Article from BizCommunity

Albert Louw, Lasher Tools marketing manager, says that the company has gained new business as a consequence of the outbreak of coronavirus in China and the closure of manufacturing in the country in an attempt to stem the spread of the deadly virus.

World’s largest manufacturing economy halted

“For the first time, a big local retailer placed a multi-million-rand order with Lasher for products that the company has never bought from us before,” Louw says, adding that the order was a direct result of the curtailed supply of tools from China.

The outbreak of the novel coronavirus was first reported in Wuhan, China, in December 2019, according to the World Health Organization (WHO). Worldwide a total of 89,254 cases of the virus have been reported and 3,058 people have died. The vast majority of infections and fatalities have occurred in China. Outside China, there have been more than 8,000 cases of the novel coronavirus reported in over 50 countries. Three infections have been confirmed in Africa – in Egypt, Algeria and Nigeria.

On 30 January, WHO declared the outbreak a global emergency and set up a committee to oversee its response. The mandatory closure of Chinese factories has left a massive gap as the country is the world’s largest manufacturing economy. These closures are providing opportunities for South African manufacturers, including getting in fresh orders for products as well as reaching new consumers.

Securing SA’s manufacturing value chain

Louw stated that more than ever before, South African companies and consumers should support products made by local manufacturers. Such support would translate into greater job security throughout the manufacturing value chain at a time when local economic growth is stagnant, and unemployment is near record levels.

Lasher is a 90-year-old South African company that sources 98% of the materials for its hand tools from South African businesses. It employs over 800 people at four local factories in South Africa. Louw says that local manufacturers need to stand together and work with the government to maintain and expand the sector, which until recently had faced an increasing onslaught from low-priced imported Chinese goods.

Chinese imports have had a detrimental impact on local manufacturing, jobs and reduced demand for local goods and services. The South African manufacturing industry has declined from 20% of the gross domestic product in 1994 to 14% today. The local sector continues to contract, and in 2019, South African manufacturing output decreased by 0.9% when compared with 2018, according to Statistics South Africa.

“Lasher equipment lasts nine to forty-five times longer than competing imported Chinese equipment, and this provides a clear rationale to buy local Lasher tools. The company provides its customers with aftercare service and Lasher’s products have a return rate of less than 0.01%, which gives customers a high level of confidence when purchasing a Lasher product,” Louw concluded.

Opportunity to capacitate local industries

In a recent report, Eustace Mashimbye, chief executive from Proudly SA, said, “With China’s manufacturing output hamstrung by the coronavirus, South Africa has an opportunity to review what it imports and capacitate local industries to secure the supply chain of local products.

“While we do not in any way celebrate what has befallen China, and like the rest of the world we join in sending our sympathies and hopes for a speedy end to the infection, we have to recognise that it exposes the vulnerabilities of markets to single-supplier sources and offers opportunities to others to strengthen their own domestic capabilities.”

Article by Sasha Planting, Daily Maverick

The retail environment is under pressure from two sides – consumer spending is constrained, while the industry is structurally transforming. It’s a case of adapt or die.

Trading conditions in the retail space have seldom been more difficult, with Brexit in the UK, load shedding and economic malaise in SA, bushfires in Australia and the coronavirus from China all wreaking havoc on retail sales.

Results for the first six months to 26 December 2019 for fashion and food retailer Woolworths and fashion retailer Truworths indicate just how tough it is out there.

While sales increased by 3.8% across the group, Woolies saw its adjusted profit before tax fall by 12.3% and earnings per share by 9%.

The retailer has cut its interim dividend 3.3% to 89c as it focuses on paying down some of its David Jones debt.

Woolworths Food was once again the stand-out performer, growing sales by 8.1% to R1.1-billion over the 53-week period, and 5.4% if you exclude new stores. In a flat environment, that is only possible by remaining price competitive and taking market share.

The performance from Fashion, Beauty and Home (FBH) fell by a disappointing 8.9% to R834-million. In Australia, David Jones’ results were nothing short of calamitous, falling 58.2% to R197-million while Country Road fell 9.7%.

What weary investors want to know is, has Woolies reached its bottom? After all, 2019 was not a happy year, with management writing off more than R11-billion on David Jones, for which it paid R21.5-billion in 2014.

The share price is giving no clues – over the last five years, the share has fallen 53% from R94 to R43.32 and is showing no sign of having turned the corner.

“I’d love to say that we have bottomed,” says outgoing CEO Ian Moir, “but we are still facing a few unknowns – just take the coronavirus, which is disrupting exports from China.”

That said, there is reason to be optimistic. The core Woolworths business is solid. Work has been done to reposition FBH, although “we can sharpen the pencil on pricing,” Moir admits.

The new head of FBH, Manie Maritz from the Foschini Group, will make a difference, though he only starts in June.

Moir believes that Australia will show signs of a turnaround this year. The costly and lengthy refurbishment of David Jones’ flagship store – Elizabeth Street – will be completed by April. And the Australian economy should recover from the bushfires.

“It was devastating,” Moir says. “People don’t want to spend when there is so much suffering going on. In South Africa, the mood is made worse by load shedding. We have generators in our stores, but people just don’t want to shop.”

Truworths CEO Michael Mark echoes this sentiment. In a conversation with Lindsay Williams for the podcast series Strictly Business, Mark says that globally, economies are “complicated”.

“It is tough in South Africa, but in the UK it is even more so.”

Under the circumstances, he was “reasonably satisfied” with the group’s results.

Truworths, once a retail darling, also saw its share fall precipitously after it wrote down the value of footwear firm Office by £97-million last August. It acquired Office for £256-million in 2015.

Group sales were up 1.3% to R10.6-billion. Operating profit decreased 2.3% to R2.3-billion, largely due to losses in the UK.

Headline earnings per share increased by 0.5% to 364.9 cents a share.

Unlike Woolies, where net debt is R11.8-billion, Truworths is almost debt-free, with borrowings of R1.1-billion. As a result, the group declared an attractive interim cash dividend of 249 cents per share, unchanged from last year.

Given the strength of the balance sheet and the strength of its brands, particularly in SA, Mark expects Truworths to improve its results by the year-end, and for Office to have turned a profit.

For Woolworths and Truworths the immediate focus is on getting the basics right. Both firms talk about managing the basics of retail well.

“The focus is on maintaining good cash flow, preserving margins, sticking to our DNA while staying innovative,” Mark says.

Both firms have stressed the importance of online shopping, particularly in their international operations.

At David Jones, online sales increased by a hefty 61.8%, now accounting for 10.4% of total sales, up from 2% two years ago.

“Roughly 50% of online customers are new customers, with the balance existing customers,” says Moir. “But we have noticed that those that shop online and in-store spend proportionately more with us, so online is not a case of one sales channel cannibalising another.”

At Country Road, online sales grew by 6.2%, but the channel represents a more significant 21.4% of sales in Australasia.

In SA, the online channel is growing fast but off a smaller base. Woolies’ fashion, beauty and home business saw online sales increase by 29% in the period, while food sales grew by 22%.

Online is a structural shift in the retail industry that retailers need to get their heads around, says Roy Bagattini, the incoming CEO of Woolies – he joined the firm from US retailer Levi Strauss on 17 February.

“Consumers are in control in a way that they haven’t been before. They know what, how and when they want something. They know how much time they want to interact with your brand. The consumer journey has transformed, enabled by technology, making the context very different for business today,” he says.

This makes it essential for retailers to understand the future ecosystem where consumers will transact both online and with brick and mortar stores.

In the UK, Office has seen retail sales jump from 5% to 33% over a five-year period.

However, the market in the UK is unusually focused on discounted merchandise as opposed to full-price merchandise.

“People are very aware of value for money,” says Mark.

As an aside, he notes that Truworths launched its e-commerce offering at the same time that it launched a lay-by service which allows people to put an item aside and pay it off over a period of time. The lay-by service has seen far greater growth than the e-commerce service, he says. “Either people can’t afford credit or they don’t want credit.”

That does not mean online is less important in the South African market, just that it will see a “slow burn” as opposed to exponential growth, adds Moir.

As a result of the growth of e-commerce, both retailers are cutting space. While Truworths’ space will remain largely unchanged in SA and the rest of Africa, Office plans to decrease trading space by about 7% in 2020 and by a further 9% for the 2021 financial period.

Similarly, Woolworths plans incremental space growth in SA, but will cut back on net space at David Jones by 20% by 2025. At this point, the retailer aims to have channelled 20% of sales through its online channel.

For investors, both companies look superficially attractive. Woolies is trading on a forward PE of 13x, with a dividend yield of 4.29%, while Truworths is trading on 7x with a dividend yield of 8.71%.

Whether this is cheap depends on the turnaround efforts underway.

At Truworths, the management team is focused on cutting costs and preserving cash, says Reuben Beelders, chief investment officer at Gryphon.

“It would appear that Truworths can still turn their UK operation around.”

At Woolworths, new management has to hit the ground running, he says, though the board should be given credit for making the necessary management changes.

“From a purely investment perspective, I think it’s too early to be going overweight retail. But if I had to be invested I would invest in Truworths rather than Woollies at this stage.” BM

Article found on BizCommunity

Online shopping continues to disrupt the traditional retail sector. One only has to look at the decline of the British high streets to know that there is a revolution going on in the way that consumers shop – household names such as Boots, Debenhams and House of Fraser have all been affected by store closures and job losses.

Robert Lockyer, CEO of Delta Global

But there could be light at the end of the tunnel for big brands trying to reconnect with their customers on the ground, according to retail expert Robert Lockyer, CEO of luxury packaging supplier Delta Global.

He points out that while the traditional shopping experience is not completely dead in the water, it needs to diversify dramatically.

Lockyer, whose company provides packaging to the likes of Coach, Ted Baker and Radley, has witnessed many different shipping scenarios on his travels around the world, particularly in commercially progressive countries such as the US and Hong Kong.

“I’ve seen standard stores suffering due to the ease of e-commerce but I’ve also witnessed brands creating almost their own in-store eco-system as they have swiftly realised that customers are putting both experience and values first when deciding to make a purchase,” he says.

“These days in many cities, customers can expect to walk into a store and see food and drink on offer, live fashion shows and music, as well as an instant personalisation of goods. It all makes for an unforgettable experience.

“It’s about creating a combined online and offline concept and curating spaces that enhance the shopping experience and that can offer multi-sensory or interactive elements that suit a buyer’s lifestyle.”

Create a multi-sensory experience

“Brands must create hubs of interest that appeal to sight, sound, smell, taste and touch,” explains Lockyer.

Dazzling customers with an artistic interior design makes them want to capture it on their social channels, for instance, while nice scents can instantly associate brands with a feeling – think of beauty and pamper brand Lush. Burberry stopped people in their tracks with live elements such as the world’s tallest retail screen, immersive sound facilities and even revolving stages for live catwalk shows or musicians.

The feel of furniture and even the dressing rooms all add to a luxurious experience for a buyer. Cafes and taster samples also instantly make them feel welcome.

Diversify design

Do away with your ‘boring’ in-house style – customers need to be re-energised, says Lockyer.

“Transform your store into a gallery, think artistically and innovate the way you merchandise by taking your customer on a journey and tell the story of your brand through clever design and customised experiences.”

Just recently, in London St Pancras station, beauty brand Lancome installed a 36ft ‘Eiffel Tower’ made from 1,500 bottles of its La Vie Est Belle fragrance. Visitors could also have products customised with illustrations and calligraphy in the pop-up shop below.

Shops are increasingly looking to extend the time spent in store by producing multi-purpose outlets. When unveiling their largest ever store, last year Primark introduced pamper booths, cafés, barber shops and even collaborated with other brands such as Disney to theme their space and create Instagrammable areas of focus.

In-store sustainability

The more mindful shopper wants to see forward-thinking stores pairing old with new, switch and swap possibilities and eye-catching edits to the clothes they already own. With 31 % of US consumers stating that they will pay more for products that have the least negative impact on the environment, it is obvious that shoppers are looking for brands to act on the environmental crisis.

“Customers want brands to help them streamline their wardrobes and offer personalised and high-end pieces for almost every budget,” says Lockyer. “By offering facilities and incentives such as money-back offers at ‘recycling and resale’ stations and clothing care and repair hubs, stores can be one solution to loving your clothes for longer as tired clothing can find a new lease of life and even be customised while you shop.”

Some stores also give the flexibility of ‘try before you buy’, meaning there is no wasted time returning unwanted items which ultimately should reduce the buyer’s carbon footprint.

The luxury sector has seen a surge in designer resale websites such as HEWI London, ThredUp and Designer Exchange where people can purchase second-hand or unwanted goods at a lower price.

Physical stores are adapting to this notion, with Selfridges pairing with Vestiaire Collective to open a pre-owned section to its store on Oxford Street in London and John Lewis trialling money-back vouchers on returned goods in 2019.

Embrace digitalised functionality

Cashier-less checkouts, mobile grab-and-go systems and personalised machinery are big news for the future. Using technology such as quick embroidery and print devices means shops can tailor garments in a matter of minutes – faster than any online service.

While online may be the competition for in-store experiences, digital advancement will actually help improve shopping facilities and ease of purchase.
Influencers love filming fashion hauls and ‘style and accessorise’ stories on Instagram while they shop.

Noting that influencers are attracted to experiential and creative spaces to showcase on their feeds, Lockyer says: “Social media icons will create content and brand awareness for you, so take advantage of this. I’ve seen smart mirrors in dressing rooms which can share imagery and video straight to social media and even interactive store windows that feature live catwalks.”

Communication and personalisation

The more personalised the shopping experience, the more valued the customer feels. For example, Marks and Spencer has implemented a ‘human’ element to its promotional periods where a free personal stylist is gifted straight to a customer’s mobile phone in order to curate a collection of outfits to suit their style and shape.

Facial recognition technology will change the way people buy make-up – the future will see us viewing a range of eyeshadow colours directly onto an image of our face, without us having to test them onto our skin first, for example.

“Brands need to think digitally, such as implementing interactive and scannable QR codes on clothes railings which will connect the customer to an app or webpage that tells you what to pair with the item you’ve selected in order to cross-sell.”

Packaging continues the brand journey

“The bag that you carry as you exit the shop, on the bus or tube and through your front door needs to be as exciting as the item inside,” says Lockyer.
Consider how many of us show off our new purchases to friends and family. Making packaging part of that moment is the key to brand awareness and selling.

Increasingly, the use of plastic bags – which once dominated the in-store industry – is coming to an end, with paper and reusable solutions taking the retail trade by storm. But many brands still haven’t cottoned on to the idea, even though more than one-third of purchasing decisions are made by the look and feel of packaging.

Nowadays, social media influencers also use distinctive and beautifully designed packaging as props to style their Instagram photos. Brands will start to make the most of this to expose themselves to a much wider audience.

“Consumers are looking to feel exclusive, so your direction and designs need to be refocused regularly,” concludes Lockyer. “Think beyond the customer’s expectations and make it happen!”

Article by Kirsten Dewar

Now for the good news. There’s a huge opportunity for growth in online retail, but the path to profits is through dramatically improving customer experience.

Online retail is growing. And will continue its healthy growth.

Brick-and-mortar retail is struggling in South Africa, but e-commerce is growing faster than expected. In fact, online retail is doing so well it is outstripping the growth rate for real-world shopping by far.

The Online Retail in South Africa 2019 study, co-authored by Platinum Seed and Arthur Goldstuck of World Wide Worx, revealed that online retail in South Africa passed the R14-billion mark in 2018 as e-commerce started to go mainstream. The great news is that this 2018 figure represented growth of 25% over the figure for 2017, which came as a surprise to the research team, and confounded predictions that online retail growth would slow down.

This growth trend will deepen in 2020, in stark contrast to real-world growth retail sales which remain flat. Stats SA reports that the volume of retail trade sales “grew by 2,1% compared with 2017, down from annual growth of 3,1% in 2017 and up from 1,7% in 2016. In 2018, the annual growth rate got off to a good start of 4,7% in the first quarter, but it fell to just 1,8% in the second quarter and 1,5% in the third.”

What this means is that despite a disastrous economic climate, online retail is thriving and pushing to a key point – the psychological threshold of 2%.

“Global research shows that 2% is a tipping point for online retail, and once nations achieve this growth rate the trend is for e-commerce to go mainstream.”

Platinum Seed is confident that this will happen locally because of the huge investments that retailers are making in e-commerce infrastructure, and the amazing consumer response to retail promotions like Black Friday.

In November 2019, Takealot announced that it expected to ship one order every second during Black Friday, estimating that 10,000 boxes would leave the SA retail giant’s warehouse every hour. Takealot reports that the brand’s Black Friday gross merchandise value grew 125% from 2017 to 2018, with orders up 127%.

Lean into customer experience to drive growth

If there is only one thing you do in 2020 it should be to improve your brand’s customer experience.

Besides being a massive differentiator, research shows that investments in customer experience pay off with a bottom-line return.

A study by the Temkin Group shows that experience matters – in real financial terms. The study showed that a small increase in customer experience can realise an increase of some $823 million over three years in a business with revenues of $1 billion.

Why invest in customer experience? If you’re not convinced by the returns, consider this. Research reported by Deloitte shows “customers are likely to mention a positive customer experience to an average of nine people, while they are likely to tell 16 people about negative experiences. Conversely, customers who enjoy positive experiences are likely to spend 140% more than customers who report negative experiences.”

Finally, Deloitte reckons that delivering positive customer experiences can reduce the cost to serve customers by up to some 33%.

Article found on BizCommunity

Private label has carved out a strong and distinct space in the South African retail landscape, proof of which is the category’s R54 billion in sales in 2019, which represents 9.6% year on year growth, ahead of the 4.4% growth of branded goods, seen within modern trade.

The growing importance of private label – brands sold exclusively through a particular retailer and sometimes referred to as “no name” or “house brands” – is also seen in its 22% overall share of FMCG sales in South Africa, a steady increase from 21% in 2018 and 20% in 2017.

These are just some of the results from the 2019 Nielsen State of Private Label Report for South Africa, which covers the modern trade sector in South Africa, and looks at where private label is growing, where it is not and what the future holds.

Elaborating on the latest findings, Nielsen South Africa retailer vertical lead Gareth Paterson comments; “Private label goods have shown strong growth across the globe in recent years and it is no different in the South African market. A key driver of this growth is the current economic constraints placed on South African consumers – given the increases in prices for petrol, utilities, and various forms of tax.”

More than just price

As a result of their highly constrained situation, the Nielsen report found that 80% of local consumers compare private label (PL) products with leading named brands, with the majority claiming that they buy these types of products because they’re cheaper. However, the relationship now runs much deeper than that, with product quality and innovation increasingly coming into the mix.

Paterson comments; “It is no longer just the fact that consumers are under pressure and consider PL as a cheaper alternative. Consumers now also expect innovation within the PL space. We see retailers have responded to the challenge with many of these items no longer merely replicating leading brands, but actually driving innovation within particular categories”.

“In fact, PL is innovating across the entire gambit of the affordability spectrum, not only within the ‘cheaper’ price bracket, but also within the ‘premium’ range, which now accounts for more than a quarter of PL sales within South Africa.”

With this focus on innovation, the Nielsen report reveals that the majority of consumers have shifted perceptions and claim that PL quality is just as good as named brands.

Top performers

Overall, almost 70% of PL sales continue to come from Perishables and Dry Groceries, with Chicken and Long Life Milk being the biggest contributors to incremental growth in 2019, and a recovery in categories like Chilled Processed Meats. Although growth has slowed for Prepared Meals – a star performer during the last two years – there is still a big focus from retailers on their fresh offerings in order to attract more shoppers into store.

Looking at specific pockets of performance, Confectionary, Baby Care and Personal Care have all seen good growth. Paterson says the “Confectionary growth is supported by the busy lifestyle of South Africans today, which leaves them with less time and has made snacking an important part of their diet. Retailers have capitalised on this trend and are showing great innovation within salty snacks, driving the Private Label confectionary growth.”

In terms of Baby Care, Paterson says the quality of PL within this category has improved, owing to great innovation within this space, resulting in Diapers and Wipes showing double-digit growth as well as consumers claiming that they’re purchasing more PL Baby Food products.

“As consumers have moved into PL products within Baby Care, we have seen the trust grow as these brands deliver a quality product at a good price. It is clear that consumers have come to trust store brands with important purchases such as diapers for their children indicating that this growth is not just a short term trend”.

Looking at Personal Care, growth is being driven by Hand and Body, with a big focus from the retailers in this category due to the competition within this supergroup.

Following the global trend, local consumers are also more focused on health, with PL showing good double-digit growth within the healthcare supergroup i.e. Vitamins and Supplements, stemming from a big drive from major retailers to win within this space.

Finding space in the basket

Commenting on the overall effect of PL growth on the South African retail sector, Paterson says; “PL continues to find its place within the South African basket and its rise in popularity is the sign of a maturing retail market. Given that local consumers say that they are willing to try new brands, PL is in a great position to realise even more growth over the coming years.

“However, it must be stressed that well established, named brands continue to play a vital role in terms of providing a rich legacy of quality and innovation, so it’s certainly not a case of ‘either or’ when it comes to choosing between the two but rather a maturing retail sector that’s offering South African consumers greater value for money and ultimately, more choice.”