JD Group had increased its provision for impaired advances to R966 million in the year to June from R557m a year earlier, as consumers struggled to keep up on instalment payments due to rising costs, the furniture retailer said yesterday.
JD Group chairman David Sussman said the company was “looking at the possibility” of outsourcing its loan book, which increased to R2.5 billion, of which R1.5bn is attributed to unsecured loans. Revenue for the year rose to R32.2bn.
As part of a recovery strategy, it would reduce the size of stores and relocate some Hi-Fi Corp and Incredible Connection stores to malls for more access to foot traffic.
Sussman said fewer consumers were qualifying for loans due to increased indebtedness and fewer were able to service debt. The retailer’s chain store brands include Joshua Doore, Barnetts, Russells and Hi-Fi Corp. It also runs a separate consumer finance service for its customers.
36One Asset Management analyst Cy Jacobs said the company’s loan book had “ballooned” and that retailers’ books did not have a good track record. “The commercial banks are wary of these books given the latest mishap with African Bank, and the strain shown in other retail loan books,” Jacobs said.
Unsecured lender African Bank Investments said recently that it would sell its Ellerines furniture unit, which was underperforming in a tighter credit environment with slow sales.
Jacobs said the amount set aside to cover bad loans was too low. “The consumer is under severe strain, and this is evident in all furniture credit retailers alike,” he said.
JD Group wrote off R100m more bad loans in the period than in the previous year, bringing the total to R505m.
Sussman said the focus was more on trading densities as part of the group’s ongoing effort to get “more trading out of every square metre”. He said this process would make use of available space and no new property would be bought.
He said risk was a natural part of unsecured lending. “We haven’t gone out and promoted unsecured lending, it’s a financial offering for our customers.” He said JD Group preferred lower risk clients who could service debt. High-earning customers were not necessarily a safe haven as they were “also up to their eyeballs in debt”.
The shares fell 1.54 percent to R28.80 yesterday. page 16