S&V Weekly Newsletter Vol.6 No.30, July 27, 2020

This Newsletter is sponsored by SAFLIA

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Retail last week

Soon there'll be opportunities for the strong

Family Shoe Centre. Formal, casual and comfort, 1 store and online.
Johannesburg, Gauteng, SA – Trading last week was "the toughest we've seen in many years", member Mohamed Bulbulia said, but he thought the future held promise for well established and financially stable businesses.
       "There are 2 main problems in Gauteng," he said. "Consumers are under strain, and they don't want to come out to shop - particularly here in Fordsburg, which is one of the epicentres in Johannesburg. I think in more rural areas they're not as nervous about the virus as they are here."
       He said the business was strongly promoting its online platform, "which is what we're surviving on".
       Though critical of the way the pandemic was being handled in SA, he thought stronger businesses would weather the storm. "We've been here many years, and people know us.
       "Also, there'll be a lot of empty retail space soon, and there'll be opportunities for the survivors.
       "Come summer, consumers will be more inclined to come out and shop, and the bottom line is that people will have to learn to live with Covid."

Better than expected

Nommerpas. Family outfitter and technical sports, 4 stores in the E. Cape and 2 stores in N. Cape.
Graaff-Reinet, E. Cape, SA – "Trading has been alright, and much better than expected. I'm still waiting for the big ripple to come," director Eddie Nel said.
       "I think it's because more people are shopping locally - they're too scared to drive to Port Elizabeth."
       He said the business was trying to offer the best service possible with only half the staff available. Another problem was that some suppliers - mostly importers - were not delivering on time.

Big ticket items hardest hit

Oasis Outfitters. Men's outfitter, 1 store.
East London, E. Cape, SA  – "Trading has been a bit of a challenge," member Jay Dhaya said. "Customers are no longer buying 2 or 3 items at a time. They buy 1, and they tend to buy smaller items."
       He said Oasis had picked up more lay-bye business, but that more expensive items, like suits, weren't selling well.
       "May was actually quite good, and if it had continued that way, it would have been fine. But in June, when alcohol sales were allowed again, there was a big drop, especially at weekends."

Counterfeit smuggler sentenced

Media Statement from Directorate for Priority Crimes Investigation (HAWKS), South African Police Service
Boschfontein, Mpumalanga, SA  – Armando Tome (35) was found guilty and sentenced by the Boschfontein Regional Court on Thursday, 23 July 2020 for possession of counterfeit goods and contravening the Illegal Immigration Act.
       The accused was arrested on the 11 March 2020 at Lebombo Port Of Entry while importing counterfeit goods, branded running shoes worth over R2 million.
       The accused was sentenced to R70 000 or three years imprisonment plus a further one year imprisonment which is suspended for five years on condition that the accused is not found guilty on these charges.  The fake shoes have since been forfeited to the state.
       Mpumalanga Hawks Provincial Head Major General Zodwa Mokoena has welcomed the conviction and applauded the investigating team.

Stock Exchange News Service (SENS)

Pepkor trading update

Cape Town, W Cape, SA (July 24, 2020)  – The Pepkor group’s revenue for the nine months ended 30 June 2020 (“nine-month period”) decreased by 1.5% to R52.3 billion. This compares to revenue growth of 6.5% achieved for the six months ended 31 March 2020 and therefore highlights the negative impact of COVID-19 and the national lockdown during the third quarter where group revenue reduced by 17.2%.
       It is estimated that the national lockdown period during April 2020 resulted in lost revenue of approximately R5.0 billion for the group. Very strong trade was achieved during May and June 2020 as lockdown measures eased and can be attributed to pent-up demand, social grant payments as well as the value propositions and market positioning of the group’s brands.
Continuing operations:

Clothing and general merchandise: The clothing and general merchandise segment reported a decrease in revenue of 1.7% for the nine-month period, negatively impacted by a decrease in revenue of 15.9% during the third quarter.
       Sales levels for Pep and Ackermans were very positive during May and June 2020 after stores reopened. Trading proved resilient due to their defensive discount and value market positioning as consumers prioritise apparel spending in areas such as babies’ and children’s clothing with focus on basic and replenishment products. The national lockdown regulations impacted the reopening of schools which resulted in weak back-to-school trading.

       For the nine-month period the Pep and Ackermans brands in aggregate, reported a decrease in sales of 0.4% with a decrease in like-for-like sales of 3.5%. Retail space expanded by 3.1% year-on-year with 22 new store openings during the third quarter.
       The performance of Pep Africa, which contributes less than 3% to group revenue, was impacted by lockdowns and adverse macroeconomic conditions across most countries of operation. For the nine-month period constant currency sales declined by 11.5%, while like-for-like sales decreased by 14.0%. Sales at actual rates decreased by 19.8%.
       The Speciality business which focuses on discretionary products such as footwear and adult apparel, performed well during May and June 2020 with positive like-for-like sales growth of 6.3% and 11.2% respectively. For the nine-month period sales decreased by 7.4% with like-for-like sales reducing by 9.8%.

Furniture, appliances and electronics: The JD Group reported a decline in revenue of 6.0% for the nine-month period which includes a decrease of 21.8% during the third quarter. Sales for the nine-month period decreased by 7.6% with a decrease in like-for-like sales of 9.5%. The consumer electronics and appliances division (Incredible Connection and Hi-Fi Corp) resumed online trading during May 2020 on a limited product range in line with lockdown regulations. Lockdown regulations were lifted from June 2020 and trading in this division has been very strong, benefiting from the group’s investment in online retail capabilities and strong consumer demand which was fueled by technology upgrades, work/school-from-home and online purchase trends.
       The furniture division’s retail brands were only allowed to resume trading from June 2020 but have also shown strong trading momentum since then. Credit granting criteria were tightened and the respective credit sales contributions in the furniture- and consumer electronics and appliances divisions reduced to 22% and 6% respectively compared to 28% and 7% contributions reported for the prior nine-month period.

Building materials: The Building Company reported a decline in sales of 17.2% for the nine-month period. During the third quarter sales reduced by 41.9% and like-for-like sales decreased by 41.6%. Lockdown regulations severely constrained trading during April and May 2020 where the business was only permitted to trade on a very limited product range. The business was permitted to trade on its full product range since June 2020 in line with the reopening of the construction industry and has since seen a positive trajectory in trading momentum.

Fintech: The Fintech segment reported revenue growth of 23.8% for the nine-month period. The FLASH business with its penetration into the informal market operated throughout the lockdown period and reported strong virtual turnover growth of 28.8% for the quarter.
       Significantly curtailed credit granting characterised the quarter as the group reduced its exposure to unsecured lending through the Capfin business. Collections have been above expectation to date while a consolidation process is underway to reduce Capfin’s operating cost structure and support profitability going forward.

Liquidity update: Strong trading, pro-active expense management, conservative credit granting and positive credit book collections have benefited group liquidity and seasonal funding facilities secured as a contingency during the lockdown period were not utilised. The group settled its R521 million bridge term loan facility earlier than anticipated. As announced on 24 June 2020, Pepkor successfully completed an accelerated bookbuild which raised R1.9 billion. The book was oversubscribed by 5.3 times, indicating strong demand from more than 60 local and international investors. The group issued 172.5 million new Pepkor shares at R11.00 per share which reflected a discount of 6.2% to the 30-day volume weighted average price. The proceeds will be used to reduce debt in line with the group’s ambition to reduce its gearing levels. Processes to amend debt covenants and extend the group’s debt repayment profile are progressing well as the group continues to improve liquidity and reduce debt levels to enhance the flexibility of its capital structure.

Outlook: Strong trading momentum continued into July 2020. It is uncertain how long these levels of performance are possible as the impact of COVID-19 on the economy and employment unfolds. The group is expecting a constrained retail environment over the next 18 months. The group will continue to focus on its aggressive growth in market share as consumers are forced to reduce and reprioritise spending. It will capitalise on its defensive discount and value positioning as its retail brands continue to execute compelling customer value propositions and focus on providing affordable value to customers. Pepkor’s expansive retail footprint is also proving to be highly accessible to customers who are choosing to shop closer to home. Pepkor continues to make a positive difference in the lives of our customers and the communities in which we operate by providing convenient access to everyday products and services at affordable prices.

Woolworths trading update for 52 weeks

Cape Town, W Cape, SA (July 24, 2020)  – Further to WHL’s operational update on 6 April 2020 and update on the Group’s strategic initiatives on 27 May 2020, both of which were published on the Johannesburg Stock Exchange News Service (‘SENS’), we wish to provide WHL stakeholders with a further trading update.
       The extremely challenging trading conditions brought about by Covid-19 placed significant pressure on the performance of the Group. Group sales for the year ended 28 June 2020 (‘current year’) on a 52 week comparable basis were 0.1% lower compared to the pro forma year ended 23 June 2019 (‘prior year’), and declined by 1.1% in constant currency terms.

Second half (‘H2’) performance: The sales performance for H2 of FY20 was significantly impacted by Covid-19 following the temporary closure of the majority of the Group’s non-food stores, coupled with the decline in foot traffic and consequent loss of trade. Pursuant to the recent announcements on SENS which provided an update on the first seventeen weeks of trade in H2, the table below reflects sales growth for the last nine weeks of trade. The easing of restrictions from the beginning of May 2020 in South Africa and Australia saw Group turnover and concession sales growing by 4.7% in the last nine weeks (-0.9% in constant-currency terms) of the period, versus the 17.0% decline in the preceding eight weeks. To stimulate trade and manage inventory levels throughout this period, management executed a series of focused promotional and clearance initiatives targeted at generating and preserving cash. While this negatively impacted GP margin, it has resulted in better inventory levels and an improved working capital and net gearing position at year-end.

Southern Africa: Woolworths Food continued its positive momentum into the last nine weeks of H2, growing sales by 16.1%, as the easing of regulations allowed Woolworths Food to trade in categories that were previously restricted. This top-line result was achieved notwithstanding the constrained environment and the intermittent closure of specific stores for deep cleaning in instances of Covid-19 disruptions. Price movement of 6.5% for the current year reflects the impact of reduced footfall but bigger baskets and bulk packs. There was a significant focus on improving Woolworths’s online fulfilment capability, such as click and collect and increased delivery slots, to meet the increased demand through this channel, which saw online food sales growing by 87.8% in H2. Notwithstanding this, we recognise that this is not yet at optimal levels and are prioritising our efforts to improve this capability. Woolworths Fashion Beauty Home (‘FBH’) re-opened stores from the beginning of May 2020, following the easing of restrictions that permitted the sale of essential items such as winter clothing, footwear, personal care and bedding, with all categories trading from mid-May 2020. This saw the pace of sales decline slowing to 12.4% in the last nine weeks of H2, versus the 61.4% decline in the preceding eight-week period. FBH online sales grew by 41.3% during H2.
       Woolworths Financial Services (‘WFS’) was negatively impacted by the closure of stores, lower non-essential spend and lower prevailing interest rates, all of which placed pressure on book and revenue growth. The deterioration in customer collections and macroeconomic indicators resulted in higher impairments over the period. The WFS book reflected positive year-on-year growth of 2.0% (9.0% at 31 March 2020), while the impairment rate for the 12 months ended 28 June 2020 was 7.9% (12 months ended 30 June 2019: 3.7%; 9 months ended 31 March 2020: 4.2%).

Australasia: David Jones (‘DJ’) sales in the last nine weeks of H2 declined by 8.1% relative to the prior year, an improvement on the prior eight-week period, as restrictions began to ease in most parts of the region resulting in a gradual improvement in foot traffic. The decline in store sales was partly mitigated by the significant shift to online, which saw the channel growing by 100.7% in H2, and contributing 18.4% to sales. The Elizabeth Street store redevelopment has been completed with all floors trading from 4 April 2020. While the impact of lower foot traffic and the decline in tourism has been more pronounced in the CBD locations, the store is trading ahead of the remaining DJ store portfolio. Country Road Group (‘CRG’) began a phased re-opening of stores from 21 May 2020 following a 2-month closure, resulting in a moderate improvement in trade with sales in the last nine weeks declining by 20.9%. Sales in CBD and airport store locations continue to be significantly impacted. Online sales remain strong, growing by 28.1% in H2, and contributing 33.5% of total sales. The exit from Myer in August 2019 coupled with the closure of unprofitable stores at lease expiry resulted in a 5.3% reduction in CRG’s retail space.

Conclusion: The operating environment is challenging and fluid, and will remain so for the foreseeable future. Operations are being dynamically managed in terms of Covid-19 guidelines across Southern Africa and Australasia. The pandemic remains a part of our daily lives, and continues to disrupt our local and international supply chains, our store operations, and the availability of products and services to our customers. This is a challenge that the Group is continuing to monitor and manage carefully. The Group’s cash management, proactive engagement with lenders and other operational actions taken have ensured that the balance sheet remains robust, and the Board and management team remain resolutely focused on positioning the business to deliver sustainable long-term shareholder value. Progress against the key strategic projects outlined in the SENS announcement of 27 May 2020 is ongoing, and management looks forward to providing a further update in this regard as part of the Group’s financial results for the current year. Pursuant to our trading statement of 6 April 2020, a further trading statement will be issued in order to provide specific guidance once the Group is reasonably certain regarding the earnings per share (‘EPS’) and headline earnings per share (‘HEPS’) ranges for the current year.

Constant currency information: The constant currency information contained in this announcement has been presented to illustrate the impact of changes in the Group’s major foreign currency, the Australian dollar. In determining the constant currency turnover and concession sales growth rate, turnover and concession sales denominated in Australian dollars for the current year have been adjusted by application of the aggregated monthly average Australian dollar exchange rate for the prior year. The aggregated monthly average Australian dollar exchange rate is 10.43 for the current year and 10.15 for the prior year. The foreign currency fluctuations of WHL’s rest of Africa operations are not considered material, and have therefore not been applied in determining the constant currency turnover and concession sales growth rate.

They Said It

"Cedric had faint memories, but not too sure. He said the owners split to the UK…He will dwell on it, and see what he comes up with…Sorry, he is getting a little old!" - Amanda McCarthy of Groundcover about her designer, Cedric Clark. Perhaps other readers can help: I am trying to get in touch with George or Denis Wilkins, former directors of Martin Johnson in Pietermaritzburg. I'm looking for early photos of the Dakotas brand for a feature on the brand later this year.

"Had to put the words 'price increase' through the spell check because it's been so long since I used them." - Midland Tannery's Rowan Allison.

Got anything you'd like to share?

Do you have any suggestions, comments or experiences about the lockdown that you'd like to share with the industry? We will publish the throughout the lockdown, so please let us know. - tony@svmag.co.za

Exchange rates

1. SA Rand (ZAR)

Source: http://www.x-rates.com/calculator/

ABSA Agri Trends: Hides & skins prices

Johannesburg, Gauteng, SA (July 14, 2020) - The current average hide price decreased by 8.2% to R0.67/kg from R0.73/kg green a week ago. The current price is 6.3% lower than the average price a month ago and is 60.6% lower than the average price a year ago. The hide industry is still under immense pressure. Global and local demand is at very low levels. The manufacturing and automotive industries, of which the hide industry is highly dependent on, continues to be under strain. Prices are almost zero (across the board) with absolutely no demand and no expectation for any changes ahead. The local hide industry is expected to remain under pressure for the next few months. NB* Hide prices are determined as the average of the RMAA (Red Meat Abattoir Association) prices and prices of independent companies. - Abrie Rautenbach, head Absa agribusiness, and Conce Moraba, agricultural economist, Absa group.

27/07/1949: Oli Gardella, formerly Gardella Shoes, Pinetown, retired.
27/07/1959: Vibeke Dugmore, KKI Leather Marketing, Oudtshoorn.
27/07/1958: Morris Marimuthoo, Allimor Footwear, Durban.
28/07/1970: David Platt, formerly Simitri Specialty Chemicals, Kempton Park.
28/07/1950: Charles Stuart White, agent, Durban.
29/07/1962: Graydon Cock ?.
29/07/1965: Ashley Pillay, National Bargaining Council, Durban.
29/07/1972: Shona Kelland, Chillisource, Durban.
30/07/1959: Alan Munsamy, Nulaw, Durban.
30/07/1949: Gerald Batt, last with Uber Gruvi (closed), Cape Town.
30/07/1973: Marco di Lembo, Villani Shoes, Johannesburg.
30/07/1973: Frankie Sequeira, Novel’s Outfitters & Shoe Store, De Aar.
31/07/1940: David Berry, retired, formerly Rockshoes [closed], Pinetown.
31/07/1969: Mark Dicks, emigrated, formerly Prime Leathers, Pinetown.
01/08/1935: Bev Jack, retired, formerly Bata Zimbabwe and LAIFEZ, Harare.
02/08/????: Brian Haarburger, Paris Belts, Johannesburg.
02/08/1946: Burt Coburn, ?, Cape Town.
02/08/1971: JJ du Plessis, Strassbergers, Clanwilliam.
02/08/1991: Samantha du Plessis, Chillisource, Durban.

In Memoriam this week

29/07/1993: JA "Pat" O'Brien, agent.
29/07/2003: Dennis South, (b. 26/12/1923), Cuthberts, Johannesburg.
29/07/2010: Eric Harvey (b. 09/02/1925), Barker Footwear, Cape Town.

Have you let us know about your birthday, or the birthdays of your colleagues? Our readers love this section, so please become part of it. This also applies to the In Memoriam section. Help us remember former colleagues.

Have a look at these links

We invite businesses to send us links to websites, Facebook pages and the like which they feel would be of interest to others. The links below are from our database:
Chillisource Development, Durban, KZN, SA. Software developer.
Chimpel, Cape Town, W Cape, SA. Exotic leather goods manufacturer.

Classified Adverts

QA/Footwear Technologist Position sought

Former Jordan Shoes/Bolton Footwear staff member Neil Solomons seeks a position in QA for a manufacturer or Footwear Technologist for a retailer. I was with Jordan/Bolton for 36 years, and served as senior QA manager for local and imported product, travelling to China and India to inspect and approve factories and product. I also have experience in purchasing and H&S. I serve as a specialist on the SABS TC216 Footwear Technical Committee.

Please contact: 083 679 6233, neilsolomons15@gmail.com

Contact us

News & Classifieds: Tony Dickson, +27 (0)31 209 7505, tony@svmag.co.za

Next newsletter: July 27, 2020.

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