Retail giant Pepkor has identified the informal market as a key growth area, using its Flash business to equip informal traders with digital tools and services.
The group sees this sector as vital for economic recovery and is aligning its strategy to support small-scale traders and informal businesses to drive expansion, it said in its annual report.
In the 2024 financial year, Pepkor’s Flash business grew revenue by 20.2% to R8bn, with operating profit surging 38% to R617m.
According to the report, Flash supported 165,000 informal traders with a digital ecosystem that enabled them to offer value-added services such as airtime, electricity and voucher sales. Total throughput in the segment increased 30% to R50bn, while voucher sales grew 36.8% to R15.7bn.
The informal market in SA is estimated to contribute R600bn to GDP. It accounts for more than 40% of total employment, according to the International Labour Organisation (ILO). However, the sector remains underdeveloped compared to other African nations, presenting opportunities for expansion, ILO said.
The group said the country’s economy was showing signs of recovery, with projected growth of 0.9% in 2024 and 1.2% in 2025.
This follows broad-based expansion across most economic sectors and a rebound in the second quarter of 2024, supported by better electricity supply management, private investment in renewable energy and reduced port disruptions.
Growing competition and the increasing focus of retailers on value and discount segments are putting pressure on profitability and market share.
— Pepkor
Pepkor said moderating inflation and the recent interest rate reduction were providing some relief for consumers, creating opportunities for informal businesses to thrive as they met the demand for affordable goods and services.
“The informal market remains a compelling source of growth and expansion for SA, estimated to contribute R600bn to SA’s GDP. This sector offers income opportunities for those excluded from the formal job market. The sector includes street vendors, small-scale traders and various unregistered businesses, as entrepreneurs create opportunities to supplement their income in the face of formal job market constraints,” it said.
For the 2024 financial year, Pepkor reported revenue growth of 7.8% to R85bn, with normalised operating profit rising 9.2% to R9.8bn. The clothing and general merchandise segment contributed R61.4bn in revenue, with operating profit increasing by 12% to R7.7bn. Gross profit margins in this segment grew to 38.1%, driven by improved full-price sales.
The fintech division, anchored by Flash, delivered robust results, aided by strategic efforts in credit, connectivity and insurance. The group’s new cellular handset rental product, FoneYam, surpassed one-million customers, enabling access to affordable smartphones. Meanwhile, Pepkor’s “+more” customer value platform gained traction, registering more than five-million members by September 2024.
The group said technology played a significant role in the informal market’s evolution, highlighting the growing accessibility of e-commerce and digital tools, driven by advancements such as 5G, which enabled informal traders to expand their reach and efficiency.
Despite those results, Pepkor said it had identified intensifying competition in the value and discount segments, driven by aggressive promotional activity across the sector. To mitigate those challenges, the group planned to adjust its product offerings, expand its footprint in the informal market and enhance supply chain resilience.
“Growing competition and the increasing focus of retailers on value and discount segments are putting pressure on profitability and market share. The retail landscape remains highly competitive, with retailers striving to grow market share in a challenging, low-growth environment,” the group said.
“Competitors increasingly engage in aggressive promotional activities and intentionally shift their strategies towards value and discount offerings, intensifying the pressure on the group to adapt and respond effectively. To stay competitive, we must deeply understand the key drivers of these market changes and focus on enhancing our customer value proposition to meet evolving consumer needs and preferences,” said Pepkor.
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