Every January investors scrutinise sales updates from JSE-listed retail companies, seeking insights into how these companies have traded over the festive season. This year’s updates painted a sobering picture, with most consumer-facing companies printing growth significantly below market expectations and revealing structural pressures.
The challenges facing South African retailers are multifaceted. They span the growth of online gaming and Chinese e-commerce players, lower inflation and changing consumer behaviour, as well as company-specific operational difficulties. Yet beneath this challenging landscape lies an opportunity for patient investors who are willing to wait for economic acceleration.
The apparel sector has been particularly hard hit, facing a dual assault that is, in our view, a structural shift in the discretionary spend. The first culprit is online gambling, which has experienced exponential growth and has eaten a significant share of the consumer wallet. According to the National Gambling Board, South African online gambling reached R1.5-trillion in 2024/25, a staggering 33% increase year on year, with gross gambling revenue hitting R74.5bn, up about 25% a year. The latter has more than doubled since 2020.
The impact on retailers is profound. The 2025 Trade Intelligence survey found that grocery retailers are taking the most widespread knock from online gambling. Retailers from Pick n Pay to TFG have cited this spending shift as a bigger threat than competition from e-commerce, with vulnerable consumer segments redirecting funds from clothing and groceries to games such as Aviator on platforms such as Hollywoodbets, where bets start at only R1.
Compounding this pressure is the rise of Chinese fashion, general merchandise and other platforms like Shein, Temu and Amazon. Shein and Temu both achieved R7.3bn in South African sales in 2024, capturing nearly 4% of the total clothing, textile, footwear and leather market and a commanding 37% of online clothing sales, according to the Localisation Support Fund. For context, Jet reported R5.5bn in sales in 2024. Shein and Temu combined are now bigger than Jet. Shein alone holds 28% of online women’s apparel sales.
Food retailers face an additional challenge: excessive store rollouts into a structurally low-inflation environment. Boxer, the discount supermarket chain under Pick n Pay, exemplifies this aggressive expansion. The chain added 49 net new stores in the 2024 financial year and 53 stores in 2025, reaching 525 locations across South Africa and Eswatini. While Boxer plans another 60 stores in the 2026 financial year, this growth is occurring in an environment where pricing power has evaporated.
The South African Reserve Bank’s recent inflation target shift to 3% reflects structurally lower inflation expectations. In 2025 consumer inflation averaged 3.2%, the lowest in 21 years, with core inflation at 3.3%. This low-inflation environment means store count growth must pull most of the weight for volume growth. In this context, building hundreds of stores may create jobs but not necessarily shareholder value.
Beyond sector-wide pressures, several major retailers are wrestling with internal challenges. Pick n Pay’s core supermarket division remains unprofitable, posting a trading loss of more than R600m in the first half of its financial year, despite closing about 60 unprofitable stores. While its Boxer discount brand thrives, the flagship continues to burn through cash due to structural inefficiencies and fierce competition from Shoprite.
Collectively, South African companies’ offshore misadventures have destroyed about R300bn in shareholder value, with retailers particularly prone to overpaying and underestimating integration complexity and domestic market conditions in foreign countries. Hence investor concerns about Mr Price’s acquisition of European value retailer NKD Group.
Spar Group faces its own challenges, struggling with its franchise model. Mr Price Group has seen its valuation compress amid apparel sector headwinds and an announcement of an unpopular offshore acquisition. TFG, despite investments in omnichannel capabilities, has been discounting to hold market share. The Truworths share price has halved from its 2024 price peak, reflecting concerns about negative growth in its South African apparel business.
South African retailers’ woes are amplified by a history of value-destroying offshore acquisitions. Woolworths acquired David Jones in 2014, only to sell the latter in 2023 after persistent underperformance. Massmart’s integration with Walmart resulted in Walmart eventually writing down its stake significantly. Most spectacularly, Steinhoff’s aggressive offshore expansion into Europe, the US and Australia ended in a 2017 accounting scandal that wiped out more than R250bn in investor value and led to its 2023 delisting.
Collectively, South African companies’ offshore misadventures have destroyed about R300bn in shareholder value, with retailers particularly prone to overpaying and underestimating integration complexity and domestic market conditions in foreign countries. Hence investor concerns about Mr Price’s acquisition of European value retailer NKD Group.
As a result of these challenges, South African retail valuations have become compelling. The sector currently trades at valuation ratios significantly below historical averages. TFG trades at a 25% discount to its 10-year historical average price-to-earnings ratio, while Mr Price’s and Truworth’s valuations are also below their historical average. These compressed multiples reflect pessimism that may prove excessive should economic conditions improve.
The path forward for South African retail investors requires patience and a bit of luck. With GDP growth expected to accelerate as structural reforms pay off, the economic inflection point is coming into visibility.
Prospects for South African retail are likely to improve in the second half of 2026 as GDP acceleration becomes tangible and consumer confidence improves. At that juncture, today’s depressed valuations may offer attractive returns for investors willing to endure near-term volatility.
As far as luck is concerned, the South African Revenue Service may clamp down on what seems to be tax avoidance by Chinese e-tailers. The government might tax online gaming more severely, and moral pressure to stop advertising online gaming could slow its insidious growth.
Until then, South African retail remains a story of secular disruption meeting cyclical weakness, though it also offers opportunity for those who time the recovery correctly.
• Ngwane is an equity analyst and portfolio manager at All Weather Capital.
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