European discount retailer Pepco, a subsidiary of Steinhoff, says its expansion of its discount household goods chains into Western Europe has performed ahead of expectations in the past three months.
Pepco, valued at just more than €5bn, is one of Steinhoff’s biggest subsidiaries and is closely watched by those who want to see if the holding company will become profitable as it ends a chapter of litigation against it and begins to restructure its debt.
Steinhoff has the full support of all claimants — who once had R184bn in claims — for a settlement worth R24bn, which is awaiting Cape Town court approval at the end of January.
Pepco released its trading update for the first quarter to December 2021 — a period marked by Covid-19 restrictions and limitations on unvaccinated customers in parts of Europe.
The business owns Pepco stores selling discount goods in Eastern Europe, including Poland, Romania and Croatia, as well as Dealz low-cost retailer in Ireland and British variety retailer Poundland.
In 2021 Pepco announced plans to expand its stores of the same name selling discount toys, kitchenware, pet goods, clothing, cosmetics, stationery into wealthier markets such as Spain, Italy and Austria.
It opened 146 new stores in the three months to December “including 55 in the strategically important Western European markets of Italy, Austria and Spain”, which it said traded ahead of expectations.
Retail expansion can be fraught with risk and failure. SA chain Woolworths lost more than R12bn when it bought a company in Australia, Truworths has struggled in the UK and Shoprite has pulled back from expansion of its stores in parts of East Africa. Global retail brands including H&M, Tesco and Walmart have also struggled and lost money in foreign markets.
But in Pepco’s quarterly update it appears its expansion into wealthier markets is going well and its 12% growth in revenue was driven primarily by the opening of new stores, mainly by its Pepco brand. The Steinhoff share price rose 2.8% to R5.55 on Wednesday.
Outgoing Pepco CEO Andy Bond, who is leaving due to ill-health, said: “We continued to make good strategic progress in the first quarter, opening a record 161 new stores, most notably accelerating our Pepco openings in Western Europe with 55 openings.”
It is also adding frozen and cold food to its UK Poundland stores, which sell snacks and dry foods along with homeware, crafts and stationery.
Excluding new store openings, group revenue on a like-for-like basis — taking into account existing shops — rose just 0.70% during the quarter, Pepco group said, affected by trading restrictions as a result of Covid-19.
The company faced supply-chain disruptions — a worldwide phenomenon linked to Covid-19 delays and to higher shipping rates. It also reported government lockdown restrictions affected customer numbers in big markets.
Regulations denying entry to unvaccinated consumers meant fewer sales, showing how vaccine mandates affect economies. Restricting entry to stores to vaccinated customers only, given the average Central Europe vaccination level of 54% affected 14% of the quarter’s trading weeks, it said.
Bond said he is leaving the company “confident” that it has a clear growth plan and strong capability and management to deliver its long-term profit growth aspirations.
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