Pepkor Targets South Africans With Low-Cost Clothing Push
Pepkor Targets South Africans With Low-Cost Clothing Push
(Bloomberg) -- Pepkor Holdings Ltd. plans to open 300 stores annually for the next three to five years as Africa’s largest clothes retailer embarks on a post-pandemic expansion drive.
The low-cost specialist scaled back the roll out of new stores during the last two years because of uncertainty caused by Covid-19 and a decision to focus mainly the Pep and Ackermans chains. But Chief Executive Officer Leon Lourens now feels the time is right to accelerate growth, particularly in poorer and more rural areas.
“We’ve already opened the taps again and all the divisions will start growing again,” Lourens said by phone on Friday.
The step change comes as South Africa’s strict Covid-19 restrictions that curbed the sale of non-essential items look highly unlikely to return, though a worsening unemployment crisis and stagnant economy have hammered disposable incomes. That’s forced shoppers to look for cheaper clothing, favoring the likes of Pep, while government grants have also helped some of the poorest South Africans be able to shop.
The store expansion comes alongside the refurbishment or rebuilding of 413 of the 549 stores that were damaged by looting and riots in South Africa four months ago.
Pepkor took advantage of malls desperate for tenants to negotiate better rental agreements last year, while reducing finance costs after cutting debt. The owner of the ShoeCity and HiFiCorp chains also resumed it final dividend.
Pepkor shares, which have rallied 76% this year and outperformed the FTSE/JSE Africa General Retailers Index, were 1% lower as of 10:55 a.m. in Johannesburg.
Supply chain risks
Pepkor imports a lot of its stock and the cost of bringing goods in containers has increased “dramatically over the past year because of a worldwide imbalance” following the pandemic, Lourens said.
A stronger rand against the dollar helped offset that challenge, though this is unlikely to hold true in the current fiscal year.
“We normally have an inflation rate on our products of about 5% and we expect it to rise to at least 10% from winter because of additional container costs,” Lourens said. “That affects the consumer which has to pay more for the product.”
In addition to inflation risk, the slow arrival of containers has meant stock hasn’t arrived on time, crimping sales.
“Over the last month we have had a lot of catch-up and we’ve got enough stock for the big sales period in November and December,” he said.
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