Clicks is aggressively accelerating its baby products category, with plans to open six baby stores in the coming years after double digit growth in sales.
The baby and child products division, which includes toiletries, food and nappies, is estimated to be worth R27bn. Retailers and food producers have taken advantage of this by launching new offerings in the past few years.
Mr Price and Checkers are among retailers that have opened stand-alone baby stores selling products from clothes to accessories. Dis-Chem, which bought Baby City two years ago, is opening more such stores.
Research has shown the market is influenced by factors such as rising birth rate, affordability and changing lifestyles.
In some beauty and personal care categories consumers have been trading down to more affordable alternatives given the economic conditions, but this trend has not been as evident in baby and child-specific products, said market research provider Euromonitor International.
Clicks CEO Bertina Engelbrecht said this week, after the release of the group's annual results, that despite the adverse effect of the civil unrest on the sales of nappies, baby food and clothing, the business maintained double-digit sales growth in baby accessories and toiletries and “exceptional growth” in baby hardware such as prams and car seats, driven by stand-alone stores and its online platform.
“The growth in hardware shows that this is the market to be in. The performance in baby tells me that our strategy is on point,” said Engelbrecht.
Given the growth in hardware it shows that this is the market to be in
— Bertina Engelbrecht, Clicks CEO
She said every new Clicks store will have a baby range, but in stand-alones the range will be wider. The company will also increase its private labels baby products.
Clicks, which has a 19.2% market share, down marginally from 19.9% because of the civil unrest last year, has introduced baby furniture and will increase the baby clothes categories, which cater for newborn to 18 months.
According to Euromonitor, products targeting babies and children have seen resilience in South Africa across multiple industries. In apparel, childrenswear was one of the most resilient categories, with this trend expanding to beauty and personal care as parents prioritise their children’s needs despite facing increased economic hardship.
“Retailers have identified this trend and have placed a greater focus on expanding their baby ranges and offerings,” it said.
Sasfin Wealth senior equity analyst Alec Abraham said competition in the baby space is “expected to escalate”, with Dis-Chem’s expansion of Baby City stores and Shoprite opening stand-alone baby storest.
“I’m sure all these companies have done their homework, but the one observation I will point out is that according to Statistics South Africa’s mid-year population estimates, the population growth rate in South Africa does appear to be slowing down.”
There were 1.2-million births registered in 2021.
Euromonitor said South Africans have opted for pricing discounts and promotional offers rather than trading down in quality when it comes to baby and child-specific products.
To have increased control of products and maintain an element of exclusivity, retailers have been looking to roll out private label products and expand on existing ranges.
"The challenge in baby and child-specific products will be how retailers attract parents and encourage them to make the switch, considering that many prefer to buy trusted products or go with recommendations,” Euromonitor said.
Across its business, Clicks is planning record capital investment of R936m for the new financial year. This includes R477m for stores and pharmacies and R459m for supply chain, technology and infrastructure.
In the year to end-August Clicks opened 58 new stores, expanding its store base to 840. It wants to have 1,200 stores, with plans to open 40 to 50 stores and pharmacies each year.
The national pharmacy presence was extended to 673 after the opening of 52. This network enabled Clicks to administer 2.9-million Covid vaccinations, making it the largest vaccination provider in the private sector, the company said.
Covid vaccinations generated turnover of R1.1bn, resulting in a 3.5% increase in retail sales and 2.5% in group sales. Group turnover increased by 6% to R39.6bn.
Muneer Ahmed, an equity analyst at Denker Capital, said while Clicks's performance has been consistent and in line with expectations, “a word of caution [is] that Covid vaccine revenue is likely not to be repeated”.
Clicks said its beauty category recovered strongly post-Covid with shampoos, hair colourants, luxury bath products, soaps and body fresheners featuring in more shopping baskets.
Consumers continued to buy vitamins in volumes above pre-Covid levels. Englebrecht said the retailer had attracted new customers who were not taking any vitamin supplements before the pandemic.
Home appliances also recorded increased growth, driven by products such as air fryers, with 42,000 sold in the year to August compared to 18,000 the previous year.
Abraham said Clicks achieved better results than he expected. However, the “long-standing issue with Clicks is that their product range is too narrow and too shallow. I know why they do it ... to sell more of fewer stock items and so keep tight control over stock levels and secure higher volume rebates and support from suppliers. But it detracts from the shopping experience, and this is an area where I believe Dis-Chem trumps Clicks.”
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said: “In the last six months turnover growth was on the lower side and only time would tell if the company would balance the effect of less vaccinations versus more customers through the door for normal sales.
“Blackouts aren’t helping, the consumer is slowing down and inflation is on the rise. We see margin absorption by retailers everywhere, meaning stores are fighting for market share. This contest will just get more intense and that is not necessarily good for companies trading at these valuations.
“They’ve got big growth plans but there is also a skills shortage in terms of pharmacists. I still regard it as expensive [at about R290 a share] and there are simply too many risks that justify paying the current price,” Treurnicht said.
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