Tale of two retailers

Tale of two retailers

Two specialist retailers, based in Cape Town, have produced two startlingly different outcomes in a tricky consumer environment. Catalogue retailer HomeChoice appears to be weathering the crunch in credit markets, but profit prospects for Salt River-based fashion retailer Rex Trueform (Rextru) - which owns the Queenspark chain – are looking a little threadbare.

HomeChoice Holdings – which now also earns a fair keep from financial services products - recently reported a 13% increase in revenue to R861m for the six months to June. Group profits increased by 15,5% to R240m and trading prospects appear sound as directors opted to hike the interim dividend by a confident 39%.

HomeChoice CEO Shirley Maltz said the company experienced reasonable demand from customers for both the retail and financial services offerings in the challenging consumer environment. Maltz said traditional retail sales increased by 10% to R451m as both existing and new customers responded positively to the expanded product ranges and new product categories. She disclosed that HomeChoice gained 81,000 new customers in the period, increasing its customer base to 557,000.

“Growing demand from customers to shop on the internet and via mobile phones saw online sales increase by 34%, with e-commerce now accounting for 9,3% of retail sales.”

Maltz said the move to a new centralised distribution centre (built at a cost of R150m) was successfully completed in January this year with minimal disruption to the business. She said the new facility increased total storage capacity from 80,000m3 to 200,000m3.

Looking ahead, Maltz said HomeChoice’s growth plans included extending product ranges and driving product innovation to meet changing custom- er needs. She added that developing an e-commerce capability to increase online sales and continuing to enhance the successful KwikServe mobile offering for financial services customers were also priorities. Maltz reassuringly reported that retail sales for July and August were in line with the performance for the first half of the year.

Rextru, like Pick n Pay is a family-owned business for generations, endured a far more challenging year. The company’s revenue increased a slender 3,6% to R501m with the gross profit generated from the Queenspark chain decreasing by 0,4% to R242m. But Rextru still traded in the red for the year to end June, notching up an operating loss of R17,3m after incurring a R19,1m loss in 2013.

Rextru, though, still looks determined to remain on the front foot with CEO Cath- erine Radowsky said four new stores were opened during the year in outlying areas, which were previously not serviced by the business.

She said Rextru planned to roll out further stores to capture deal with German slot machine manufacturer Merkur Gaming GmbH to manufacture gaming machines in South Africa. This saw an arrangement where they could manufacture, assemble and distribute slot machines, sports betting and lottery terminals through a joint venture with Tellumat as the contract manufacturer.

Radowsky believed the initiatives introduced will improve the gross margin, which was already in evidence in the first nine weeks of the new trading year. She added that the planned closure of the impaired unprofitable stores, and further cost management initiatives, would also add to an improved retail performance. Radowsky said the Queenspark retail segment was expected to perform better going forward.

“The objective is to return the segment to profitability in the 2015 financial year.”

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