Private label a tonic as Clicks bests Dis-Chem
Private label products, growth in its wholesale business, smaller stores and new outlets are among the reasons Clicks turned in yet another strong performance, outpacing its rival Dis-Chem. A star performer for the retailer's interim results for the six months to February 28 was its pharmaceutical wholesaler and distributor, UPD, in which Clicks has made hefty investments. Operating profit for the UPD business surged 27.2%. The business landed four new distribution clients, CEO Vikesh Ramsunder told Business Times this week. UPD market share grew to 26% from 25.4% in the reporting period. Ramsunder took over from David Kneale in January. The retailer, which has benefited from its "buy three products and pay for two" promotional activity, said customers had made a significant shift to Clicks' private label products.Group turnover increased 6.2% to R15.3bn. Retail sales grew by 7.7% and by 4.5% in comparable stores, with selling price inflation of only 1%. Profit for the period rose 13% to R764m.Total income grew by 8.9% to R4.3bn, with the group's total income margin improving 60 basis points to 27.7% which was due to more customers switching to Clicks private label products "and the positive mix impact from the stronger growth of front shop relative to pharmacy", the company said. Ramsunder said: "I think we have a very clear strategy in a tough economic environment. We will continue to open new stores and pharmacies moving forward, launch new private label products and continue to ensure that we are driving promotions and continue to add value to our consumers."Private label makes up 30% of its front shop offering and 6% in pharmacies. Evan Walker, a portfolio manager at 36ONE Asset Management, said the group was performing "unbelievably well" because of a combination of factors including Clicks' loyalty programme in the form of its Club Card and the retailer's attractive price points."Singlehandedly, they've just beaten other retailers across the board. Whether it's Pick n Pay's Smart Shopper or Dis-Chem's card and the likes of Shoprite," Walker said.Renier de Bruyn, an investment analyst at Sanlam Private Wealth, said: "We have become accustomed to Clicks' strong product execution, especially with regards to their promotional offering as well as the growth in private label, which attracts higher margins."De Bruyn said Clicks displayed resilient results in the context of a constrained consumer environment and low selling-price inflation. De Bruyn said the retailer's growth was supported by the continued roll-out of new stores and their success in clinching market share from independent pharmacies.Walker said the odds are against rival Dis-Chem despite its strategy of larger store formats that investors thought would bode well for it. "Contrary to the belief in this big-box formula being rolled out more efficiently than the Clicks business model, we haven't seen any detrimental effects [on Clicks]. We thought Dis-Chem would take market share from Clicks, [but] the numbers are stacking up more in favour of Clicks," said Walker. Other retailers had lost market share to both Dis-Chem and Clicks, he said. Dis-Chem was still delivering good growth. In the six months to August 31, revenue rose 9.4% to R10.5bn and profit after tax rose 12.3% to R460m. "Customers are still shopping between the two. You would've thought that with the big-box format and their strategy that Dis-Chem would've taken market share from smaller Clicks stores, but it hasn't transpired. These numbers are going to be ahead of what Dis-Chem reports at a sales level," said Walker. Clicks invested in 33 new stores and 35 pharmacies. It has also extended store space in 25 stores over the past 12 months. The group plans to open 41 stores in the financial year. It currently has a store network of 680 and aims to have 900 with a pharmacy in each store in the next seven to 10 years. Asked if the group planned to expand into other African markets, Ramsunder said: "Typically, a company would leave their home market if they didn't have opportunity for growth; we certainly don't see that. We'd rather focus on our core business in SA. The last thing we want to do is chase big expansion projects outside of the country because you distract management and the risks are higher."