Uncertainty in store for retail

Spar describes its overall results as modest. However, its performance in SA was particularly disappointing, says CEO Graham O'Connor. Spar operates in Switzerland and Irelandas well. "Our SA sales were okay at 4.5%, but we did not control our expenses well enough," he says.

Overall, its turnover was up 5.3% to R95.5bn for the year ending 30 September, while gross profit rose 14.6% to R9.6bn.

Overseas acquisitions did well, something many other SA retailers can't claim. Spar's turnaround in Switzerland has been critical for the group. It involved sending a local executive and a few others to make changes. "It was a matter of implementing a number of plans," says O'Connor.

In Ireland, Spar reported solid operating profit growth and market share improvements across most of its brands. The company's pharmaceutical wholesale division is also expanding nicely.

While some offshore acquisitions of other retailers are taking strain, O'Connor says he remains confident about Spar's acquisition of BWG in Ireland. "Analysts thought we had bought a bunch of sandwich and fish-and-chips shops, but when we took them [there] they were blown away by the value and quality. I was very confident about it," he says.

"We were fortunate that the owners of BWG approached us, as they had financing issues that needed resolution. We liked it that we knew the owners and that they were part of Spar International - that removed an enormous amount of risk from the transaction."

O'Connor says Spar is exploring other expansion opportunities. He adds that nothing has been finalised, but says the opportunities are in Europe - "generally in countries in which Spar operates, so we know the businesses and the people involved. That takes a big risk out of the transaction".

As for Christmas trading in SA, O'Connor expects it to be slightly better than last year.

Electus Fund Managers equity analyst Damon Buss expects food retailers to struggle over Christmas. While inflation has come down, there hasn't been a huge uptick in volumes. "It's hard to assess, because [retailers] measure their baskets differently. There is a sense that there's been a general reduction in consumption."

Clothing should show a better performance, but this is company specific. "Better sales growth is coming through for Mr Price, where most recent numbers indicate October [sales are] up over 8%," says Buss.

"A company such as Truworths has no inflation, but it is not getting any volume growth. Its volumes [declined], whereas TFG has shown some volume growth, as has Mr Price. Volumes at Woolworths are retreating, and the talk is that Cotton On is pulling back as store performances have weakened."

Buss says consumers are still struggling. "Especially at the lower end, people are getting real wage increases; but middle-income consumers, LSM 6 to 9, are getting negative real wage growth and are struggling.

"I don't think [middle-income earners] are going to spend on big-ticket items," he says, adding that spend is likely to be on smaller, less expensive items. "A R200 T-shirt is less of a hit than a R5,000 TV set."

Black Friday has helped a bit. But it seems that what people buy on that day is what they normally would over the festive period, bringing forward the purchase of items. This means retailers get a revenue boost in November, but at lower margins (to fund the discounts) than they would selling slightly fewer items over December at full price and full margin.

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Shoppers who are more value conscious tend to make small sacrifices throughout the year and prioritise buying gifts over the festive season, says the Shoprite Group.

Shoprite says toys are a popular product. Some of the biggest-selling festive food items include popular seasonal meats such as gammon, turkey, duck and turducken (a deboned chicken stuffed into a deboned duck, stuffed into a deboned turkey). Sweet treats such as custards, ice cream and chocolates are also in demand.

David North, group executive at Pick n Pay, says it is well known that the year has been tough for customers, with household budgets under pressure and costs rising. "We will be providing great value on everything from decorations to clothing and toys, and games for kids."

Mince pies, turkey, lamb, ham, fresh vegetables, Christmas cake and roast gammon are also included, he says.

Glenda Philp, head of brand communications for Woolworths Food and Special Occasions, says that convenience will be a key trend in the food department this festive season. The company expects its beauty offering to be a hit, with newly launched products - it recently signed partnerships with 13 international luxury brands such as Chanel, Bobbi Brown, Este Lauder and La Mer.

Massmart expects good-value gifts to do well. This includes liquor at Makro - some products at 2016 prices - and items such as gift boxes. Affordable toys and confectionery packs perform well at Game, it says, as do more aspirational products such as branded hi-tech items, for example wearable technology, Bluetooth speakers, game consoles and drones.

Source: Financial Mail