Further consolidation in the form of store closures and a reduction in store openings is expected to take place in the furniture retail sector this year.
This sector took a plunge last year as a result of the lack of disposable income and highly indebted consumers.
Retail analysts said last week that the year 2014 proved to be a turning point for the furniture retail industry due to the collapse of the country’s oldest furniture business, Ellerines.
The trend was likely to carry on into 2015.
Ellerines went under business rescue after its parent company, African Bank, went bankrupt.
It sold its furniture brands and closed some of its stores.
These included 63 Bears Furnitures which were sold to the Lewis Group for R93.7 million, while Dial-a-Bed was sold to CoriCraft.
It also has a R400m indicative offer for stores outside South Africa from an undisclosed buyer.
Early this year, it was reported that Ellerines was in talks to sell its two brands Wetherlys and Geen & Richards.
JD Group – which owns brands such as Joshua Doore, Russels, Price and Pride and Barnetts among others – has restructured these brands into clusters.
The group, of which 86 percent is owned by Steinhoff International, sold its loss-making consumer- finance business to a BNP Paribas unit for R4.6 billion cash.
Lewis was the only furniture retailer which was able to survive the credit storm.
Mark Hodgson, an analyst at Avior Capital Markets, said there was still going to be net closures of stores as a final Ellerines wind down happened. He believed that the industry was likely to experience some further consolidation.
“I think we might see about 5 percent of stores’ consolidation, however, it was hard to put an exact number as we wait for Ellerines to wind down.
Hodgson said the JD Group might also close some of its stores as part of its brand rationalisation.
“Lewis will be more about opening smaller stores and not growing net space. Between Ellerines and JD Group stores, we are likely to see some store reduction.”
He added that the furniture retail sector was not only over-traded, but was also dependent on the credit being granted by the likes of African Bank and other unsecured credit lenders.
“This trend kind of justified the rate at which new stores were opened.”
Hodgson said Shoprite’s furniture division, which includes OK Furnitures and House & Home stores, was likely to be a beneficiary as it was less impacted by the shrinkage of stores in the industry.
“They certainly will be gaining market share in the process,” Reuben Beelders, a portfolio manager at Gryphon Asset Management, said, adding that a few unusual events had occurred over the past few months, including a significant drop in the oil price.
“This is definitely going to be a benefit to consumers as they will have more disposable income in their pockets.”
However, Beelders was not sure if consumers would be buying furniture with that extra cash.
He added that the impact that the collapse of Ellerines was going to have was that the group would take a lot of access capacity on the supply side, which might be good for remaining operators such as Lewis and the Shoprite group furniture division.
“However, prices may remain firm, which is not good for the customers.”
Beelders believed that consumers are not yet over the credit hump.
“I still think people are fairly highly indebted, the one thing that has changed is that we do seem to be heading into an environment where there is not going to be a lot more interest (rate) hikes.”
South Africa, however, faces a risk of a weaker currency, which might force the Reserve Bank to hike interest rates.
The other factor was that the country was experiencing a weak economic growth.
“While people have jobs and are able to afford furniture, I am not sure if it is going to be their first choice.”
Beelders said he did not see an environment where discretionary goods were going to pick up in sales. – Nompumelelo Magwaza