Shoprite is selling its furniture business including OK Furniture and House & Home because it believes it lacks the scale to compete effectively in this sector compared with its core food business.
Despite a significant capital investment programme, the group’s furniture wing had consistently received less priority for investment compared with the supermarkets business, CEO Pieter Engelbrecht told Business Day on Tuesday.
By partnering with Pepkor Group, which has already invested in technology and infrastructure for the furniture business, Shoprite believes it can better allocate its capital to its core food business.
“[The transaction is a] redirection of capital and resource allocation to focus on what we do best. This will enable OK Furniture and House & Home to operate in an environment in which they can fully integrate, benefit from existing infrastructure and expand,” the group said.
The deal, which was revealed in a Sens announcement on Tuesday, excludes operations in Angola and Mozambique and is valued at about R3.2bn. It represents about 4% of Pepkor’s market value.
The transaction, set to be finalised by the second half of 2025 pending regulatory approvals, will transfer more than 400 furniture stores to Pepkor, which now operates nearly 6,000 outlets.
Shoprite said its focus would remain on the SA market, with plans to invest R8bn in capital expenditure over the coming year, up from R7.8bn in the previous period. This investment would be directed towards expanding its core supermarket stores and advancing its digital commerce and technology infrastructure.
In addition to the sale of its furniture stores, Shoprite is also in advanced talks to acquire the remaining 50% of its last-mile logistics provider, Pingo Delivery, further enhancing its omnichannel retail strategy.
This strategic realignment underlines Shoprite’s commitment to consolidating its market position and driving growth through its primary food retail operations, while ensuring its former furniture brands have a chance to thrive in Pepkor’s stable.
The proposed transaction included the Shoprite furniture credit loan book and related insurance cell captive arrangements; the OK Furniture and House & Home retail brands; inventory; and certain fixed assets, Pepkor said in a statement on Tuesday.
The total consideration payable on closing of the proposed transaction would be equivalent to the net asset value of the acquired assets, subject to adjustments that could be applicable at the closing date, Pepkor said.
Research consultant at Euromonitor International, Christele Chokossa, said Shoprite had in recent years rapidly diversified its portfolio by tapping into other industries such as apparel and footwear.
“Therefore, stepping away from House & Home and OK Furniture to bet on underpenetrated industries with relatively higher growth prospects, like Pet Stores, makes room for higher growth opportunities over the long term. On the other hand, acquiring Shoprite’s home banners might allow Pepkor to build scale and leverage its expertise within the industry to better position itself against growing competitors like TFG.”
Pepkor’s JD Group business has recently rebranded to Pepkor Lifestyle and operates more than 900 retail stores in SA, Botswana, Lesotho, Namibia and Eswatini.
Pepkor said it had developed leading capabilities in supply chain, logistics and financial services, all supported by best-of-breed scalable integrated systems and data-driven capabilities.
“Combining Shoprite furniture with Pepkor Lifestyle will enable key synergies and efficiencies to be unlocked within the supply chain, logistics and financial services operations through leveraging improved scale,” it said.
Pepkor Lifestyle would expand its customer base and retail footprint while integrating the Shoprite furniture operations into its existing logistics network.
Pepkor’s management team had the expertise and capacity to successfully incorporate the Shoprite furniture business into the group, the company said.
The deal would allow Pepkor to expand its value proposition through a complementary product mix in furniture, bedding, appliances and consumer electronics, while expanding its presence in underrepresented regions, it said.
Pepkor also announced that the Competition Tribunal had approved the disposal of the entire share capital of Pepkor’s wholly owned subsidiary TBCo, for a purchase consideration of about R1.2bn to Capitalworks Private Equity and selected members of TBCo management.
The disposal was approved with conditions, which the parties have agreed to. The transaction will close on September 30.
Pepkor said that the implementation of the TBCo transaction delivered on its objectives to streamline its portfolio of businesses, enhance the group’s return on capital and optimise shareholder returns.
Pepkor’s share price fell the most since late-June on Tuesday, down 2.56% to R21.29, giving it a market cap of R78.4bn. The share price peaked at R25.71 in December 2017.
Shoprite’s share price fell the most since January 2021, down 5.86% to R295, after closing at a record high of R313.37 on Monday. The company is valued at 174.4bn, with the share price up more than 15% over the past year.
The JSE all share took a hit on the day, down 1.59% to 82,156 points, while the top 40, which includes Shoprite, was down 1.62%.
Update: September 3 2024
This story has been updated with new information and comment.
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