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As SA retailers struggle, other African markets start to shine

| Economic factors

As more South African retailers announce possible closure of unprofitable stores, their peers in the continent are breaking new grounds, becoming the ones to watch in the foreseeable future, the latest Global Retail Development Index compiled by international consulting firm, A.T. Kearney shows.

In fact, seven of the top 30 economies whose retail sector showed considerable growth in 2019 were in the continent. SA on the other hand did not even get ranked among the 200 economies that are featured in the index, despite the report showing that 2019 was the year of the "arrival of the Middle East and Africa".

The index ranks attractiveness of countries' retail sectors based on their population sizes, GDP per capita and overall country risk arising from the performance of their economies and policy developments among other things.

The primary reason the local sector was not ranked is due to market saturation, says A.T. Kearney Principal, Sujeet Morar. As a result, the only way for SA retailers to continue growing is to look beyond SA or try to contain their costs more.

"The level of saturation in the market, combined with rate of growth within the South African economy presents less opportunity for existing retailers to expand, and limits the opportunity for new entrants," said Morar.

He explained that in SA, sales per 1000 capita exceeded the threshold required for existing retailers to expand and new retailers to enter the country's retail market.

The route of containing costs is one that some local players seem to be taking. Retailers including Edcon, DionWired and Cambridge Foods have announced store closures. Massmart is currently consulting with its employees and organised labour about possible closure of 23 high-tech Dionwired stores and 11 outlets within its wholesaler division, Masscash.

Earnings of international brands including food franchises, Burger King, Dunkin' Donuts and Starbucks also show that they are not getting a foothold in SA. Even African players like Botswana-based Choppies struggled to make inroads in the country despite being a budget retailer.

Veteran retail analyst, Syd Vianello said the saturation of the retail sector in SA would not necessarily be a problem if consumers spending ability matched the rate at which new malls and additional stores are being opened.

"If the amount of money available to spend is under pressure, then obviously if you've been expanding and rolling out more stores in more malls, then your sales per square metre are obviously going to come down. At the same time, your costs are rising because rent and wages go up," said Vianello.

He said in the case of some retailers, their problems are somewhat linked to the saturation but in cases of players like DionWired, online retailers have stolen most of the market share.

"In that case, margins simply make it unprofitable to operate stores in expensive shopping malls," he said.

Retail jobs on the line

The retail and wholesale sector is the second biggest provider of formal employment in SA, employing 3.4 million people in the third quarter of 2019, figures from Statistics SA show.

Stats SA data does not show employment in the retail sector separately from wholesalers. But combined, it shows that these industries have been volatile, growing and shedding thousands of jobs from one quarter to another since the 2009 global recession.  

The first two quarters of 2019 were looking pretty when the industry created 109 000 new jobs but started shedding them again in the third quarter when 21 000 jobs were lost. Employment figures for the fourth quarter will be released.

Edcon managed to save most of the 1 000 jobs that were on the line when it fell into hard times and had to be rescued by its lenders and landlords who took part in the R2.7bn recapitalisation deal last year.

Massmart has said that 1 440 are affected by possible closures of DionWired and Masscash outlets. Since the retailer is still undergoing the consultation process, the number of workers that will eventually end up without a job may differ.

Growing beyond borders

Shoprite and Pick n Pay are some of the retailers that have successfully created solid footprint in other African countries. But Shoprite’s operations in the rest of Africa faced difficulties in the past year, with sales in Angola shrinking by more than 38%.

Pick n Pay’s earnings from the Rest of Africa dived 79.8% year-on-year in the period to 1 September 2019 as Zimbabwe and Zambia experienced significant currency devaluation and hyperinflation. Pepkor announced late last year that it's exiting Zimbabwe after a R70m after-tax loss.

Vianello said the problem with trying to make up for SA challenges by expanding beyond borders is that many countries present more challenges than opportunities if a foreign retailer does not take time to understand the dynamics of their economies.

"Right now, prospects in Angola and Zambia are under pressure. Zimbabwe is a no-go from the start. The one country that can potentially be of interest in my mind is Mozambique because they have started developing the gas fields which means more people coming into the country, more locals getting jobs and more economic activity," said Vianello.


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