The tightening up of South Africa’s consumer credit regulations has altered the fortunes of retailers with apparel heavyweights, The Foschini Group and Truworths, telling different stories of the resurgence of cash as king for consumers battling pressure from many fronts.
Truworths’ share price plunged as much as 10.07 percent yesterday before closing 7.38 percent down at R69.
It advised the market that its retail sales for the first 18 weeks to November of the 2015 financial period increased by 4.7 percent to R3.7 billion with cash sales growth of 5.4 percent and credit sales growth of 4.5 percent.
Foschini, which a few years ago sold 70 percent of its merchandise on credit, reported that cash sales stood at 44.2 percent, up from 40.3 percent in the previous period.
For the six months to September, the retailer increased retail sales by 9.7 percent.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, said Truworths was either losing market share or the market was shrinking in terms of people going into the shops and buying. “This is confirming the tough credit period we are in, and with rising interest rates and all other costs of living, will hurt the credit retailers [more] than the other guys.”
Jean Pierre Verster, an equity analyst at 36ONE Asset Managers, said the market had reacted negatively to Truworths’ business update, which indicated that retail sales for the first 18 weeks of the financial year were up only 4.7 percent, a lot less than Foschini’s first-half sales growth of 9.7 percent.
“Historically more than 70 percent of Truworths’ sales were on credit rather than in cash. Because Truworths is a lot more credit-driven as an – apparel retailer, the deteriorating credit cycle has a greater effect on Truworths than on Foschini, which only has 55 percent of sales on credit,” he said.
Verster said cash sales included payments by credit card, which meant the extension of credit by the retailer was being intermediated by the banks.
He said the credit granted by the banks in the form of credit card facilities was actually helping merchandise sales of credit-led retailers. “We saw this in the last bank results where the credit card divisions grew advances quite strongly. Growth in credit card facilities was a big driver for most of the big four banks.”
Verster said when retailers offered credit, they did it as an enabler for the sale of merchandise, rather than on a stand-alone basis. “Credit retailers can still make a lot [of] money even if there is a big switch from credit to cash sales,” he said.
Foschini confirmed that consumers were using more cash than credit and attributed part of the change in this pattern to stricter credit-granting criteria.
“We love how cash sales are growing; we have actually done very well in this difficult climate. Since January we have been over 20 percent every month on our cash sales,” Ronnie Stein, the chief financial officer at The Foschini Group said. He added that about 58 percent of total cash sales was from hard cash payments with the balance spread between credit cards and debit cards, with credit card payments growing a bit faster than debit cards.
Stein said Foschini believed that by end of this financial year cash sales would be more than 45 percent. “In a year we could be having an equitable 50/50 split, but there would be a time where [the] credit cycle changes and gets better.”
Truworths also announced the appointment of Jean-Christophe Garbino as its new chief executive after Michael Mark did not renew his contract, which expires at the end of June.