SA retailers cashing in

28 September 2004

South Africa’s retail sector is cashing in on a sustained spending spree by the country’s consumers – with many declaring bumper dividends and plans to expand their businesses.

According to Business Day, the past six months has seen a boom in spending by higher income consumers, a trend which began a year ago, spurred in part by dropping interest rates and a stronger rand.

Year-end results from Woolworths, Shoprite, Cashbuild, Truworths and Massmart have been strong.

Massmart CE Mark Lamberti expects the level of consumer confidence and spending to continue well into 2005 and beyond. “The recent interest rate cut means the retail industry is probably looking at one of the best Christmases ever”, he said.

Business Day reports that retailers selling mostly food have not done as well as more diversified groups. But interest rate cuts, which means more borrowing, has boosted spending on clothing, liquor, cars and home extensions.

The bumper year for retail groups has been reflected in dividend payouts, and in investment plans. Woolworths, Truworths and Massmart have reduced their dividend cover over the past year.

According to Business Day, Massmart plans to spend R400-million on 19 new stores this year, and in a three-year strategy a number of new stores will be rolled out under different brands.

Cashbuild, meanwhile, intends to boost its number of stores by about 10 a year. Truworths has raised its authorised capital expenditure by nearly R34-million for 2005 and wants to increase its trading space by about 13%. Food and clothing retailer Woolworths has set aside an additional R109-million to expand and modernise its stores.

At the same time, Shoprite expects to spend R800-million on capital projects in 2004 – including a number of new stores under different brands.

Business Day reports that several retailers have all invested heavily in information technology systems in the past few years, allowing them to control stock more efficiently and to monitor trading density, key to understanding a deflationary environment. reporter