Johannesburg - Following The Foschini Group’s announcement on Friday that it was considering an unsolicited offer for consumer finance business RCS, an analyst maintained yesterday that it was a good move for the clothing and homeware retailer to lessen its exposure to unsecured lending.
Avior Research retail analyst Michael McLeod said although not much detail was provided on the RCS offer, a sale would be welcome “from the point of view of lessening their exposure to unsecured lending”.
Retailers such as Foschini that are heavily reliant on sales through credit are at risk as consumers have less disposable income to finance their debts. Unemployment is at a high level while consumers grapple with higher living costs due to rising food and fuel prices.
Disappointing retail data from Statistics SA released last week underscored the pinch on consumers’ disposable income as sales in June were up only 1.9 percent year on year in real terms, lower than the market consensus of 3 percent.
Foschini’s larger rival, Truworths, reported that in the 52 weeks to June 30, credit sales were 72 percent of retail sales.
For the year to March, Foschini reported that growth in cash sales had outpaced credit sales, despite consumers becoming increasingly delinquent.
Foschini said enhanced credit risk management practices had been implemented because of high levels of consumer debt.
The independently run RCS facilitates credit for South African retailers including Massmart owned Game stores.
Foschini owns 55 percent of RCS and Standard Bank owns the remainder. RCS provides consumer loans, insurance and store credit cards with retail entities in South Africa, Namibia and Botswana.
Last month Foschini said it wanted to reduce its stake from 55 percent to less than 50 percent by selling some of its RCS shares or through a separate listing. But following the announcement and taking into consideration the state of the consumer credit market and the sentiment surrounding consumer lending businesses, the RCS shareholders had decided to expedite the process.
The company said despite challenging market conditions, the RSC business continued to perform well.
“It was a profitable stock/investment that they had there, its investors had a positive view on it. We saw a bit of a run on the stock,” McLeod said.
On Thursday retailers Edcon, Truworths and Massmart will release their results for the recent months.
Truworths said last month that money owed to the group grew by 11.3 percent to R4.3 billion in the 52 weeks to June 30, compared with the previous 52-week period. The rival retailer said that it expected revenue to rise by between 7 percent and 9 percent.
Foschini stock ended down 1.4 percent at R100 yesterday. - Business Report