Furniture retail, a dead wood

"No foreign furniture retailer will consider an acquisition here," says Nedcor Securities retail analyst Syd Vianello Sanlam Investment Management analyst Andrew Kingston agrees: "I can't see foreign [furniture] retailers showing much interest."

Credit shy

The reason is that foreign retailers will shy away from the SA model of supplying credit to customers and of furniture sales being of secondary importance to the bottom line. "It's unique to SA," says Vianello.

Not only foreign retailers are put off, says Coronation Asset Management analyst Quinton Ivan Even the locals, such as Massmart, have steered clear of furniture retailing.

Small fry

The scale of SA's furniture market, adds Ivan, is also unappealing to foreign players. According to Statistics SA, furniture and household appliances, the smallest of the seven retail categories, recorded sales of R27,1bn in 2009 - only 5% of total retail sales of R524,5bn. Sales growth in the sector has also been minimal, averaging 3.3%/year between 2005 and 2009.

In the global picture, SA's furniture sector is tiny. For the world's largest furniture retailer, Netherlands-based Ikea, SA's total furniture market represents eight days of its sales of à22,7bn in 2009.

Go offshore

Investec Value Fund manager John Biccard says investors must look offshore to find value in the furniture sector. He has backed his position with a substantial stake in Steinhoff, the fund's only holding in the retail sector. With Steinhoff come extensive furniture manufacturing and retailing operations in Western, Central and Eastern Europe.

Steinhoff has been Investec Value Fund's largest holding for almost a year, and its exposure is at the maximum permitted 10%. Biccard's confidence in Steinhoff has been well placed. Over the past 12 months its share price has risen 30%, outpacing Lewis, which is up 20%, and JD Group, whose share price has been stagnant.

If SA furniture retailers encounter foreign competition, Vianello says, it could come by way of a cash-only retailer entering on a small scale. "That's if anyone has the guts to try."

Source: Financial Mail