still have a decent market but the discretionary and credit retailers certainly will have quite a lot of headwinds,” said Karl Gevers, portfolio manager at Benguela Global Fund Managers.

For two decades, South Africa’s economic stagnation has pushed major retailers to seek higher returns further afield.

But forays into markets including Angola, Ghana, Kenya, Nigeria and Zimbabwe were marred by currency volatility, high import duties and dollar-based rentals. For a few companies, the Covid-19 pandemic dealt the final blow.

Parsing the impact of underperforming operations can be difficult.

Shoprite – one of the few companies that reports country-by-country details in their results – paints a sombre picture.

Struggling operations in Angola and Nigeria led to its first earnings decline in nearly two decades in 2018. And in first quarter results on Monday it reported its rest of Africa sales fell by 8.4%.

Shoprite announced its exit from Kenya in September after failing to secure the leases needed to fulfil its strategy there.

“We took the decision to cut our losses,” Shoprite chief executive Pieter Engelbrecht told Reuters.

Read: Shoprite AGM: The 40th (and last) chaired by Wiese

Delays in clearing goods from ports, oil price volatility and a shortage of foreign exchange have pushed it to consider reducing or selling its stake in its Nigerian subsidiary too.

Clothing and homeware retailer Mr Price Group is also leaving Nigeria, while fellow apparel and homeware retailer TFG has pulled the plug on Ghana and Kenya.

Funeral policies and pet insurance 

Focusing on home territory could be equally challenging as South Africa’s economy is expected to shrink by 8% this year, the International Monetary Fund says. Unemployment exceeds 30%.

The strategy of Shoprite, for example, is to branch out into mobile financial services via a new partnership with OUTsurance, offering funeral policies and even pet insurance, with plans to roll out more products, Engelbrecht said.

Woolworths, which withdrew from Ghana last year, intends to develop its own beauty brands and explore more convenience store formats, CEO Roy Bagattini told Reuters.

In addition, big retailers in relatively good financial health could grab market share from troubled rivals.

Woolworths sees opportunities in the collapse of Edcon – once a major South African clothing retailer that is being sold off in pieces to competitors – its CEO said.

Mr Price is also counting on market consolidation.

“(South Africa) is a market that we historically got excellent returns in,” Mr Price CEO Mark Blair said during a results presentation earlier this year.

“We understand the market exceptionally well, the operating environment, the customer and that’s critical.”

The cruel irony is that the difficulties Mr Price and others faced elsewhere in Africa could lessen once the AfCFTA takes effect, possibly from the beginning of next year.

Its opening planned for July 1 this year was delayed because of the pandemic.

At a bustling mall in the Kenyan capital Nairobi’s affluent Karen neighbourhood, Shoprite’s departure quickly made way for a brand new food mart run by Naivas, Kenya’s biggest retailer.

Analysts also expect international groups may try to expand in Africa.

But in the short term, South Africa’s bruised companies say the economic devastation wrought by Covid-19 means they may not be the only ones in retreat.

“You will see that globally a lot of retailers are turning back to their home markets,” Shoprite’s Engelbrecht said.

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A retailer would pay attention to this article at own risk … it is time for south African companies to come back… focus on their customers, communities and strengthen their businesses and economy … all the search around the continent and world came at a very high cost and left them leveraged… they really are better off at home atleast for now

Good or bad times, people need to eat and dress. The basics.

Food ratilers are probably in the best position, and let’s not forget the festive season is coming up.

My instinctive optimism thought that that Africa, with 1.3 billion people, moving up the income brackets from abject poverty to a semblance of middle-class consumerism would be a no brainer for the professionally slick companies like Shoprite et al.

And my optimism has been mauled. What is it that we can safely sell to the 1.3 billion like the Americans have done to the rest of the world? Just airtime? And now we may even miss the boat there if Google’s balloons hover over the continent.

A thesis please someone! And please, no suggestions of small arms matériel.

In Kenya, Naivas and Carrefour are successful but Shoprite and Choppies aren’t. Why? Massmart’s Builder’s Warehouse seems to be hanging on.

End of comments.

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