Are SA retailers staring into the abyss?

According to a recent article in Business Day, South Africa’s once blue-chip retail giants are reeling in tandem with the economy as the glory days of retail fade.

  • The latest megamall is Fourways Mall. It cost R9-billion to revamp, has 450 stores and is the size of 20 rugby fields
  • Fourways Mall is now bigger than Midrand’s Mall of Africa
  • This is bad timing in a country with economic growth rate of 0,9%
  • South Africa’s unemployment rate stands at 29% – meaning few people have income to spare
  • Welfare payments to SA’s 18-million beneficiaries are set to grow by less than inflation
  • Online shopping trends also pose a threat to retail
  • The share prices of the largest SA retailers are down
  • Mr Price is down 24% over the past year
  • Grocery pin-up stock Shoprite is down 45%
  • Massmart, which owns Game and Makro, is 61% lower
  • Truworths is down 41%
  • TFG, which owns Foschini, is down 17%
  • Dis-Chem is down 34% over 12 months
  • Pick n Pay is down 21%
  • Both national and international retailers are faced with downsizing (such as Edgars) or closing (such as Toys ‘R’ Us)

 

Sign Africa print expo a success

The Sign Africa and FESPA Africa Expo, held last week at Gallagher Convention Centre, attracted 6 850 visitors in total, with 5 923 unique visitors and 927 revisits. Roland was the event’s Platinum sponsor.

Visitors could take part in a range of educational features, including Screen printing with Charlie Taublieb, who has been in the screen printing industry since 1976, on the Rexx Screen & Digital Supplies stand; a Textile print experience with free demonstrations by local experts on T-shirts an

d textile items with speciality printing techniques; CorelDRAW workshops, the Speed Wrap Challenge and hot new product tours, which showed expo visitors product highlights on various stands.

Exhibitors had positive feedback about the event:

“The show was fantastic! We had an amazing response with the launch of our 3D Fusion letter printer, and swissQprint Karibu roll to roll at 200 square meters an hour – both a game changer – as well as R50 million worth of sales. Printing with our UV P ink, which was also showcased, has revolutionised printing on uncoated textiles, vinyl, PVC, paper, ABS, Correx, Dibond and much more,” said Adrian Wolman, Sign-Tronic.

Niki Long from Graphix Supply World said, “It was a great show for us with loads of enquires and over R20 million in sales. The expo definitely exceeded our expectations.”

William Gibson from Falcon SA said, “We really enjoyed the expo, it was a good show. I especially liked the hot new product tour.”

 

Jithoo Daya from Maxsigns said, “We had much better engagement with visitors this year, who liked our new products.”

Nardus Mouton from Gencotech said, “It was a very good show for us with lots of positive leads. The visitors were particularly interested in our new products. The expo is always a positive experience for us.”

Vic Anderson from Clip-Tite said, “The show was a good opportunity to make contact with existing customers.”

Source: Sign Africa
Images: My Office News

Will Walmart call it quits in SA?

According to a recent Business Day article, Massmart – who owns brands such as Game and Makro – is in trouble.

The company recorded a R550-million loss to June 2019, and investors have been told earnings will likely be less than 50% of what they were in 2018.

  • Walmart is the world’s largest bricks-and-mortar retailer. The company paid $2.3bn to buy 52% of Massmart in 2011
  • Walmart paid R148 a share, but today share prices stand at R44 – a 70% drop in value
  • Speculation is rife that Walmart may pull out of SA rather than buy the other 48% of Massmart
  • SA won’t be the first country Walmart has exited. It also gave up on Germany, Britain and South Korea, and is currently scaling back in Brazil
  • In 2010, Massmart generated cash of R2.6bn and paid dividends of R822.4m
  • By 2018, cash flow was at R2.8bn, and dividends marginally lower at R750m
  • Massbuild (primarily Builders’ Warehouse) would be an easy sell but it would be a struggle to find buyers for Massdiscounters (Game and DionWired) – stores that have been hard-hit by online competition
  • Other businesses in the stable are Masswarehouse (Makro and The Fruitspot) and Masscash, whose brands include Jumbo Cash & Carry and Cambridge Food
  • By 2020 it will be clear whether or not Walmart can extract value from its African conglomeration, or whether it breaks it into its pre-1990s components and sells them off.

Eskom forced to go into debt to pay interest

By Jan Cronje for Fin24

Cash-strapped power utility Eskom is needing to borrow money in order to pay interest on debt, its chairperson and interim CEO Jabu Mabuza told MPs.

Eskom leadership, together with Minister of Public Enterprises Pravin Gordhan, were briefing a joint sitting of three oversight committees on the utility’s finances on Tuesday.

Mabuza, who took over the role of interim CEO after Phakamani Hadebe resigned at the end of July, said the utility found itself in an unsustainable position. Its total debt was nearing R450bn, and it was not earning sufficient revenues from its businesses to service the interest on what it had borrowed.

“We find ourselves having to borrow to pay debt,” he said.

Electricity revenues over the past 5 years had been flat, he said, while operating costs had increased. Annual tariff increases, meanwhile, were less than what it had hoped for. He said Eskom was also owed some R38bn that it has not been able to collect.

Mabuza told committee members that the energy availability factor of its power plants had dropped to below 70%, which in turn had contributed to load shedding.

Gordhan told committee members Eskom would have run out of money by October without government support.

The utility has been granted two lifelines by the state. The first is a financial lifeline of R23bn per year (for three years) announced by Finance Minister Tito Mboweni in his February Budget. The second is a Special Appropriations Bill which allocates the utility R26bn for the 2019/20, and R33bn for the 2020/21.

Source: A News
Image credit: AP

South African police on Monday arrested dozens of people following looting in Johannesburg and protests in the transport industry linked to a wave of anti-foreigner sentiment. At least 41 people were arrested after hundreds of people marched through Johannesburg’s Central Business District (CBD), plundering shops and torching cars and buildings, the police said in a statement.

Looting and violence spread across several neighborhoods in South Africa’s major cities of Pretoria and Johannesburg on Monday, after a spate of overnight attacks that appeared to target foreign-owned shops.

At least 50 shops were looted and burned early Monday in the southern Johannesburg suburbs of Malvern and Jeppestown. Police fired rubber bullets at looters as burnt cars were stranded in the roads as violence grew.

Officials dismissed reports that the ongoing attacks were xenophobic and that foreign-owned shops were targeted in the violence, insisting they were opportunistic crimes.

“Xenophobia is just an excuse that is being used by people to commit criminal acts,” Police Minister Bheki Cele told the media on Monday afternoon. “It is not xenophobia, but pure criminality.”

Cele said the government’s first priority was to deploy more police officers to the affected areas.

Police arrested 41 people for the violence in Johannesburg, while 8 others were arrested in Tembisa township, east of Johannesburg, and one person arrested in the capitol Pretoria, police said.

On Monday, a pamphlet circulating on social media, seen by The Associated Press, encouraged South Africans to chase foreigners out of their communities.

The pamphlet, attributed to a group called the Sisonke People’s Forum, accused foreigners living in South Africa of selling drugs and stealing jobs, both common refrains during the regular flare-ups of violence against foreigners in the greater Johannesburg area in recent years.

Monday’s violence follows similar incidents in Pretoria last week, in which protest led by taxi drivers saw several foreign-owned shops looted and torched.

According to IPG Mediabrands’ specialist digital agency Reprise, South Africa’s e-commerce industry, while still in its infancy, is showing strong growth thanks to high mobile penetration, secure payment options and changing spending habits.

Natasha Courtney, social media manager at Reprise South Africa says: “Currently only a quarter of South African retailers are spending through digital channels but with more of the population shifting their behaviour and budgets to online shopping, more retailers are making their products and services available online all the time.”

Women especially prefer interactive and easy-to-use options that allow them to share their shopping experiences with other users, and to get feedback and user ratings about the products or services they’re interested in purchasing. “Out of the 39% of women who are actively shopping online in South Africa, there was one predominant reason they enjoyed shopping this way – convenience,” says Courtney.

Digital shopping platform ThinkOver says that 89% of women will wait for an item to go on sale before purchasing. More than half of respondents (55%) said they continuously check a retailer’s website for sales while 58% monitor their inboxes for sale alerts. What’s more, 75% of women said they get upset when an item they wanted to buy went on sale and they weren’t aware of it.

When it comes to preferred payment terms, 54% of South African shoppers like to pay cash on delivery. When asked about debit card payments, 52% of consumers preferred this method – quite an even split. “Loyalty programmes are a big part of a woman’s shopping experience with the study finding that 80% percent of women belong to store loyalty programmes,” she says. “And we’re spending a lot of time online – the majority of female shoppers spend an average of an hour a day looking for great deals before we buy.”

For South African female consumers, the three most popular categories of online purchases are clothing, entertainment and education, and tickets for events. Over 75% of women stated that they go online and choose what they want to purchase before they go out, suggesting that most purchases are pre-meditated and not a spur of the moment decision.

“Pick n Pay’s integrated annual report for 2018 showed a 70% increase in its customers visiting their website from a mobile device since they launched their online grocery shop,” says Courtney. “But there are some down sides too – when purchasing clothing online, some women say that the clothing sizes are incorrect on delivery and the return policies and overall service turnaround times are the areas that need attention from retailers.

Poor user experience on websites is another deterrent to online shopping.

Mobile technology is transforming e-commerce in Africa, and consumers are actually more likely to have a mobile device than a bank account,” she says. “South Africans are also becoming more comfortable with mobile shopping due to, for example, easy-to-use apps for ordering car rides or food becoming more commonplace.”

This research shows that the online shopping industry is growing and is set to grow even more in the coming years. It is also clear that consumers will choose online payment partners they can trust, and that provide peace of mind that the security of their financial information will be a priority.

“For now, traditional shopping habits still dominate in South Africa but with almost half the population set to make an online purchase in the next year, it is clear that the ecommerce market has huge potential and will continue to grow year on year. It’s hugely exciting for retailers and consumers alike!”

If the Administrative Adjudication of Road Traffic Offences (Aarto) Act, which was signed into law by President Cyril Ramaphosa last week, goes into effect, a trip from Johannesburg to Pretoria will cost consumers without e-tags R1 000.

A R250 fine would be levied against motorists for for every gantry passed without an e-tag present.

Critics have slated this decision as:

  • This legislation could be used to bully non-paying motorists into paying e-tolls
  • Gauteng currently has a 70% non-compliance rate, meaning the burden of billing motorists would be onerous
  • Approximately 1,49-million trips are taken on Gauteng’s tolled roads daily
  • For every R500 fine received under the new Act, motorists will receive a demerit point
  • Non-payment of fines could result in a three-year driving ban
  • This would cause havoc with the country’s economy as people would lose jobs and small businesses may close

Minister of Transport Fikile Mbalula has a deadline of Saturday 31 August to announce the future of the contentious tolling system.

 

Edgars launches new concept store

On 22 August, Edgars opened a brand new store in Fourways Mall, displaying the brand’s new positioning and business direction into a physical open-floor space.

Ever since Edgars re-launched the brand last year, the retail giant has used inspiration from South African culture, to cater to South Africans who want to express themselves through fashion, no matter how conservative or edgy they choose to be.

Internationally, retailers are purposefully rewiring themselves in the ever evolving retail landscape to enable the ‘experience economy’. Retail isn’t dead; boring retail is dead. In order to thrive in a time where customers can do anything anywhere and get personalised real-time experiences both online and in-store, big retailers need to make the shift.

And Edgars is no exception. Working closely with design-and-build focused agency Design Partnership, Edgars has created an environment that goes beyond the transaction, setting an enticing stage for meaningful and memorable experiences.

The Edgars Fourways Mall shop front opens up completely, providing an 8 000 sqm space for fashion, beauty, and homeware.

Edgars Fourways Mall is a subtle nod to the heritage of retail stores as the heart of the high street. Just like a town square, a multi-sensory, tree-lined central social space anchors all Edgars’ in-store departments on both floors, activating the in-between-space with key services and exclusive food partnerships.

The bespoke Mugg & Bean coffee shop in the central square heightens the concept of creating entertainment through shopping and socialising. This beautifully designed space invites customers to take a little time out without having to leave the store.

For those customers pressed for time to browse in store, Edgars has just launched a new click and collect service. Shoppers can now shop online (or on their mobile devices), choose a store for delivery, and collect their order at no additional cost. This online service is now available at the new Edgars in Fourways Mall.

Other special in-store features and services that customers can look forward to interacting with include the denim bar, home zone, footwear world, custom zone, personal shoppers, and beauty rooms.

An elevation of the beauty counters that Edgars has always been known for, the beauty rooms’ house beauty experts trained to give customers head-to-toe makeovers and to share their knowledge on the brand’s latest exclusive beauty products.

Activation spaces for cosmetic events, home demonstrations, and new launches bring in an experiential element to the store. There are play areas for kids and digital multi zone screens with in-store music.

All this without any traditional clutter or stuffy aisles. Capitalising on the iconic Edgars ‘Red Square’, the floor is a liberated space. A focal bulkhead and feature overhead lighting naturally lead the customer throughout the store towards the central square and other key customer services.

Adding another unique finish to the total shop experience, non-transactional spaces that focus on customer service have been designed with a hospitality-led approach. For example, instead of a typical counter service, the customer/financial service zones are far more welcoming and friendly with their service booths, soft seating, and informal pause areas.

“Ultimately it’s a social retail space designed for pure experience,” says Edgars chief executive Mike Elliott.

“That was the starting point for the design that is the new Edgars Fourways Mall. In line with future retail trends, we’re prioritising interaction over transaction, and we’re doing it all especially for the South African consumer. As a brand we are unapologetically South African about our love for everything local, and this store is our latest expression of that culture.”

The design language and iconography for the entire store not only makes navigation simpler for the customer, but also embraces an authentic local tone in a way that represents all South African walks of life. Every element in Edgars Fourways Mall is designed to create a contemporary yet warm and friendly South African environment.

Because retail is always adapting to market and customer needs, Edgars Fourways Mall is designed exactly for that: for change. This enables the brand to advocate South African culture of its time through product and to continually embrace in-store experimentation newness, building an ever-growing Edgars experience.

The entire store environment is agile enough to allow departments to shift and adapt. Each department is set up with tracks that not only house the technical display lighting but also allows for feature lighting and other power requirements to be plugged in and suspended wherever needed as the departments move.

The brand is currently working on a further evolution of the new Edgars store design for Edgars V&A in Cape Town, which is anticipated to open in 2020.

Proposed debt relief bill could cost SA R20bn

The National Credit Amendment Bill was drawn up by the portfolio committee on trade and industry in the fifth parliament.

Should it be passed, this law would allow low-income workers to extract themselves from debt through debt restructuring if they earn a gross income of R7 500 or less per month, have unsecured debt of R50 000, or have been found to be critically indebted.

Economists, banks, financial institutions and businesses have all warned that this Bill could have dire, unintended consequences.

  • The ANC would effectively write off between R13- and R20-billion
  • The loans constitute property, which are enshrined in article 25 of the Constitution – so the Bill would contravene the Constitution
  • According to Moneyweb, there are approximately 9.4-million current borrowers who have unsecured debt of less than R50 000
  • The passing of the Bill may cause ratings agencies to downgrade the country again
  • The bill will increase the cost of credit for low income earners as financial institutions would tighten lending criteria to protect their interests
  • It will weaken the fight against illegal lenders
  • It will negatively disrupt the credit market while posing a financial risk to the state
  • Experts are advocating for debt counselling instead
  • Retrenched workers and low-wage earners – the people the Bill is aimed at – would ultimately not be able to receive a line of credit

Discovery takes aim at controversial NHI bill

After the publication of the NHI Bill on Thursday last week, medical aid behemoth Discovery has released a statement regarding how they will tackle negotiations to keep private medical schemes part of the healthcare landscape.

The controversial Bill could spell the end of medical aids – and Discovery Health alone employs more than 4 000 people.
According to a recent Business Tech article, there are currently 8.9-million South Africans covered by registered medical aid schemes.

The statement from Discovery reads:

The extent of negative sentiment from press, investment markets and other stakeholders has been substantial. Discovery continues to study the Bill and to engage with numerous stakeholders, and their views will evolve over time. In the interim, we feel it is important to share current views with our clients.

The NHI is a huge, complex and multi-decade initiative and a considerable amount of debate and effort will be required to make it workable. Discovery’s overall position on NHI is unequivocal: we are supportive of an NHI that assists in strengthening and improving the healthcare system for all South Africans – little is more important. You will know that we have consistently expressed our support and made our capabilities available for its development. We are committed to assisting where we can in building it, and making it workable and sustainable. Of course, debates about its timing, affordability, execution and more will no doubt be complex.

A central issue that we are close to and upon which we must comment is the future role of private healthcare and medical schemes – what it means for medical schemes to provide “complementary cover ” to the NHI and when this will take effect. Our strong view is that substantially limiting the role of medical schemes would be counterproductive to the NHI because there are simply insufficient resources to meet the needs of all South Africans – this is an unavoidable reality.

Limiting people from purchasing the medical scheme coverage they seek will seriously curtail the healthcare they expect and demand. This will erode sentiment, denude the country of skills and impact the economy. Crucially, by preventing those who can afford it from using their medical scheme cover, and forcing them into the NHI system, this approach will also have the effect of increasing the burden on the NHI and will drain the very resources that must be used for people in most need. This would be detrimental to all South Africans, and would undermine the objectives of the NHI as we understand it.

While this is our strong view, the Bill needs clarification since it makes the point that the “complementary role” for medical schemes will only apply once the NHI is “fully implemented”. It defines “referral pathways” to which it will apply, indicating that where patients choose not to follow the referral pathways, the NHI will not reimburse their care, and that they can then claim from private health insurance. The Bill clearly gives rise to different interpretations – we will engage actively and constructively on this issue to ensure that the important role of medical schemes and private healthcare remains part of the healthcare system, together with the NHI. We provide more technical detail on the role of medical schemes within the proposed NHI below.

Having said this, we remain deeply confident that the resulting environment will be rational and workable. Our plans for Discovery Health and for the Discovery Health Medical Scheme remain the same. If anything, the future will be more complex and the need to invest in capabilities and technology are likely to increase substantially. That is what we plan to do.

Discovery is committed to playing its role in building a positive future – for our members, South Africa’s doctors and healthcare professionals, and for all South Africans.

The role of medical schemes as envisaged in the NHI Bill
The Bill contains only one paragraph (Section 33) referencing the role of medical schemes. This paragraph indicates that “once National Health Insurance has been fully implemented as determined by the Minister through regulations in the Gazette, medical schemes may only offer complementary cover to services not reimbursable by the Fund”.

While it appears as if the intention of the Bill is to prevent schemes from covering services provided by the NHI, we believe that in reality, medical schemes should and will continue to cover all of the healthcare services which they currently cover for the foreseeable future. We believe this to be the case for the following reasons:

– There is no clear definition of services to be covered by the NHI, and it appears that this definition will be expanded on an incremental benefit and geographic basis, with an initial focus only on primary and maternity care and other high priority services for vulnerable populations.

– Even for the limited initial definition of NHI benefits, we expect the actual implementation of universal coverage to be considered and deliberate, as there are extensive financial, legislative and administrative challenges to be overcome, as the Minister and other policy makers have acknowledged.

– There is uncertainty as to when the NHI will be considered “fully implemented”. In our view, given the constraints, it is likely that this point is most likely to be quite far in the future.

– The specific language of the Bill is open to interpretation. The Bill states that medical schemes cannot cover services “reimbursable” by the NHI. At the same time, the Bill clearly states that to obtain reimbursement, patients will have to follow the ‘referral pathway’ dictated to them by the NHI’s contracted providers. If patients decline to follow these referral pathways, their care will not be reimbursable by the NHI. When read together, the Bill appears to accommodate medical schemes being able to fund any services that are not reimbursable by the NHI due to patients choosing not to use NHI pathways. This would ensure that medical schemes are “complementary” and continue to absorb the current costs which they carry.

– We believe that the limitation of the rights of citizens to purchase additional health insurance, even after they have contributed to the NHI, would be globally unprecedented and inappropriate. As noted above, we believe that this approach will actually harm the NHI by draining resources from those most in need.

– In virtually every other country with some form of NHI or equivalent nationally funded healthcare system, citizens are fully entitled to purchase additional private health insurance cover, including cover that overlaps with services covered by the national system. A restriction on choice of medical scheme cover is not dissimilar to limiting the rights of citizens to purchase private education for their children or private security, on the basis that the public system already provides state schooling and security services.

– We will of course engage actively with the policy makers directly, and via the Health Funders Association, and BUSA, with the aim of addressing these specific issues and are optimistic about a positive outcome to these engagements.

The financing of the NHI system
The Bill makes no reference to the likely costs of the NHI once fully implemented but senior Department of Health officials have been quoted as estimating a total cost of approximately R245 billion in 2019 terms. This presumably refers to the incremental cost of the NHI over and above the current R223bn national budget for healthcare. Over 85% of the current budget is allocated to the 9 provinces and funds the current public healthcare system. Any fundamental change that improves quality and access and that is able to contract private providers will therefore require substantial additional funding. We understand that National Treasury will soon be publishing a costing document, and that this is likely to be based on an incremental approach to providing NHI benefits.

In our view, the government faces significant challenges in securing the funding required to implement the envisaged NHI, including the current and likely future fiscal constraints facing government.

The Bill specifies that payroll taxes and a surcharge on personal income tax could be considered as sources. Such taxes would need to be determined by National Treasury. At the presentation of the Bill, the Minister of Health indicated that no tax changes are envisaged over the 3 year period of the current Medium Term Expenditure Framework.

The Bill also refers to a redirection of the current medical scheme tax credit, which would effectively increase personal income tax revenue to the fiscus by approximately R17bn. The Provisional Report of the Health Market Inquiry argued for a restructure of the tax credit to create a greater income cross subsidy. We do not expect an immediate abolition of the medical scheme tax credit, but do expect National Treasury to continue to cap the nominal Rand value of the tax credit each year, as has been the case for the past two years.

Department of Health officials have also suggested that government could fund the NHI by removing the current medical scheme subsidy provided to government employees, which is worth approximately R30bn. This is obviously possible but would be a material change to the employment conditions of public sector employees and their trade unions.

In summary, there are material challenges to raising new revenues to supplement the current government budget for healthcare, and this is unlikely to change in the foreseeable future. This in turn implies that the roll out of the NHI as envisaged will be constrained unless there is a substantial improvement in the country’s economic prospects.

The role of private hospitals and health professionals
The Bill envisages that the NHI Fund will contract on a voluntary basis with private hospitals and professionals and other services to supplement the current public sector delivery system. The NHI Bill provides limited detail on how the procurement of services from private providers will be carried out. The lack of substantial additional funding noted above will constrain the ability of the NHI to procure extensively from private providers. Overall, for the foreseeable future we expect that the NHI will contract with some GPs to supplement its public primary care services, and also that it will contract for certain high priority services to address specific gaps in public sector provision. If this is achieved, it will already be a significant step forward. Beyond that, we expect that the vast majority of NHI services will continue to be delivered by public sector clinics and hospitals, and that private hospitals, specialists and other providers will continue to be funded by medical schemes.

It is our strong view that we have a brilliantly committed, highly skilled and world-class healthcare professional community in South Africa. These professionals work hard, provide excellent care and are committed to our country. We will work hard to defend their rights to fair remuneration, to an optimal working environment that promotes sustainability and ideal patient care, and to retaining and supporting them within our broader healthcare system.

The NHI Bill Process
The NHI Bill will now be tabled in Parliament, implying that a Portfolio Committee process will commence, allowing for public consultation. Discovery will participate actively in the parliamentary process through BUSA and BLSA, as well as the Health Funders Association and on its own account.

It is also expected that there will be a parallel process within NEDLAC, which will create further opportunities for engagement and influence over the final content of the Bill.

It also appears that the Minister intends engaging actively with stakeholders and this will create opportunities to engage on these vital issues. There are good indications that the current Minister is open to the potential for public private partnerships, and we welcome the opportunity to partner in delivering on the vision for a stronger and more accessible healthcare system for all South Africans.

Following the Portfolio Committee process, the Bill will be debated in the National Chamber of Provinces and the National Assembly. We thus do not expect the Bill to be promulgated until early 2020 at the earliest, and are optimistic that we can work with the policy makers to secure a positive result in the final NHI Bill and for the implementation of the NHI itself.

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