Clicks looks to store brands to boost growth even more

With no sign of fatigue when it comes to its strong earnings growth or store rollout, Clicks is also looking to increase its private-label product penetration in categories such as cleaning and baby products as an avenue for growth in an increasingly constrained environment.

Private-label or house brands are products manufactured by external parties for sale under a retailer's name, in this case Clicks, usually at lower prices than named brands.

And with cash-strapped consumers looking for bargains, Clicks believes private labels will offer a good opportunity for growth. 

Presenting her first set of results as CEO on Thursday, Bertina Engelbrecht, who took over from Vikesh Ramsunder in January when he left for a job in Australia, said one of Clicks’ new private-label offerings is its “domestic cleaning” range, which includes dishwasher tablets, laundry detergents and fabric softeners.

The group is also intent on expanding its eco-friendly private-label product range of products under the MyEarth brand, with a similar strategy for baby care.

“We believe consumers are financially constrained, with less money in their pockets. Under those circumstances, they are already looking to trade down and our opportunity in domestics and baby is to provide the consumer who wishes to trade down with a choice. All of these products are high quality, but because it is our private-label product we can actually offer it at a lower price. That is one of the ways we add value.”

Because of Clicks’ wide reach in SA in terms of store footprint, it usually accounts for at least 10% of its local suppliers’ total production, said Engelbrecht. This gives the group quite a bit of muscle when it comes to negotiating pricing, which it can then pass on to the consumer.

During the group’s results presentation for the six months ended February, financial director Michael Fleming said that while the group’s target was to get its proportion of private-label  products to 30% of front-of-shop goods sold, the group’s private-label products had already achieved a 29.9% contribution.

Engelbrecht said this showed it was “highly likely” Clicks would exceed its target. With this in mind a strategy for further growth in private-label products would also be taken to the board shortly.

“This is something that we are going to take to our board probably in July, which is when we get our new strategic plan approved by the board. What we would be presenting to them is a scenario that looks at enhancing the target.”

But this does not mean Clicks has any intention of slowing down its store expansion in key locations, with Engelbrecht saying that this and its healthcare division are key levers in its growth strategy.

The group opened its 800th store in March, and its national pharmacy presence was expanded to 646 with the opening of a further 45 pharmacies.

The group opened its 800th store in March

“Over the last two years we have opened between 40 and 45 new stores a year. That is an incredible achievement. It means we are close to opening up a store a week.  That is one of the areas of growth and it brings us closer to new customers,” she said.

In its results for the six months to February, Clicks increased retail sales by 13.6% as it “gained market share, continued to expand its store and pharmacy network and supported the national Covid-19 vaccination programme”.

Headline earnings from continuing operations grew by 18.3% to R1.1bn, and the interim dividend increased by 26.3% to 180c per share, in line with group diluted headline earnings per share which were up 26%.

Clicks said it had administered more than “3-million vaccinations since inception of the programme, making it the largest vaccination provider in the private sector”. 

Asked to name the biggest challenges facing Clicks and SA, Engelbrecht said that rising inflation as a result of the Russia-Ukraine war, particularly when it came to fuel costs, could be a dampener. Locally, load-shedding was also a problem.

Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said Clicks is “still adding stores and Covid-19 is still attracting people to their stores during these times”.

“Recently there was also a boom in flu, which would have helped them too. I am amazed at how they’ve managed to keep the growth rates up year after year.”

Meanwhile, smaller rival Dis-Chem released a strong update, telling shareholders on Thursday that the group is expecting headline earnings per share to rise between 24.5% and 29.5% compared to the previous financial year.

Dis-Chem said it is “pleased with the performance considering the context of a constrained consumer environment, challenges posed by the pandemic and the civil unrest that was experienced in July 2021” .