Retail analyst Evan Walker discussed with BizNews host Alec Hogg the challenges facing South African retailer Pick n Pay, Shoprite’s market dominance, and the success of Clicks’ loyalty program. He also highlighted competition from Chinese e-commerce platforms like Shein and potential impacts of Amazon’s arrival in the local market.

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By BizNews Reporter

In a recent interview on BizNews Briefing, retail expert Evan Walker from 36One Asset Management gave insights into the latest trends, challenges, and opportunities facing major South African retailers. Hosted by Alec Hogg, the conversation shed light on the positioning of key players like Clicks, Pick n Pay, and Shoprite within an increasingly competitive market environment, underscored by the entry of international giants like Amazon and Chinese newcomers Shein and Temu. Walker provided an in-depth analysis of these shifts, emphasising both opportunities and significant risks for local brands.

Sean Summers’ Challenge with Pick n Pay

Sean Summers’ recent return to Pick n Pay has been far from straightforward, especially after years of what Walker describes as “significant under-investment” in the brand. Competitors like Shoprite have aggressively expanded, gaining market share through strategic investments in technology and customer loyalty programs like Checkers’ Sixty60, which has rapidly gained popularity among consumers. “Heads up to Sean,” Walker remarked, “coming back to take over the reins at a tough point in the South African economic cycle.”

Despite Pick n Pay’s slow momentum, there may be hope on the horizon. Boxer, a subsidiary of Pick n Pay, is set to list soon, bringing with it a potential infusion of capital estimated at around 9 billion Rand. Walker explained that if managed effectively, these funds could help revive Pick n Pay’s brand presence and competitiveness. However, he cautioned, “It’s still going to be a tough ask going forward.”

Clicks: A Robust Business Model Anchored by Customer Loyalty

Turning his attention to Clicks, Walker praised the retail pharmacy chain’s exceptional growth trajectory. Clicks has managed a 20% compounded growth rate for shareholders over the past decade, an impressive feat given South Africa’s fluctuating economic conditions. Walker attributed much of this success to Clicks’ ClubCard loyalty program, which has 11.8 million members. “The loyalty program is unsurpassed globally,” Walker noted, adding that it’s been instrumental in driving Clicks’ ongoing growth and popularity among South Africans.

Interestingly, the company’s shareholder structure is mostly comprised of international investors, with South African stakeholders like the Public Investment Corporation being a notable minority. Many South Africans, Walker explained, may have hesitated to invest due to Clicks’ high forward price-to-earnings (P/E) ratio, which is currently around 27.5. “Foreign investors are happy to pay that because they’re guaranteed of earnings,” Walker said, explaining that Clicks’ consistency makes it a strong long-term investment, even if South African investors feel apprehensive about the high valuation.

Amazon and Takealot: A Potential Battle for E-Commerce Supremacy

The upcoming entry of Amazon into South Africa is anticipated to be a major disruptor, particularly for existing e-commerce giants like Takealot. Walker voiced skepticism about Amazon’s immediate success, noting that South Africa’s marketplace is diverse but lacks the population density found in countries where Amazon typically operates. “It’s a very different marketplace to what Amazon is used to,” Walker observed, explaining that South Africa’s unique geography and relatively low critical mass could make distribution a challenging endeavor.

Takealot, in Walker’s view, is well-positioned to withstand Amazon’s entry. He noted that the local e-commerce leader has successfully embedded itself in both urban and rural markets, delivering goods efficiently across a broad range of categories. “If I speak to people in small towns,” Walker commented, “they get a truckload of stuff coming in every day. Their price points are good, and they have a wide selection.” This success has not gone unnoticed by local retailers, who are increasingly viewing Takealot as a significant competitor.

The Chinese Entrants: Shein and Temu’s South African Market Push

Among the new entrants in South Africa, Chinese fast-fashion giants Shein and Temu have already started making waves. Offering a wide range of affordable products delivered directly to consumers’ doorsteps, these companies have established themselves as appealing options for cash-conscious South African shoppers. Walker observed that Shein’s influence has grown rapidly, especially among younger consumers who value both price and convenience. “Their product range is quite phenomenal,” Walker stated, highlighting how Shein has already succeeded in other global markets with similar strategies.

While local retailers have invested in their own clothing divisions, Walker warned that these Chinese companies could pose a real threat, especially to mid-range brands like Mr. Price. He elaborated that foreign competitors are often willing to take risks and invest heavily in developing markets, making them formidable opponents. “I think our apparel guys, not so much the top end of the market but certainly the Mr. Prices, are at risk,” he concluded.

Clicks’ Unique Resilience Amidst Foreign Competition

Although foreign competition has begun to shake up the South African market, Clicks has managed to remain relatively insulated due to its specific focus on health and beauty. According to Walker, Clicks has skillfully developed its niche, meeting local demand for affordable healthcare products and pharmacy services. Additionally, South Africa’s challenging medical aid landscape, combined with the rising costs of private healthcare, has encouraged consumers to seek over-the-counter products from stores like Clicks, further solidifying its market position.

Walker pointed out that Clicks’ comprehensive loyalty program provides it with a unique advantage, which remains unmatched by other local or international players. Reflecting on the potential for Amazon to disrupt Clicks’ pharmaceutical sales if it enters the market with dispensary licenses, Walker acknowledged that Clicks’ established brand and existing customer base make it a difficult competitor to unseat.

A Competitive Future for South African Retailers

With increased competition from both Amazon and Chinese newcomers, South Africa’s retail landscape is rapidly evolving. For traditional players like Pick n Pay, the challenge will be to modernize and adapt to shifting consumer demands. Walker is cautiously optimistic, noting that there are pockets of opportunity in South Africa, but local companies must be prepared to innovate if they wish to compete.

Ultimately, as Walker emphasised, South African retailers must embrace the complexities of this rapidly changing environment. The battle for market share is expected to intensify, with significant implications for both consumers and investors. Retail giants may soon face an increasingly crowded playing field, as global heavyweights seek to establish themselves in a dynamic and demanding South African market.

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