Tag: economy

One of the most important findings of Rand Merchant Bank’s (RMB) seventh edition of Where to Invest in Africa is that the continent could find itself hovering on the brink of disaster if it continues to depend on its current economic fundamentals and does not usher in economic diversification. Where to Invest in Africa 2018 highlights those countries that have understood the need to adapt to the prolonged slowdown in commodity prices and sluggish levels of production growth – and those that haven’t.

The theme for Where to Invest in Africa 2018 is “Money Talks” and this edition “follows the money” on the African continent to evaluate aspects crucial to each country’s economic performance. The report focuses on the main sources of dollar revenues in Africa, which allows it to measure the most important income generators and identify investment opportunities.

“Over the past three years, some African governments have had to implement deep and painful budget cuts, announce multiple currency devaluations and adopt hawkish monetary policy stances – all as a result of a significant drop in traditional revenues,” says RMB Africa analyst Celeste Fauconnier, a co-author of Where to Invest in Africa 2018.

“Some countries have been more nimble and effective than others in managing shortfalls,” says Nema Ramkhelawan-Bhana, also an RMB Africa analyst and co-author of the report. “But major policy dilemmas have ensued, forcing governments to balance economically prudent solutions with what is politically palatable.”

“The last three years have sounded an alarm, amplifying what is now a dire need for the economies of Africa to shift their focus from traditional sources of income to other viable alternatives,” says RMB Africa analyst Neville Mandimika, a contributor to Where to Invest in Africa 2018.

“These years have exposed a number of African nations to severe economic stress – especially that of liquidity shortages. Unfortunately, there is no quick fix to infuse into a context as complex as this, and traditional forms of revenue will remain a reality for many years to come,” says RMB Africa analyst Ronak Gopaldas, also a co-author.

In this edition of Where to Invest in Africa 2018, RMB’s Investment Attractiveness Index, which balances economic activity against the relative ease of doing business, illustrates how subdued levels of economic activity have diluted several scores on the index when compared with last year, resulting in some interesting movements within the top 10.

Notable omissions from the top 10 this year are Nigeria and Algeria, which have fallen from numbers six and 10 to numbers 13 and 15, respectively. Ethiopia and Rwanda, on the other hand, have climbed three and four places, respectively.

But probably the most notable change is that South Africa has fallen from first place for the first time since the inception of the report, ceding its place to Egypt, which is now Africa’s most attractive investment destination.

Egypt displaced South Africa largely because of its superior economic activity score and sluggish growth rates in South Africa, which have deteriorated markedly over the past seven years. South Africa also faces mounting concerns over issues of institutional strength and governance, though in its favour are its currency, equity and capital markets, which are still a cut above the rest, with many other African nations facing liquidity constraints.

Morocco retained its third position for a third consecutive year, having benefitted from a greatly enhanced operating environment since the “Arab Spring” that began in 2010. Surprisingly, Ethiopia, a country dogged by sociopolitical instability, displaced Ghana to take fourth spot mostly because of its rapid economic growth, having brushed past Kenya as the largest economy in East Africa. Ghana’s slide to fifth position was mostly due to perceptions of worsening corruption and weaker economic freedom.

Kenya holds firm in the top 10 at number six. Despite being surpassed by Ethiopia, investors are still attracted by Kenya’s diverse economic structure, pro-market policies and brisk consumer spending growth. A host of business-friendly reforms aimed at rooting out corruption and steady economic growth helped Tanzania climb two places to number seven. Rwanda re-entered the top 10 having spent two years on the periphery, helped by being one of the fastest-reforming economies in the world, high real growth rates and its continuing attempts to diversify its economy.

At number nine, Tunisia has made great strides in advancing political transition while an improved business climate has been achieved through structural reforms, greater security and social stability. Côte d’Ivoire slipped two places to take up 10th position. Although its business environment scoring is still relatively low, its government has made significant strides in inviting investment into the country, leading to a strong increase in foreign direct investment over the years and resulting in one of the fastest-growing economies in Africa.

For the first time, Nigeria does not feature in the top 10, with its short-term investment appeal having been eroded by recessionary conditions. Uganda is steadily closing in on the top 10, though market activity is likely to remain subdued after a tumultuous 2016 marred by election-related uncertainty, a debilitating drought and high commercial lending rates. Though Botswana, Mauritius and Namibia are widely rated as investment-grade economies, they do not feature in the top 10 mostly because of the relatively small sizes of their markets – market size has been a key consideration in the report’s methodology.

Where to Invest in Africa 2018 also includes 191 jurisdictions around the world, and measures Africa’s performance relative to other country groupings. The unfortunate reality is that African countries are still at the lower end of the global performance spectrum, which continues to be dominated by the US, the UK, Australia and Germany.

Source: Business Day 

Debt and corruption scandals at Eskom Holdings SOC Ltd. make the utility the biggest risk to South Africa’s economy and the government needs to replace its management, Goldman Sachs Group said.

Eskom plans to raise almost R340 billion ($26 billion) in the next five years, while meeting R413 billionof interest and debt repayments, which amount to 8% of South Africa’s gross domestic product.

The utility is caught up in allegations of corruption related to contracts it signed with companies linked to the Gupta family, who are friends of President Jacob Zuma. It’s also without a permanent chief executive officer and has suspended its finance director. Zuma and the Guptas deny any wrongdoing.

“We are having discussions on solutions,” Colin Coleman, a partner of Goldman Sachs and head of sub-Saharan Africa, said in an interview in Johannesburg on Thursday, without elaborating.

“Government has got to put the governance in place and clean it out. It needs a permanent credible, independent non-conflicted chairman and a credible board and from that, credible managers.”

The New York-based lender in 2015 provided informal advice to the South African government on the sale of state assets to raise money for Eskom and proposals on how to improve the utility’s cash flow, people familiar with the matter said at the time.

Eskom faces lower demand, with South Africans last year using the least amount of electricity generated by Eskom in more than a decade.

The utility is also spending billions of dollars on new power plants that are years behind schedule and over budget. The company disclosed R3 billion of irregular expenditure in its financial results on July 20, a figure which its auditors said they couldn’t independently confirm.

“Eskom is the biggest single risk to the South African economy,” Coleman said.

“If you strip out corruption and sort out procurement, I’m sure there are efficiency gains there. There are self-help initiatives that can deliver a company that’s a lot more efficient. You’ve got to incentivize efficiency.”

The South African government, which saw its budget deficit widen to 92.2 billion rand in July, is hamstrung by an economy that’s barely growing, political infighting, and losses at other state-owned companies such as South African Airways.

Two ratings agencies cut South Africa’s foreign debt to junk in April, citing the firing of former Finance Minister Pravin Gordhan at the end of March and poor governance at state-owned enterprises.

Eskom, which has used R218.2 billion in government guarantees, hasn’t held a public auction for its debt in South Africa since 2014, relying on development finance institutions and export credit agencies for loans.

The power utility is confident it can reduce its dependence on the government by targeting funding sources that do not require explicit guarantees, the power utility said in an emailed response to questions.

“Eskom continues to access various debt markets, which include funding from development finance institutions, domestic and international bond issuances, funding supported by export credit agencies as well as short-term commercial paper bill issuances,” the company said.

Source: Bloomberg

SA’s shopping centre glut squeezes property firms

Sector heavyweight Growthpoint Properties last week declared dividend growth of a decent 6.5% for the year to June 30.

Income payouts were boosted by the company’s recent entry into Romania as well as the inclusion of profits from its new trading and development business.

However, if one looks at the underlying performance of Growthpoint’s domestic assets there is no doubt it is becoming increasingly difficult to make money on SA shopping centres, offices and industrial buildings. Growthpoint is the JSE’s largest and most diversified SA-based property counter with total assets of R122.3bn (70% local), which makes it a reliable bellwether of the general state of the SA commercial property market.

Growthpoint CEO Norbert Sasse said at the annual results presentation that the SA business was operating in an “extremely tough market where any growth is good growth’’. He said as long as the local economy stayed in the doldrums, investors shouldn’t expect fireworks from Growthpoint’s SA portfolio.

Oddly enough, he said, overall vacancies were down over the past year, from 5.7% to 4.4%. But retaining tenants has come at a cost, in the form of rising pressure on rental growth.

“Tenants can now literally dictate how much rental they want to pay,” said Sasse.

The impact of a weak economy is particularly evident in Growthpoint’s retail portfolio, made up of 58 shopping centres across SA including stakes in Brooklyn Mall in Pretoria, La Lucia Mall in Umhlanga and Festival Mall in Vanderbijlpark.

Growthpoint’s flagship asset is the V&A Waterfront precinct in Cape Town, which it co-owns with the Public Investment Corp.

Trading densities (turnover/m²), a key metric used to measure the strength of retail spending, in Growthpoint’s retail portfolio, grew 1.3% on average for the year to June, down from 6.1% in the previous financial year. Trading density slowed markedly even at perennial star performer, the V&A’s Victoria Wharf shopping centre, from 13% to 2%. Sasse ascribed this to the role a stronger rand has played in dampening foreign tourist spend. He said there was no doubt that retailers were under severe pressure.

“The market has been hit by a double whammy: weaker retail spending as well as an oversupply of new retail space. Lease renewal success rates have deteriorated and vacancies are ticking up as tenants consolidate space and close underperforming stores.”

Though the advent in recent years of international retailers such as Zara, Cotton On, H&M, Forever 21, Starbucks and the like have supported demand for retail space in SA malls, Sasse said international retailers were not a natural “plug-in” to fill rising vacancies.

A similar slowdown in trading density growth and rising vacancies is evident from retail-focused Hyprop Investments’ latest results.

Hyprop owns a R27.7bn portfolio of nine malls across SA — including Canal Walk in Cape Town, Rosebank Mall and Hyde Park Corner in Johannesburg and Clearwater on the West Rand. Trading density growth in Hyprop’s SA portfolio slowed to 1.4% for the year to June, down from 5% a year earlier.

Vacancies increased to 1.9% (0.8% in June 2016) on the back of a number of store closures, among others that of Stuttafords. Hyprop nevertheless still delivered an impressive 12.1% growth in dividends for the year to June, supported by the first full-year inclusion of its European mall portfolio.

Hyprop owns stakes in four shopping centres in southeast Europe.

Peter Clark, portfolio manager at Investec Asset Management, says lower trading density growth in Growthpoint and Hyprop’s retail portfolios is indicative of some of the issues in the retail sector.

“Trading densities are under pressure from both weak consumer spending and the large increase in space in recent years. Ultimately, lower trading density growth has to put pressure on core rental growth,” says Clark.

Analysts note that the weak domestic climate will force local property players to look for new revenue sources if they want to maintain inflation-beating dividend growth. Growthpoint, for one, has recently introduced a number of initiatives in a bid to boost dividends.

For instance, for the first time the company this year included profits from its new trading and development business in income payouts to shareholders.

Kundayi Munzara, executive director and portfolio manager at Sesfikile Capital, notes that if development fees and trading profits are stripped out, Growthpoint’s dividend growth for the year to June would have been closer to 5%.

Earnings were further supported by the entry late last year into the Romanian office market via a R2.8bn stake in LSE AIM-listed Globalworth Real Estate Investments. Until now, Growthpoint’s only offshore interest was a 65% stake in Australian-listed Growthpoint Properties Australia.

Growthpoint has also created a new revenue stream by establishing a fund management business that will focus on health care, among other areas.

Health care (hospitals, clinics and medical suites) has not
traditionally been the domain of listed property funds. The company has already bought four hospitals and one medical suite with plans to grow the fund to R10bn over the next seven years.

Munzara says Growthpoint’s unlisted health-care fund is a great initiative.

“We believe the SA property market is ripe for well-run unlisted property investment products similar to those seen in developed markets such as the UK, Australia and the US.”

Growthpoint’s accelerated pace of disposals, with property sales of around R2bn over the past year, is also encouraging, notes Munzara.

“We like management’s midterm plan to sell 5% of the SA portfolio.

“We have often criticised Growthpoint for selling too little relative to acquisitions and developments, and we hope the ratio will swing towards more disposals once the large development pipeline is complete.”

By Joan Muller for Business Day

Caxton: the Naspers antithesis

Caxton and CTP Publishers & Printers, which is still earning most of its keep from newspapers, magazines and printing and packaging, could well be regarded as the antithesis of Naspers. Whereas Naspers has been ripped away from its print-media roots by an array of technology investments, Caxton still seems content to tinker with its (well-managed) traditional operations.

That’s not to say there’s not much to like about Caxton. In fact, there may be more than a few contrarian market watchers who prefer the conservative vision of Caxton prime-mover Terry Moolman to the all-conquering global thrust of Naspers chair Koos Bekker.

Caxton, on a trailing earnings multiple of around 10 times, may seem a fair rating, noting the changing media landscape. It’s worth noting the company’s operations are still churning out convincing free cash flows, and the allocation of this capital will determine Caxton’s long-term viability. The fair value of cash and cash equivalents topped R1.9bn, with cash generated by operating activities increasing over 20% to R782m — equivalent to around 195c/share. There was a R356m investment in property, plant and equipment – a large portion of this earmarked for the packaging divisions to facilitate a restructuring of the Gauteng operations. Caxton also made several acquisitions during the year, spending R158m. Perhaps the most eyecatching event is listed under the R85m investments and loans to associates. Though the most significant seems to be a 30% investment in Universal Labelling, the far more intriguing tilt is the shareholder loans made to “rapidly growing” fibre-to-home associate Octotel.

Caxton notes that Octotel will have connected more than 50,000 homes by the end of the year, making it the Western Cape’s largest independent open access fibre operator. Post-balance-sheet events may also raise market interest. Though the R11m acquisition of self-adhesive label business Tricolor in the Western Cape reinforces the old-economy tag, Caxton made a big move in clinching a 50% stake in Private Property SA, one of the leading digital real-estate portals, for R123m.

Caxton is clearly a business at an interesting juncture. I suspect the share price, which (aside from an odd spike) has dribbled downwards for five years, may find some traction fairly shortly.

Safety in numbers

Stellar Capital Partners (SCP) has pretty much been defined by its investment in JSE-listed Torre Industrial. That masks the fact the company did a rather good deal in buying out security technology firm Amecor, now apparently the subject of two takeover bids by other investment companies. Amecor delivered normalised earnings before interest, tax, depreciation and amortisation (Ebitda) of R52.3m for its year to end-March — justifying SCP’s purchase price of around R270m. If Amecor is for sale, could SCP — noting prevailing economic conditions — ask north of R300m? Market talk is that SCP may be offering Amecor in a package deal, with the stake in electronics manufacturer Tellumat tossed in as well.

Over the rainbow

RCL Foods is still counting on chickens, and executives seem determined to dismiss notions that the Rainbow poultry business will be put up for sale. This is despite the industry looking anything but the picture of plump prospects, with cheap imports still flying in and an ill-timed outbreak of avian flu.

RCL’s recent results, though, did show the poultry segment looking slightly pluckier, with a stronger second-half performance. The business model change — which will result in a volume reduction, with quick-service restaurant offerings favoured over commodity offerings like individually quick frozen — will hopefully yield further margin improvements.

It’s encouraging, too, that RCL’s chicken business is once again excelling in the “freezer to fryer” section, where market share at the end of June grew to a category-leading position of almost 40%.

By Marc Hasenfus for BusinessLive

South Africans rake in Airbnb profits

Airbnb has proved a lifesaver to many South African women hosts, giving an especially welcome financial boost to single mothers, according to latest statistics released by the hotel and guest lodge booking platform.

In the report Across the BRICS: How Airbnb connects the emerging economies, the platform detailed how the service contributed towards GDP in Brazil, Russia, India, China and South Africa.

“South Africa has seen the strongest growth in guest arrivals from BRICS nations at 380%, with explosive year-over-year growth in guests arriving from Brazil, by a factor of nine. South African hosts’ total income earned from BRICS-based guests ranks the highest of the five countries at $1.88m (about R24.3m),” the report read.

“The typical woman host in South Africa earned nearly $2 000 (R25 917.10) last year, more income than earned by the typical women hosts in other countries. More than 60% of women hosts in South Africa are Superhosts – hosts who are specially designated by Airbnb as hosting guests frequently, receiving a high number of five-star reviews, and being exceptionally responsive to guests and committed to reservations with 60% of South African women hosts with children, i.e., single mothers, use (sic) their Airbnb income to help them stay in their homes,” it said.

About 5.3 million Airbnb users from developing nations generated more than $467m over the past year, according to latest statistics released by the app.

The year-on-year growth rate of intra-BRICS  guest arrivals was reported at 134%, according to the study.

With interest in travel and tourism on the rise, reaching 10% of global GDP in 2017, Airbnb allows BRICS countries to benefit in their share of the income, said the report.

Airbnb is an online marketplace and hospitality service that helps people lease or rent short-term lodging including vacation rentals, apartment rentals, homestays, hostel beds, or hotel rooms with 97% of the listing price going directly to hosts.

By Kyle Venktess for Fin24

SA exits recession

South Africa’s economy exited its second recession in almost a decade in the three months ended June 30 after agricultural output surged.

Gross domestic product increased an annualized 2.5 percent in the second quarter compared with a revised decline of 0.6 percent in the previous three months, the statistics office said in a report released on Tuesday in the capital, Pretoria. The median of 21 estimates compiled by Bloomberg was for growth of 2.3 percent. The economy expanded 1.1 percent from a year earlier.

Low demand for the country’s exports and political turmoil that’s caused instability have weighed on output by Africa’s most-industrialized economy. S&P Global Ratings and Fitch Ratings Ltd. cut the nation’s international debt to junk in April after President Jacob Zuma fired Pravin Gordhan as finance minister, with the changes roiling markets and battering business and consumer confidence. The central bank cut its benchmark rate for the first time in five years in July, citing concern about the growth outlook.

“Higher commodity prices likely continued to catalyze growth in the mining sector,” Mamello Matikinca, an economist at FirstRand Ltd.’s First National Bank unit, said in an emailed note from Johannesburg before the release of the data. “While a shallow rate-cutting cycle may provide some relief to the consumer going forward, we nonetheless expect the recovery to be short-lived given just how weak consumer confidence and real wage growth is.”

Agricultural output surged 34 percent, the agency said.

The central bank halved its economic growth forecast for this year to 0.5 percent and trimmed the outlook for 2018 to 1.2 percent from 1.5 percent. GDP expanded at the lowest annual rate since a 2009 recession last year.

The inflation rate dropped to an almost two-year low in July, reaching 4.6 percent.

The rand 0.1 percent to 12.9543 per dollar by 11:31 a.m. Yields on rand-denominated government bonds due December 2026 were little changed at 8.52 percent.

The government will probably cut its output forecast in October, when Finance Minister Malusi Gigaba delivers his first medium-term budget policy statement.

In the February budget review, the National Treasury left its growth estimates unchanged from the mid-term budget in October, with the economy forecast to expand 1.3 percent this year, 2 percent next year and 2.2 percent in 2019.

Annual growth has slumped since 2011, which has hampered the government’s ability to reduce the 27.7 percent jobless rate.

By Arabile Gumede and Thembisile Dzonzi for Business Live

Petrol price shock for motorists

Fuel prices are to rise sharply this week, mainly as a result of climbing oil prices and a slightly weaker local currency against the dollar.

The latest information from the Department of Energy on Tuesday (29 August) indicated that the price of gasoline 93 (ULP & LRP) in Gauteng is likely to increase by 57.8 cents per litre next week – Wednesday, 6 September 2017.

The price of diesel with a 0.005% sulphur content meanwhile, is expected to increase by 45.2 cents per litre, said independent economist Fanie Brink.

The economist pointed out that the price of Brent crude oil increased to an average of $51.70 a barrel over the past month compared to an average of $49.50 a barrel in July.

“This increase resulted in sharp rises in the average international price of gasoline by 54 cents per litre and an increase in the diesel price by 41.4 cents per litre,” he said.

The average R/$ exchange rate traded around R13.16 last month and was slightly weaker at R13.22 which resulted in a further increase of 3.8 cents per litre in both the gasoline and the diesel prices, Brink said.

South Africa’s economic woes are expected to continue into the last quarter of the year, according to CEO of Debt Rescue, Niel Roets, who said that all indications are that the rand will continue to weaken in the coming months, which will further increase the fuel price as well as the cost of all imported goods.

“Food inflation is also outstripping general inflation running at about 6.9%. Despite the bumper maize harvest, prices of all grains are actually expected to rise in the short-term because the new harvest prices will only feed through into the economy by next year,” Roets said.

“This (September) fuel price increase is going to hit consumers like a ton of bricks. If current trends continue we could see more of the same in October.”

Here’s what you can expect to pay in September:

Petrol (93) – R13.40
Petrol (95) – R13.63
Diesel – R11.72

Source: BusinessTech

Rand surprises market to dip below R13/dollar

The rand surprised the market with a strong push to below R13/$ on Tuesday afternoon as the unit capitalised on a weaker dollar.

Earlier on Tuesday the rand continued its previous session’s slide to reach R13.12 to the greenback as the local unit faced more upside pressure from the North Korean missile launch.

By 16:47 the rand was trading at R12.99/$, 0.32% firmer than its previous close. It strengthened to R12.93/$ earlier in the session.

RMB currency analyst John Cairns said in his daily note to clients that the latest missile launch was North Korea’s most provocative ballistic test yet, as the missile flew over the northern Japanese island of Hokkaido, generating warnings for citizens to take cover.

“Given that a war between Japan/Korea/US and North Korea would be devastating — and generate R2.00+ big figure rise in USD/ZAR — one can understand the market’s nervousness.

“However, the problem with the catastrophe trade is that there is only a very small chance of a massive market event and a near certain chance that nothing will happen. Betting on the catastrophe therefore is almost always going to generate a loss, which is to say that, as with all the previous missile launches, expect risk aversion to die away rapidly, and for risk assets to recoup their losses,” Cairns said.

Commenting on the latest move, TreasuryOne told Fin24 there is no particular reason for the rand’s sudden strength.

“It surprised the market. The rand is capitalising on a weaker dollar and the North Korea missile scare has fallen into the background.”

TreasuryOne dealer Andre Botha earlier said North Korea’s missile launch early on Tuesday will only serve up more geopolitical tension, and more risk-off behaviour can filter into the market which can stop the rand from breaking through the R13-level against the US dollar.

Source: Fin24

How Zuma killed Stuttafords

Stuttafords officially closed its doors on Monday, 31 July after 159 years of operating in the South African retail market.

The retailer filed for business rescue in October 2016, after it could not recover from the pressures of the low growing economy and the significant devaluation of the rand following the axing of former Finance Minister Nhlanhla Nene.
A final bid to buy the last two operating stores in Sandton and Eastgate was rejected by the landlord, Liberty. Chief executive Robert Amoils told Fin24 that all staff at the two remaining stores will be retrenched and have their full retrenchment packages paid.

The business is currently undergoing a winding down process which will take a few months to complete. A sale of Stuttafords intellectual property is being finalised by the business rescue practitioners.

Amoils had explained to Fin24 that the business had been on the right path, but simply ran out of time to correct things. “I believe the path we set was correct. I believe the repositioning we did was consistent with what international trends have shown to work,” he said.

“Simply, we ran out of runway, we ran out of time. The market downturn was so swift, so severe and was paralleled with significant [rand] devaluation and political uncertainty.”

Amoils explained that the rand devaluation impacted the business model negatively because commitments were made to buy international brands almost a year in advance. But director at Norton Rose Fulbright and senior insolvency lawyer Haroon Laher said that the downfall could not be pinned down to the economy only.

“I think there were a number of factors. There was a lot of tension between the shareholders which obviously is tension in the house, so to speak. That did not contribute to a successful business rescue.”

Stefan Salzer, partner and managing director at Boston Consulting Group said that generally the retail sector is under pressure. Particularly in recessionary conditions consumers tend to cut down on spend for discretionary items such as clothing, household appliances and furniture.

“It is tough not to buy food but it is very easy not to buy a TV or buy the latest fashions from Stuttafords,” he said.
Salzer explained that over the past two to three years international clothing retailers had been entering the market, posing another complication for Stuttafords. Amoils previously told Fin24 that the arrival of international players like H&M, Zara and Cotton On had cut into their customer base.

That, coupled with increasing financial pressures on consumers and changing credit regulations did not contribute positively to the environment for clothing retailers, said Salzer.

Indeed, the devaluation of the rand impacted Stuttafords profits, he explained. An item that cost $3 would end up costing more at a later stage due to the sensitivity of the currency. This cost could be borne by the consumers, in the final price charged for the item, or the retailer would have to carry the expense and let profit take a knock.
Stuttafords purveys international brands and this set it in a disadvantage to other local retailers which rely on South African produced and sourced products, explained Salzer.

International players
Salzer said that international players are also clear on what they are, and on what they are not.
These retailers also differentiate between “basics” and fashion items and price these accordingly. For example a basic white T-shirt would be just that. Contrarily South African retailers would sell a “basic” white T-shirt with some print on it. Additionally, South African retailers often do not match pricing for basic and fashion items appropriately. Something considered basic, would be priced as a fashion item.

Local retailers also need to adopt fashion faster as international retailers do, he said. International retailers also have the advantage of scale, they have access to global brands at larger volumes.

South African retailers should also learn to introduce a “theatre of shopping” to inspire people to buy. Some retailers just put items on shelves, which is not as inspiring as having a styled manikin, he explained. A consumer could walk into a store with the idea to buy a T-shirt but then leave with a dress because the product was represented in an emotive and inspirational way, said Salzer.

International players also follow a different model when it comes to planning and buying merchandise, explained Derek Engelbrecht partner and consumer products and retail sector leader at EY. Global brands have a sense of urgency and frequency with which they change offerings.

“That is probably one of the key reasons the department store has battled. In gold old fashioned department store planning, the business would put new things on the shelf when the seasons change.”
“Global brands have worked hard and long to perfect the model where they are able to put items on the shelf every four to six weeks,” he said.

Develop a niche
Globally, the department store is facing challenges, explained Salzer. The way forward is to develop niche or specialist stores. Given South Africa’s mall culture, retailers do not necessarily have to stock all kinds of items under one roof, when a consumer can get these products a few meters away in a different store.

Salzer added that if some retailers still want to diversify their offerings, they need to be clear on the overall theme they are offering, like quality, convenience or affordability. For example a retailer could offer clothing items and cars, if the overall expectation of the offering was quality.

Engelbrecht explained that retailers can no longer be all things to all people. “If you follow approach of being all things to all people at some point your customer will leave you,” he says.

“If you identify the niche or the consumer you are targeting, while it may not appeal to all people, at least you are guaranteed that you created something unique. That is probably where the slow demise of the department store as a concept comes from.”

Engelbrecht also pointed out the importance of retailers adapting to the world in which they operate in.
Before entering business rescue, Amoils said Stuttafords had managed to reposition itself as a provider of cutting edge fashion and offered affordable branded luxury. The customer base was also more reflective of the South African consumer, with over 60% of Stuttafords’ market being black. The group also started focusing on targeting younger, tech-savvy consumers. “We perpetually evolved and I think we did a good job in the last five years,” says Amoils.

By Lameez Omarjee for Fin24

SA’s aging fuel refineries holding us back

BMI Research says SA will become increasingly dependent on imported fuels, as ageing refineries cannot supply the fuels modern cars need.

Allowing the government to set the petrol price once a month is keeping SA’s cars and fuels stuck in the past, BMI Research warned in a note released on Tuesday morning.

SA had to indefinitely delay its plan to introduce Euro V fuel standards in July because the profitability of local refineries is too low for them to recoup the investment required to upgrade their plants.

Since modern cars are increasingly designed to run on the cleaner fuels that SA’s ageing refineries cannot produce, the country’s dependence on imported petrol and diesel will grow.

“Increases to the new vehicle emissions tax last year will promote the sales of more modern and efficient vehicles. However, domestic refining capacity will be unable to meet the demand for higher-quality fuel,” the report said.

“As a result, SA will face a higher import burden for higher-quality fuel. This poses additional headwinds to domestic refiners due to the increasing competitiveness of fuel imports.

“A build-out in global products capacity has lowered the cost of imports, with production centres in Asia and Europe already upgraded to higher standards.”

BMI said one “flash of positivity” was Sinopec’s purchase of Chevron’s 110,000-barrels-a-day Cape Town refinery.

“The more risk-tolerant Sinopec already possesses experience in upgrading refineries to higher fuel standards in China and, whilst the potential investment in a higher-quality product slate is unlikely with Chevron as operator, Sinopec may view the upgrade as a longer-term opportunity within the country,” BMI said.

“However, upgrading existing capacity will nonetheless be expensive, with Chevron previously estimating the cost of upgrading the Cape Town refinery to be around $1bn.”

Source: Business Day

  • 1
  • 2
  • 7

Follow us on social media: 

               

View our magazine archives: 

                       


My Office News Ⓒ 2017 - Designed by A Collective


SUBSCRIBE TO OUR NEWSLETTER
Top