Pepkor store chains and fintech strengthening in the weak economy

Pepkor subsidiary PEP reported strong sales in the six months to March 31 Photo:file

Pepkor subsidiary PEP reported strong sales in the six months to March 31 Photo:file

Published May 30, 2024


ROBUST trading in Pepkor’s popular store brands such as Ackermans, Refinery and PEP, and fast growth from its fintech business, saw group revenue rise a healthy 9.5% to R43.3 billion in the six months to March 31.

Retail sales growth strengthened in the second quarter after back-to-school campaigns and strong Easter trade, with brands expanding market share. Gross profit margins benefited from enhanced full-price sales and the continued recovery in Ackermans, where full-priced sales improved by 660 basis points.

PEP, Ackermans and Speciality saw double-digit sales growth, while JD Group reported high single-digit sales growth. The group’s overall market share expanded on a three, six and 12-month basis, according to RLC March 2024 data.

The retail store base was expanded by 111 new stores to 5 823 stores. New store openings at Avenida in Brazil accelerated to 22 from six in the same period last year. Avenida operates 163 stores in Brazil.

CEO Pieter Erasmus said consumers remained financially constrained and unemployment was high. While there was some reprieve from electricity load shedding recently, the group continued to build resilience in renewable solar capacity and through collaborative initiatives such as electricity load curtailment achieved in PepClo at the Parow campus in Cape Town.

Import supply chain disruptions adversely impacted in-store product availability during the period.

An ambition to expand its under-represented share of the adult apparel market led to a decision to reposition the women's standalone retail concept in Speciality, as a mid-market retail brand.

FinTech revenue grew 24.5% to R5.8bn. This was driven by initiatives such as retail credit interoperability, with 552 000 new A+ accounts opened. Other projects included making smartphones affordable via FoneYam, with 202 000 active customers; and affordable insurance products enabled through Abacus, which nearly doubled the number of insurance policies to 650 000.

“Our finTech strategy, enabled by retail and customer acquisition capability, is gaining momentum and showing early signs of success as we focus on solving customer needs and providing them with access to affordable products and services such as credit, connectivity, smartphones and insurance,” said Erasmus.

Headline earnings per share fell 3.1% to 75 cents, but was up 7.8% on a normalised basis.

Credit interoperability would allow the group to grow its share of the retail credit market, although credit remains a slow sales enabler at 13% of total sales. The remaining 87% of sales was transacted in cash.

The group sold 5.6 million cellular handsets in the six months, with smartphones representing 58% of sales. Private-label handsets like Stylo and Premio contributed 18% to the product mix, achieving higher gross margins.

The FoneYam cellular handset rental product was rolled out to 1 000 stores by the end of March, with 202 000 handsets sold. The monthly activation rate was 60 000 handsets and customer demand remained strong.

The +more customer value platform was launched across more than 15 PEPKOR retail brands, covering more than 5 000 stores. Despite its infancy, +more is already expanding the group’s known customer base, with 24% of current registrations coming from customers previously unknown to the group.

The group expanded its reach into the informal market. Throughput value in Flash increased by 28%, enabled by the 165 000 trader network.

“Pepkor has unrivalled customer acquisition capability through its retail brands and store network. This enables us to solve customer needs that go far beyond baby and school wear, such as affordable connectivity and smartphones. We have been deliberate in accelerating strategic execution in these areas, which weighs on profitability in the short term,” said Erasmus.

He said execution of their strategy remained on track. Also, the potential for expansion in Brazil remained compelling.