Clicks released annual results on Thursday and announced it is adjusting its long-term store target from 900 stores in SA to 1,200, with plans to open 40-50 each year.
This pleased shareholders, with the share price spiking more than 7% during the day. Business Day spoke to CEO Bertina Engelbrecht.
Is there enough consumer demand for another 300 stores?
The important thing to note is that about 40% of the retail pharmacies are independently owned. We expect further consolidation of the independent pharmacy market.
Clicks has got just under 25% of the pharmacy market and Dis-Chem has just about 25% of the market. That means the two big corporate players have under 50%.
So there is a 50% opportunity in the retail pharmacy market still available.
Won’t you cannibalise yourself by opening too many stores, with neighbouring outlets stealing customers from each other?
When we make any investment decision on opening a new store, we look at our estimated return on investment and our internal targets and we also take into account the potential of cannibalisation.
Checkers is now selling baby goods, which is a key Clicks category. It is also opening baby-specific stores called Little Me. Are you concerned about the competition?
We are always reviewing the competitive landscape in order to understand whether or not we are responding to the needs of the target market we are after. I would say we’ve got a very different approach in the baby category to our competitors
You are expanding your focus on the baby category. Tell us more.
We have baby products in every single one of our 837 Clicks stores.
We first grew our strength in the baby goods category in our existing store network. And now our strategy is looking at how we expand and go after particular product ranges. We’ve got four baby showrooms and we’ll be taking that up to 10 over the medium term.
Tell us about these baby showroom stores, with the latest just opened in Menlyn Shopping Centre in Pretoria
In the showrooms, we are able to sell baby hardware at much higher price points, if you think about what a stroller or car seat costs. Two of my sisters have grandchildren now and I’ve been the one buying the baby car seats. I nearly fell on my back. They cost anything from R3,500-R7,000.
We probably wouldn’t want product ranges [like strollers] in an ordinary store because they are bulky and have a very low stock turn.
Your share is seen as expensive locally and about 70% of your investors are overseas shareholders. Why is this?
For as long as I’ve been in the group, overseas shareholders have been in the majority, in part because they are also all long-term shareholders.
Another reason is because they understand the drugstore model [such as Walgreens]. They have been investing in other drug stores abroad too.
I just think perhaps the local analysts and investors don’t fully appreciate the drug-store model.
We would love to see more local shareholders with a greater percentage of shares. I must commend the Public Investment Corporation; it’s been one of the local managers that has consistently invested in the group and is now our largest individual shareholder with more than 16%.
The share price is sometimes described as expensive in terms of the ratio between its cost and the earnings you generate.
On Wednesday, we had a board meeting and one of the board members said he’s kicking himself because 16 years ago he bought a very small parcel of 8,000 shares and the price was under R900 [less than R8.88 a share estimated].
If you look at where the price has been ... it is anything between R285 and R310. And that just reveals the long-term sustainable growth in the share price.
You say you have returned a lot of capital to shareholders over the past decade. Can you explain?
Total shareholder returns over the 10 years compounded is 20.9%. The return of dividends to shareholders over the past 10 years has been over R11bn. So I think, all in all, for the long-term shareholder it’s been a very valuable stock to hold.
Another reason that the market looks upon our stock positively is because of our ability to not only generate cash, but to manage our cash exceedingly well.
Retail sales are up 11.7%, but if you adjust this figure for Covid-19 vaccine sales, new stores driving growth and price inflation of 4%, same store volumes are really only up 4%.
This is even as there has been an increase in cosmetic sales and cold and flu medicines. Are you happy with the volume growth?
We are satisfied. At the beginning of this financial year we had just come out of the civil unrest in KwaZulu-Natal. That led to the closure of 53 of our stores.
Secondly, we are looking very positive in terms of what happened in the second half of the financial year [March to August]. Despite the effect of load-shedding, we’ve grown much faster in the second half of the year than we did in the first.
Importantly, the second-half had a reduced level of Covid-19 vaccinations driving sales. It looks to us as if the fundamentals are really there. We feel confident about the future.
Note: Edited for brevity and clarity.
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