Retail competition 'leads to new risk in industry'

"Stiff competition has also seen a product revolution as retailers move into the financial services, transport, logistics and manufacturing space in an attempt to improve margins or market conditions through more effective supply chain management, efficiency controls and cost management," it said.

For retail businesses to survive in such a competitive market, Marsh Africa believes that they need to innovate and evolve - ideally faster than the competition, and this, inevitably, involves risk.

Even before the arrival of Wal-Mart, South African mass market retailers, selling similar products to the same market, were seeking more effective market penetration, and new avenues of profit, by offering clients both hire purchase facilities and insurance cover on goods' purchased.

And this practice has rapidly evolved into offering goods insurance, life cover and unemployment insurance.

But while selling personal finance products represents a new retail opportunity in a tight market, the practice needs to comply with the legislation set down by the Financial Advisory Services Act (FAIS), which strives to protect consumers of financial services, ensuring that customers are provided with adequate information to make informed decisions about their financial product purchases.

Retailers who offer credit on products sold have to comply with the requirements of the National Credit Act.

"The FAIS Act also dictates the manner in which goods, life and unemployment insurance is sold. As such, retailers have to ensure that they provide consumers purchasing a lounge suite on credit, for example, with the correct financial advice delivered by properly qualified financial advisors," Elizabeth Cameron, divisional manager, manufacturing, Marsh Africa noted.

"Furthermore, any new insurance products being brought to market now also require FAIS approval and accreditation, eliminating the first-to-market advantage that these products rely upon to briefly corner the market before they are imitated," she added.

Other legislation playing havoc with both retailers' margins as well as the efficiency of their business is The Consumer Protection Act which places the entire supply chain under the spotlight.

In response, retailers have developed compliance departments to ensure that they do not fall foul of this growing web of legislation.

Since current insurance policies do not, however, adequately cover the risk that retailers run with regard to the protection of their client data, protecting customers' personal information is always top of mind for retailers offering insurance and credit facilities.

The soon-to-be promulgated Protection of Information Act will regulate the manner in which retailers secure the personal information contained in their customer base, Marsh Africa said, adding that stiff penalties would be the order of the day for retailers who cannot prevent or manage a breach of their system.

Another area of risk where retailers are working hard to reduce costs and improve margins is the trend to assemble white goods from imported component parts - rather than importing these.

This has evolved the role of the modern retailer from a purely importing, distribution and sales function to include a light manufacturing function with associated risks and obligations.

Retailers are also working to improve their efficiency and cost effectiveness by developing national distribution centres close to the origin of the goods they sell.

The physical risks in these warehousing centres is often costly, driven by the necessity of installing sophisticated fire and security protections, the cost of which take many years to recoup.

Further afield, in other African territories, retail businesses often face very different risks particular to the continent - beyond the well-known political risks, which continue to change across a range of African territories, the risk of falling foul of each country's different legislations, is a challenge for retailers entering the African market, Marsh Africa said.

"Following our clients into Africa in their quest to tap African markets, as well as establishing our own operations on the ground in most territories, has taught us that insurance, investment, product purchase, employment and profit repatriation are governed by very different legislation in each African territory. "Unless guided by on-the-ground expertise and contacts, retailers in Africa run substantial and varied risks in each territory," Cameron said.

She added that compliance with legislation and protection of personal information would become be the most challenging of risks that a retailer would face in the very near future.