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Mr Price’s superior results back plan to open stores

Sandra Baloyi - superviser at Mr Price - in the Johannesburg CBD. Photo: Leon Nicholas.

Sandra Baloyi - superviser at Mr Price - in the Johannesburg CBD. Photo: Leon Nicholas.

Published May 27, 2011

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The Mr Price Group plans to open 40 to 50 stores a year for the next few years, build two new warehouses and continue expanding elsewhere in Africa to protect market share.

Mr Price chairman Alastair McArthur said yesterday that to defend market share the group must remain the leading junior fashion business. European retailers such as Zara and Top Shop that might come into South Africa would do so at higher prices. “So we have to be fashionable at good prices.”

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Walmart was not a direct threat as its product offering targeted a different market; Mr Price sold fast-moving high fashion for 16- to 30-year-olds. “Nonetheless Walmart is the biggest retailer in the world.”

McArthur said pressure on competition authorities to impose local procurement targets on Massmart, as a condition to approving Walmart’s acquisition of control, was not casting South Africa in a good light in terms of free trade. It was a worry as to how this would affect foreign investors’ view of South Africa as most retailers had foreign shareholders, including Mr Price, with 30 percent being based abroad.

In the current financial year, R305 million would be spent on capital expenditure, including R181m on retail.

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Mark Blair, the group’s chief financial officer, said there was about R1.4 billion in cash on the balance sheet, of which about R700m was free cash.

Chief executive Stuart Bird said 40 to 50 stores would be opened a year and some stores would be expanded. Mr Price, Mr Price Home and Mr Price Sport would get a new look. The first revamped store would open in Sandton in December.

Chris Gilmour, an equity analyst at Absa Investments, said for Mr Price to be able to open that many stores in this environment and do it with confidence was a sign of the company’s strength.

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Yesterday the group reported a 13 percent increase in retail sales to R10.7bn for the 53 weeks to April 2, 2011. Excluding new and expanded stores, retail sales rose 10.2 percent. Profit attributable to shareholders rose 50 percent to R1bn.

McArthur said there was a big turnaround in the home division, which had been most affected by the recession. “It’s the first time in many years all five businesses are firing.”

Gilmour said a big factor behind the good performance was the cut in markdowns, which came back to the group’s Project Redgold, an initiative that was coming to the fore “big time”.

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The aim of Project Redgold was to develop sophisticated data handling and forecasting techniques to improve stock planning. One of the results had been that in the past four years inventory had risen 5 percent and sales 48 percent.

The group had opened smaller-format stores in rural towns as social grants opened up opportunities in areas it would not have previously considered.

McArthur said there were about 25 express stores of about 450m2 in small towns like Howick, which worked well for Mr Price and Sheet Street.

“There are a lot of places we can go,” he said.

The group, which had 67 stores outside South Africa, was assessing opportunities in Nigeria, Angola and Ghana.

Bird said the first store could open in Nigeria December, but growth outside South Africa would be slow as the big issue was securing property.

The group would spend R300m over the next four years on two new warehouses in Johannesburg and Cape Town, enabling it to ship straight to Cape Town and transport directly from the Durban harbour to Johannesburg. This would reduce high transport costs as currently goods were shipped to Durban and then transported countrywide from the group’s Durban warehouse.

Mr Price shares rose 1.01 percent to R63.90 yesterday. - Samantha Enslin-Payne

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