Foschini grows cash sales to beat storm

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Nompumelelo Magwaza

As the harsh credit environment begins to bite into the margins of credit retailers, The Foschini Group has turned to cash sales to survive the storm.

The group said yesterday that it increased cash sales by 15.9 percent in the year in March, and they contributed 42.2 percent to turnover.

The group, which trades under 17 brands including Foschini, Markham’s, American Swiss and Total Sports, said it had enhanced its credit risk management practices, which helped to grow credit sales by 5.7 percent.

“The credit environment has been very difficult but we think we have handled it well,” Foschini chief financial officer Ronnie Stein said.

Over the past few years Foschini had introduced and enhanced its credit risk management practices by drawing up tougher credit scorecards and checking up on credit bureau information on a monthly basis instead of a quarterly basis, Stein explained.

The tighter criteria in store card applications have resulted in the number of new credit accounts dropping by 10 percent.

In addition Foschini plans to increase the contribution of cash sales to total turnover to the point where they are equal to credit sales.

“Foschini has had a strategy for a number of years to increase the level of cash sales.

“In the current year it has gone up to 42 percent of our turnover, and in the next financial year we think it will get up to 45 percent. We are looking at a more equitable split of turnover between cash and credit [sales],” Stein said.

The group recorded a 9.8 percent increase in turnover to R14.2 billion and its diluted headline earnings a share grew 6 percent to R9.027.

The group’s gross margin in all categories was maintained while the operating margin from continuing operations reduced from 18.7 percent to 17.9 percent due to tight credit market conditions.

Foschini’s 120 stores outside South Africa grew turnover by 26 percent but they only account for only 3 percent of the group’s total turnover.

Stein added that the group planned to have between 280 and 300 stores in countries outside South Africa by 2018.

“We are in most of the southern African countries already. We have moved into Zambia, where we had two stores initially. Once we understood the country we started to expand our store base to about 20 stores, which are doing well,” Stein said.

The group will be opening five stores in Ghana and plans to expand into other countries such as Angola and Kenya.

“We think those would be easier places to trade in than Nigeria where we have two stores. We are not planning to expand in that country – it is such a big country and a difficult one to trade in, but we have to persevere because the market is huge with about 160 million people.

“We think once more shopping centres are built, it will be a big market for all South African retailers.”

During the year under review, the group opened 165 new stores, and increased its trading space by 6.1 percent. It plans to open 180 new stores in the year ahead.

The company’s share price gained 3.06 percent to close at R111 on the JSE yesterday.


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