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SA’s retail nightmare

Recent retail trading updates point to consumer pressures that have sunk the sector into a deeper malaise.

The precarious prospects of South Africa’s retail sector were confirmed by recent sales updates from major retailers, which suggested that hard-pressed consumers continue to limit their spending.

“It’s quite clear that consumers are already feeling the pinch of a recession,” said Wayne McCurrie, senior portfolio manager at Ashburton Investments.

Consumer confidence has sunk to its worst level since 1982, according to the FNB/Bureau for Economic Research. Woolworths, Massmart and Shoprite could probably attest to this, as downward sales are now the new normal.

Grocery behemoth Shoprite appears to be riding out the perennial slump better than its peers. In the year to June, turnover grew by 10.4% to about R140.7 billion, with the help of the decent performance of its South African supermarkets. On a like-for-like basis, turnover grew by 5.8%.

Shoprite has had relative success outside South Africa over the last ten years, which has created shareholder expectations of sustained higher profits. The retailer is now reeling from its rest of Africa operations, which have been impacted by lower commodity prices and currency devaluations.

Like-for-like sales grew by 6.9% in its South African operations versus 1% in the rest of Africa.

Senior equity analyst at Sasfin Securities Alec Abraham, said the retailer is taking market share from Pick n Pay, Spar, Massmart and Woolworths (see the comparison of sales growth below).

Company Sales Like for like sales growth Inflation Period



-0.9% for clothing & 4.6% for food

6.6% for clothing & 8.4% for food

52 weeks to June 25





12 months to June 2017

Pick n Pay




52 weeks to February 2017



Minus 1.6%

3.9% to 4.7% (except Massdiscounters)

26 weeks to 25 June 2017

Spar (Southern Africa)




Six months to March 2017

Source: PnP, Spar, Shoprite, Woolworths, Massmart

“The fact that Shoprite is the only food retailer showing positive like-for-like growth in sales means that it’s taking market share from competitors in a tough retail environment,” Abraham told Moneyweb.

Emerging more bruised is Massmart, the operator of Game, Builders Warehouse, Dion Wired and others, whose sales for the 26 weeks to June 25 fell by 2.7% when excluding inflation of 3.2%. Food sales grew by 3% and non-food declined by 2.9%.

“Massmart’s business model is based on high volumes and low inflation. However, economic fundamentals in South Africa have been [the] opposite to its business model. In a low volumes market it’s difficult to grow volumes,” said Abraham.

Also under the cosh is upmarket Woolworths; its group sales rose by a meagre 3% for the year to June 25.  The theory that food is more resilient than clothing during tough times proved true as sales in Woolworths’ South Africa clothing and general merchandise division grew by 1.4% and growth in the food division increasing 8.6%. 

Market watchers are uneasy about the slow pace at which Woolworths’ Australian business David Jones is moving. When the business was acquired nearly three years ago, it was tipped to transform Woolworths into a substantial retailer in the southern hemisphere, giving it a neat rand hedge. However, David Jones’s sales increased by 1% in Australian dollar terms while comparable store sales declined by 0.7%.

Australia’s retail malaise, which has been worsened by slower economic growth due to lower commodity prices and muted consumer confidence, continues to create a difficult environment for Woolworths.

Investor jitters

Investors in retail shares are already pricing the downbeat sales. Woolworths’ share price has sunk by 17% so far this year. 

Anthony Rocchi, portfolio manager at Rexsolom Invest, said the derating in Woolworths’ share price is justified as its “Australian turnaround is lagging investor expectations at a time when South Africa is facing headwinds”. McCurrie supported Rocchi’s view, saying that at a price:earnings ratio of 13, the stock is cheap considering its recent peak of 29.

Massmart’s stock also joins Woolworths, falling by 14% so far this year. Shoprite is the antithesis of the sector decline, with its stock up 20%, giving a p:e ratio of 21, which analysts rate as expensive. “Shoprite has not priced in the poor trading conditions. My reasoning for Shoprite trading at a premium is due to it not being exposed to more cyclical apparel and its established presence in Africa which is an ‘easy sell’ to foreign investors,” said Rocchi.

Arguably, the next six to 12 months will be testing for the resilience of retailer’s corporate strategies. Consumer price inflation, which fell from 5.4% year-on-year in May to 5.1% in June, is expected to decrease in 2017 (especially food inflation).

Damon Buss, the equity analyst at Electus Fund Managers, said declining food inflation is generally not good for food retailers as it lowers sales and the quantum of rebates they get from food and consumer goods producers.  The rebates are calculated on a percentage of total sales.

“This slower top line growth will require strong cost control just to hold margins flat and hence we think there is a risk to the downside for consensus headline earnings per share growth expectations,” he said. 

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I believe I stated that I was shocked by Woolworth’s purchase into aus retail market – at WORST possible moment. with much announced entry of Amazon into aus – this is the worst case scenario for woolworths sa long suffering shareholders. Woolworth shareholders will be very unhappy with Woolworth management for a long time to come. and then there was stuttafords

Hey look, it’s bloviating Bob, the washed up polis smous from Aus, adding his 2c worth of monopoly money opinion.

Long suffering Woolies shareholders??? Really? truly? 3 bags full Bob? Let’s see…

In the year 2000 Woolies share price was R3. It’s touched R100 in 2015 – whats that – a 3300% increase? Cherry picking you say?
Ok then – 2008 – price around R10 – that would still have given you a 10 bagger.
As for your Stuttafords example – bwahaha – grasping at straws here are we. Stuttafords has been dead man walking for 30 years, nobody has missed them for over a decade at least.

And what is wrong with the Aus retail market? I thought you were all fit fat and flush over there? Keep on spending on credit buddy, the Aus retail market needs YOU!!!

So you are disputing everything in this well written article. No doubt your view is that mr Gigaba’s “plan” will pull the country out of its current drop in ratings, the rand will strengthen , that everyone will be happy like they were pre ’94. I need the name of whatever you on – cause I’m a realist which is why all my money is on NYSE (& doing very nicely thank you!

Surely anywhere outside SA while ZAR is relatively strong is a political and currency hedge

Currency hedging is a game of chicken at best. The strength you want depends on whether the country is a net importer or exporter.

Net exporter? need weaker currency=good, strong currency=bad
Net importer? need stronger currency=good, weaker currency=bad

Eg. The US is a net exporter – they want a weak(er) currency – (exclude for a moment that the USD is the worlds reserve currency). So if the USD weakens the ZAR must strengthen. Good right? Jawellnofine. The Sa economy is a net importer – we need a strong currency, good- but then our export sector is at a massive disadvantage – retrenchments blah blah.

In the current world malaise every currency is in a race to the bottom = weak currency to help their local export sector – whether it’s China, SA, US, EU or Outer Mongolia ie, you’re on a hiding to nothing.

If you keep swapping in and out the only people making money are your brokers. Best to accumulate tangible assets that you own OUTRIGHT and that have some use or value.

@ unePluiebreve

Sure, but that’s what I am saying. By buying an (even relatively lame) retail business outside of SA, they get a reasonably productive asset that is denominated in a currency that in the long term will likely appreciate against ZAR.

No not true- there are disasters everywhere & need to be very careful when going off shore. I was heavily into us banks pre us election – made money & got out. Since then they have been falling – no more than Goldman Sachs

breaking news – myer holdings (10th largest retailer in aus) just announced shocking results – shares down 7% – full story


Many of these stores Builders,Game etc DionWired being the exception. They have been reallly slow to adopt online shopping.

Even if they don’t sell directly(which they should) their full catalog with price needs to be accessible on the web. Its 2017 !

FT – in real terms what has online shopping brought to the party, its a myth how you really benefit and the return process is an absolute B$$$ache. Can’t wait for the option to buy a wife on Bid or Buy ore OLX – probably no return policy

clearly you’ve never purchased from Spree, Zando, Takealot… shopping centres are dead in the US – Amazon has crushed them all. Maybe for window shopping, but the ease and discounted prices/comparisons with which you can buy online, I haven’t bought things from a physical store outside of groceries for the past 5 years.


Except for retailer shares, the effect will also show up in the performance of retail properties over the short to medium term. The meagre trading conditions usually result in lower rental income for retail properties based on the turnover clauses of the leases of most of these top brand retailers – especially those that rent larger floor space.
It also cause tenants to renegotiate the annual escalation in rent based on the economic squeeze experienced.

To me this article highlights the normal and expected when a share rises way beyond its value in a market place that has its limits: At some point water will always find its level. I did a quick analysis (using my value metrics) of Shoprite, PnP, Woolies and Massmart. I find that all have a Price to Net asset Value well over 2 times. Total liabilities are over 100% greater than equity. To me, at the moment, they are expensive valueless bloated cash cows, and they need to go through more troubles so investors might lose interest in them. After that they might take cleaning up their financial position more seriously, and they might then be of better value thereafter.

Retail problems (and the economy as a whole) will escalate with the withdrawal of medical tax credits.

Domestics inside and outside the house will have their hours reduced or fired completely. This lower domestic expense will be used to fund medical costs. Medical aid premiums and expenses not covered by medical aid for which one gets a belated third off later is more vital than domestic help.

Cannot say I sympathize with W. Was stupid decision to buy DJ for gazillions and then arrogantly pass it on to customers with high food and clothes prices.Checkers caught up nicely.

Correction, SA as a whole is a bit of nightmare at this point.

End of comments.





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