Pepkor, owner of Pep, Ackermans and HiFi Corporation, says prices may rise by as much as 10% from August due to supply chain pressures, increased shipping costs and inflation, but that it also “re-engineers” products to make them more affordable.
The price hikes, expected across the clothing and furniture industry, come as SA consumers are struggling with soaring food, power and petrol costs and may be forced to cut back on discretionary spending.
However, the group, which sold 5.4-million baby-gros and 8.1-million school shirts in one year, is hopeful as tourism is increasing and events such as weddings and football matches have resumed. Many of Pep’s customers work casual jobs in the events and hospitality industry and will benefit from the economic reopening.
Pepkor CEO Leon Lourens says the company also does well in challenging circumstances, in part as wealthier consumers buy down and purchase clothing from its discount Pep and Ackermans brands.
Global shipping rates have increased more than tenfold since the start of the Covid-19 pandemic that led to port backlogs and shipping container shortages. The delays and skyrocketing costs have affected all local importers. Last week, furniture group Lewis CEO Johan Enslin described shipping costs as “onerous”, saying it had found three more local suppliers as a result.
To offset inflation, Pepkor buys affordable products that have simpler designs and cheaper fabrics. It also ensures its stores, which include furniture brands Rochester, Bradlows and Sleepmaster, hold a product mix with a higher proportion of lower-priced goods.
Tough environment
Lourens pointed out that inflation is not unique to SA, calling rising prices a “worldwide phenomenon”.
While predicting rising unemployment and local inflation, Lourens believes Pepkor thrives in a tough environment.
“We have been providing good-quality, affordable products to our customers for a long time.
“In the current landscape, it is even more important than usual that we provide our customers with products that are affordable,” he said. “We are proud of the fact that 97% of products sold at Pep are cheaper than the competition and that, for example, Pep offers a complete school uniform at R20 less than it cost two years ago,” Lourens said.
In addition to inflation and global supply chain disruption, clothing brand Pep’s Durban distribution centre was flooded, leaving it at least a metre underwater and damaging huge amounts of stock. This has resulted in low product levels in KwaZulu-Natal Pep chain stores.
It has taken five weeks to clean out the mud and damage. The centre, one of only three Pep distribution centres in SA, is now partially open and expected to run at 50% capacity from end-June.
Muted growth
Pepkor does not yet have a figure on what the flood damage has cost its Pep clothing division, but Lourens described the disruption as a “headache”.
Pepkor’s results for its half-year to end-March revealed muted sales growth of 3.3% to R42bn, with operating profit up 19.1% to R5.7bn, thanks in part to a one-off loan repayment from multinational retailer Steinhoff, which owns half of Pepkor.
With the Steinhoff payment of R429m stripped out, Pepkor still recorded an operating profit of 10%, which is “very satisfactory”, said Lourens speaking to Business Day.
“Any double-digit increase in profit is very commendable under the circumstances….”
In February, Pepkor bought a majority stake in Avenida, a 130-store Brazilian clothing discounter, and since the purchase and capital investment into the company, sales are up 55%.
It’s a promising sign when Pepkor’s main market faces a weak consumer. In SA, where clothing makes up about 66% of its revenue, Pep and Ackermans like-for-like sales were only 2.4% higher in the six months to end-March, off a high base.
Pep’s courier service, Paxi, or Parcel in a Taxi, which sends goods between its huge network of stores across SA, is now shipping 11,000 parcels a day as consumers shun the post office.
Pepkor’s share price closed 2.97% higher on Friday at R20.78.
Update: May 29 2022
This article has been updated throughout.
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