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Low consumer spending hurts Truworths

SA sales expected to remain constrained in the medium term.
Truworths faces tougher times in 2020 despite increase in retail sales. Image: Supplied.

Credit sales for fashion retail chain Truworths increased earnings, despite ongoing challenging trading conditions in both the African and UK markets.

The JSE-listed clothing, shoes, jewellery and homeware retailer said group retail sales for the 26 weeks ended December 29, 2019 grew by a mere 1.2% to R10.6 billion, up from R10.5 billion in 2018.

It said account sales comprised 52% of group retail sales (up 4.3%), and cash sales decreased by 1.9%, relative to the prior period.

In Africa, retail sales increased 2.7% to R7.8 billion from R7.6 billion in 2018, with account sales increasing 4.3% and cash sales decreasing 1.2%.

The number of active accounts at Truworths Africa rose 3.5% to 2.8 million.

Cash-strapped consumers

Investment analyst and market commentator Chris Gilmour said the increase credit sales tells a story of how cash-strapped consumers are becoming.

“The consumer is literally cash-strapped. For several years the cash-to-credit ratio has been going in favour of cash and away from credit. This is the first time that trajectory has changed direction,” Gilmour says.

“If they had money, they would buy cash.”

Pietermaritzburg NGO Economic Justice and Dignity’s (PMBEJD’s) January 2020 Household Affordability Index released data on how middle-income consumers are feeling the pinch of higher food and administered prices.

Its data were in line with Gilmour’s sentiments of how consumers are taking on increasing debt to survive from month to month.

PMBEJD reported that the cost of a basic household food basket increased by R221.70 to R3 339.98. This is a 7.1% increase from January 2019.

However, despite consumers being at the receiving end of a slow-growing economy, Gilmour said: “Truworths has a fantastic database to advance credit and to advance it sensibly — it is properly disciplined and that is almost unparalleled in South Africa”.

He says this because, in 2015, Truworths began to implement the National Credit Regulator’s (NCR’s) new affordability assessments to manage the risk of issuing credit and ensure that consumers are not over-indebted through unaffordable credit agreements.

Truworths also acknowledged the challenging trading conditions in its interim results.

“Low economic growth, high unemployment, power outages, modest increases in negotiated wages and higher average fuel and utility prices contributed to low consumer confidence and constrained spending in South Africa,” the company says.

In this economic climate, it aims to focus on proven merchandise strategies, exercising tight cost and margin control, ensuring the health of the account portfolio and maintaining a strong balance sheet.

“Truworths will look to leverage technological advancements, data analytics and artificial intelligence, further integrate its physical and online retail offerings, build on its fast fashion and quick response capabilities and continue to grow its account base in order to position the business optimally for future growth,” the company says.

A decrease in UK sales

In rand terms retail sales for the UK-based Office segment decreased 2.6% to R2.8 billion.

It attributed this to Brexit uncertainty, combined with continued pressure on store-based retailing negatively impacting the UK economy.

It expects Office to continue to encounter headwinds for the remainder of the financial period to June 2020, as negative consumer sentiment and Brexit-related uncertainty suppresses retail sales growth.

The Office chain also faces ongoing cost and margin pressure from the consumer shift from store-based retailing to online shopping. Online sales contributed approximately 34% to retail sales for the current period.      

“Online retail is becoming a bigger feature in Australia and the UK, so if you haven’t got an outstanding online offering you are going to take real pain,” Gilmour says.

Sit tight

Gilmour said Truworths should brace itself for tougher times.

“It has been in deep trouble because, since the beginning of this year, its sales are down 14.4%.”

He said it made a mistake by joining the Foschini Group (TFG) and Woolworths, in diversifying into offshore markets.

“In hindsight they should have never gone offshore in the first place. I think they are getting some sort of appease now, but it is going to very tough. Brexit itself is going to be tough for all retailers,” Gilmour says.

Truworths shares over 12 months

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The Issue is not the consumer….. its the leadership.

Its time for Marks to hand-over the reigns to “young blood” to take Truworths into next decade…..

How so? If we don’t spend money at Truworths then we don’t spend at Truworths. Young blood don’t make us spend more.

Even the models in the window look sad

Your comment makes no sense. The purpose of leadership is to determine a strategic direction (for an organization). New blood could bring new ideas to attract consumers. Same old same old is clearly not working….

Posted wrong… intended as a reply to Chris ’oom’ Stoffel

Posted wrong… intended as a reply to Chris ’oom’ Stoffel.

Yes. But there are only so many consumers with so much money. And it gets divided against all the stores. Some stores win and some stores lose. Perhaps there are too many stores/shops/retailers competing for our money?

Too much competition and online shopping.

End of comments.

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