Johannesburg - The approaching festive season would be a “critical period” for Foschini’s sales, chief financial officer Ronnie Stein said yesterday, as the clothing and homeware retailer reported slowed retail sales growth for the six months to September.
Retail turnover climbed 9 percent to R6.7 billion as consumers struggled to make payments. Credit retailers such as Foschini and Truworths have felt the pinch in the pullback in unsecured lending and as the increasing cost of living strains consumers.
The retailer was anticipating a better second half as consumers geared up for Christmas shopping, which accounted for 23 percent of overall sales.
Last Christmas group sales climbed 19.8 percent and same-store growth rose 12.9 percent.
Stein said the company had introduced many measures to curtail credit spending, which was outpaced by cash sales in the six months to September.
Stein said that the increase in cash sales indicated merchandising was right.
“Those customers could have gone to buy anywhere. So we thought that was good, at the level we are at. On the credit side, we need to wait until the credit cycle changes and we think it might continue… for another year,” he said.
“In the very tough credit environment like we have now, that started last year, we put in enhanced credit-risk management practices, which to some degree curtail credit sales.”
The retailer updated its scorecard last year – a predictor for which customers would pay their accounts.
It also increased its early-stage and late-stage instalment collection for customers who missed payments.
Stein said Foschini had begun to collect its own debt instead of outsourcing, as debt collectors had “not performed well in this current climate”.
“We are getting far better results collecting ourselves than they were doing for us,” he said.
The group currently trades out of 2 050 stores, 116 of these located outside of South Africa.
The latter stores’ turnover rose by 25 percent in the six months to September.
The retailer’s accelerated planned expansion into the rest of Africa aims to more than double its footprint outside of South Africa to 300 stores by 2018.
Foschini Group, the country’s worst-performing clothing retail stock this year, which sells about 60 percent on credit, declined by 3.47 percent to close at R108.11 yesterday.
Competitor Truworths said yesterday retail sales rose slightly by 7 percent to R3.5bn for the 18 weeks to November, compared with a 15.9 percent increase a year earlier, as the credit environment continued to affect the retailer. Credit sales accounted for 71 percent of retail sales, with like-for-like store sales rising 2 percent.
Shares of Truworths fell 8.11 percent to close at R85.
“It’s becoming increasingly difficult for credit retailers,” Roger Tejwani, a retail analyst at Noah Capital Markets, who has a sell recommendation on Truworths, said. “Their debtor costs have grown and they are facing increasing competition from international brands.”
Truworths shares have dropped 20 percent this year, while Foschini has declined 24 percent. The all share index has rallied 18 percent. – Additional reporting Bloomberg