From April last year to March this year, retail giant Pepkor Holdings opened 65 new Pep and Ackermans stores despite Covid-19 and the related lockdown restrictions.
The group’s trading statement and voluntary trading updated for the half-year to the end of March, published on the JSE on Wednesday, highlights the openings and notes that “retail space expansion in Pep and Ackermans amounted to 2.6% year on year”.
This comes as Pepkor reduced its overall retail space by 1.8% year on year. Retail chains Incredible Connection, Shoe City, Refinery, Russells and HiFi Corp, among others, form part of the group.
Nevertheless, the expansion of its flagship Pep and Ackermans chains shows the group’s defence of its market-leading position in the burgeoning discount and value clothing retail market.
The retail segment has received an unexpected boost from the Covid-19 pandemic as cash-strapped consumers look for lower-priced or better-value buys. It’s a trend that was emerging even before Covid-19, due in part to South Africa’s economic recession and job losses.
This growth in discount or value clothing retail has seen many of Pepkor’s JSE-listed peers, including TFG, Mr Price and Truworths look to expand in the segment.
TFG bought Jet from the defunct Edcon, Mr Price’s Power Fashion acquisition boosts its presence in the lower end of the market, and Truworths has announced plans to launch its own value clothing retail chain.
But Pepkor isn’t taking the increased competition lying down. In fact, it is growing its market share according to its latest trading update.
“Strong trading and continued market share gains in nearly all retail brands [according to Retailers’ Liaison Committee data] supported performance despite volatile operating conditions [due to Covid-19],” its Sens notes.
“During the period [year on year to the end of March 2021) 108 new stores were opened and 180 stores closed, including 111 John Craig stores which were disposed of,” the group adds.
“Store openings were focused in the most robust and proven retail brands in the group,” says Pepkor.
This is a clear reference to Pep and Ackermans, which together account for over 3 000 of the group’s stores in southern Africa. The two chains account for most of Pepkor’s revenue.
The group points out in its trading update that revenue from continuing operations came in at R36.5 billion (up 8.1%) for the six months ended March 31, 2021.
Its clothing and general merchandise business accounted for R26.3 billion of this revenue for the period.
“Performance in Pep and Ackermans was underpinned by the leadership of these two retail brands in the discount and value segments of the market …
“Pep and Ackermans in aggregate increased sales by 8.8% … Both Pep and Ackermans continued to grow market share in a declining apparel retail market,” Pepkor says.
Core business growth noted
Sasfin Wealth equity analyst Alec Abraham tells Moneyweb that Pepkor is clearly placing a lot more emphasis on growing its core business, which largely includes the Pep and Ackerman chains.
“Now the group is shedding some of its none-core businesses such as John Craig and its building materials retail business, The Building Company, which is being sold to Cashbuild,” he notes.
“This gives Pepkor more capacity to focus on its core business, where it makes most of its profit. It needs to continue to have an ear to the ground in order to be close to a market it knows well – the convenience discount and value retail sector,” he says.
The Pep chain, which has traditionally focused on rural towns and peri-urban areas, is now also growing its market share through new stores in urban areas and even major upmarket super-regional shopping centres such as Attacq’s Mall of Africa and Hyprop’s Canal Walk.
“Established retailers like Pepkor can’t afford to continue to only have chains like Pep exclusively focused on peri-urban or rural areas, especially with increased competition in the discount and value retail space,” Abraham adds.