22 of 2023

Newsletter No 22/9 June 2023                              


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The great fray: when even Pepkor’s in the dwang

By Adele Shevel

Ackermans: Messed up its recent fashion calls badly. Picture: Bloomberg/Waldo Swiegers

Pepkor was supposed to be the defensive JSE retailer. But its share price crash in the wake of disappointing numbers is a sign of investor capitulation

Of all South Africa’s apparel retailers Pepkor was the one supposed to withstand a consumer downturn the best.

Shoppers, the argument went, would hurtle towards value brands such as Pep and Ackermans, but the performance of South Africa’s largest seller of low-income clothing shows that consumers are struggling to buy even the most basic items. Instead, they’re prioritising necessities.

Worse, Ackermans turned in a poor summer season as it got its fashion calls wrong, forcing it to discount more stock. Sales after the six months to end-March were also weak — a trend echoed at Tiger Brands, which owns food brands including Koo, Jungle Oats and Tastic. Tiger reported an unexpected drop in sales in the same month, leading to a more than 20% plunge in its share price in the days after its earnings update.

Clearly, defensive isn’t always that defensive.

“Health care was also considered defensive at one stage,” says Gryphon Asset Management’s Casparus Treurnicht. “Well, share prices are never defensive. The lower end of the consumer market is getting most affected by inflation when unemployment is this high. They are buying food with cash and everything else on credit. But only when the retailer wants to grant them credit.”

He expects Pepkor to sort out its internal issues in the next year but, like the market, can’t say when the broader economy might turn. “All I know is that I do not see enough being done to rectify our economy. I would not be too hasty and buy retail stocks for now.”

He is also worried about Pepkor’s Avenida purchase in Brazil. “Time and time again our retailers lose focus of their local core market when they buy overseas.”

How did Ackermans, a brand that rarely puts a foot wrong, mess up its fashion calls so badly? “Especially as the error predominantly occurred in boys wear, which is supposed to be a low fashion and stable category,” says Damon Buss, senior equity analyst at M&G Investments.

“Management has explained the error as the buying team misreading the buying patterns of the substantial number of new customers gained during Covid.” This resulted in last year’s summer and this year’s winter ranges having a higher weighting to mid- or high-priced product when the core Ackermans customer is lower income.

“There was a higher proportion of multi-buys [such as three packs] on sale, while the Ackermans customer is cash constrained and normally buys items individually.  And the proportion of ‘fashion’ colours was increased well above historic levels.”

Buss says Pepkor’s lead times are relatively long at six to nine months, with limited ability to reduce orders or adapt an order, so mistakes of this nature affect the business for a longer period. He lauds the group for relatively quick action and hiring a new CEO for Ackermans and Ackermans Woman, the other division hampered by fashion mistakes.

“The fresh set of eyes and a return to focus buying for the core customer should result in an improved performance in Ackermans in its summer 2023 range.”

There’s nothing Pepkor can do about South Africa’s dismal economy. But Buss says Pepkor’s focus on being a cash retailer, offering “exceptional” value, should stand it in good stead. “A nonrepeat of the fashion mistakes will be positive for both sales and earnings.” And completing the supply chain to support a more aggressive rollout of stores in Avenida, Pepkor’s Brazilian business, could improve the market’s confidence in Pepkor’s ability to grow earnings. He also says it needs to build out and monetise the multiple alternative revenue streams it has,  such as Paxi, Pepkor’s parcel delivery service, and Flash, its fintech operation that enables small businesses to offer affordable payment options — where profit grew 20% over the first half.

In the meantime, consumers are increasingly turning to debt to survive. Debt counselling company DebtBusters has seen a spike in counselling (up 40%) and debt management (up 92%) against the same period last year.

“People are overstretched because they need to put food on the table. People aren’t going on luxury holidays, people are under a lot of strain. Incomes have not increased in a meaningful way,” says Benay Sager, head of DebtBusters.

The combination of the relentless rise in interest rates and inflation is hurting higher income groups too, and Sager warns that the full impact of rate hikes and load-shedding still needs to play out. “It’s tough to be optimistic.”

However, he says, “the one thing that stands out in South Africa is the resilience of the people and ability to make a plan, and there’s a huge informal economy.”

DebtBusters says that in real terms, most South Africans had 38% less disposable income this year compared with 2016 due mainly to high inflation, resulting in the need to supplement this income with unsecured borrowing. On average, consumers have 30% more unsecured debt compared with 2016. And those taking home R20,000 or more have unsecured debt levels that are 67% higher than 2016.

Total debt levels (which include secured and unsecured debt) have increased by 17% against 2016, and unsecured debt is being used as a lifeline by many income groups to supplement their incomes.

Makwe Masilela, chief investment officer at Makwe Fund Managers, says Pepkor is a clear reflection of the country’s main economy.

“We will have to push our clothes longer than we normally do. But given their [Pepkor’s] balance sheet they will probably be able to survive this period. They managed to take some market share in some key market categories, it’s not all doom and gloom.”

Masilela also likes the fact that Pepkor is a serious player in the mobile industry. “It’s a good business proposition.”  As to what could be a catalyst for improvement, he says the group needs to continue to use its influence to introduce structural reforms and improve the ease of doing business.

While Pepkor’s earnings were down, the declines, superficially at least, were hardly catastrophic: headline earnings per share fell 11.9% to 80.8c for the interim period to end-March. Same-store sales increased 0.5%, but average prices were up 5.8%, indicating fewer items had been sold. Both Avenida and Pep Africa recorded growth; Avenida, now accounting for 4% of group revenue, posted a better-than-expected increase in sales volume growth of 15.8%.

Still, Richard Cheesman, senior investment analyst at Protea Capital Management, points out that significant items had to be adjusted for, to determine how the group’s core operations performed. Adjusting for a low tax rate and insurance proceeds relating to income lost during prior periods, among others, the group’s underlying performance was meaningfully below the reported headline numbers.

Perhaps because of Pepkor’s 20% share price slide this year, buyers are now emerging: investment bank Citi has upgraded Pepkor to “buy”, arguing that the reaction has been overdone.  BL

What story do your favourite Levi’s tell? Celebrate #150Yearsof501 and you could win

Join the hunt for the oldest pair of Levi’s 501s in SA and you could walk away with a R15,000 grand prize

Every pair of Levi’s 501s has a story to tell.
Image: Levi Strauss

Change is the only constant in the ever-evolving world of fashion, especially in the age of social media, where trends emerge and disappear at lightning speed.

In this world, very few items stand the test of time. Yet, when Levi Strauss and Jacob Davis received a patent for their riveted pants on May 20 1873, they unknowingly sparked an enduring legacy that would transcend time, trends and generations.

That date has since been commemorated as 501 Day in honour of Levi’s 501s, an era-defining style that celebrates its 150th anniversary this year.

In an increasingly digital era, the authenticity of Levi’s 501s is more cherished than ever

In an increasingly digital era, the authenticity of Levi’s 501s is more cherished than ever. As the world changes, 501s remain a firm fixture in millions of wardrobes — a blank canvas for self-expression embraced by artists, rebels and trailblazers alike, growing into a symbol of individuality and becoming an enduring part of our shared cultural experiences.

To mark #150Yearsof501, Levi’s has embarked on a year-long celebration that kicked off with the launch of “The Greatest Story Ever Worn”. This global campaign includes a trio of short films — watch them here — inspired by the true stories of legendary 501 fans, from the fashionistas of Kingston, Jamaica, to the dearly departed in denim.

Next, in the build-up to 501 Day, Levi’s hosted First Thursdays and a two-day workshop event in Cape Town, which gave attendees the opportunity to customise their denim with guidance from the brand’s master tailor William Phala and artist Romi Flowers.

Levi’s championed its commitment to sustainable fashion by partnering with Clothes to Good for this event; guests were encouraged to donate their preloved jeans to contribute towards a greener future and support employment opportunities for women across SA.

Guests were encouraged to express their unique style by customising denim at a First Thursdays event held as part of Levi’s #150YearsOf501s celebrations.
Image: Levi Strauss

In addition, the brand teamed up with local creatives Mziyanda Malgas, Amahle Zama and Wanda Lephoto to explore the profound connection between them and their 501s.

Malgas, a multitalented model, DJ, photographer and artist, holds 501s dear to their heart. To them, the denims are “classic, timeless … something that’s been present throughout my whole entire life. I’ve been around with them everywhere,”

Fashion stylist Zama offers a heartfelt perspective, intertwining her personal journey with the enduring appeal of 501s: “To me, 501s means family, heritage, culture, changes of our lives and timelessness. Through it all, I’ve never had to alter my 501 jeans — they’ve always just sort of fitted into each chapter of my growth.”

Fashion designer Lephoto views 501s as a symbolic embodiment of freedom. His words reflect the spirit of our country: “As South Africans, freedom is a big thing to us and being able to celebrate our freedom, being able to celebrate our heritage, being able to celebrate our cultures … it means so much.”

This trio’s powerful narratives serve as a reminder that sometimes a pair of jeans can be so much more — 501s are a testament to personal stories, cultural heritage, and the timeless spirit of freedom.

On May 20, a 501 Day celebration was held at Haus of Strauss Africa, Levi’s collaborative hub for artists, musicians and innovators, in Johannesburg. During this immersive experience — watch the video below — guests were encouraged to express their unique sense of style by visiting denim customisation stations and to take in an exhibition detailing Levi’s storied 150-year history.

This exhibit provided more than just a stroll down memory lane, it highlighted the continued impact Levi’s and its famed 501s have on youth culture. After all, from their origins in the gold mines of San Francisco to their current role as a wardrobe stable in countries around the globe, every pair of these iconic denims has a story to tell.

Now, to further celebrate 150 years of 501s, Levi’s invites you to join the hunt for the oldest pair of 501s in SA and stand a chance to win R15,000, among other prizes.

This quest is about more than just jeans, it’s about the stories they tell. Each worn-out patch, frayed hem or paint stain symbolises a well-lived life; it’s an emblem of experiences and a testament to 501’s timeless appeal.

So, whether these 501s are in the back of your cupboard (or your parents’ cupboard), hidden in a thrift store, or you’re wearing them right now, Levi’s wants to hear about it.

Visit the Levi’s website for more information and click “Join the hunt” to enter.  

To all cross-border transporters

– Tuesday, 06 June 2023

Land border posts are currently experiencing congestion and delays in relation to the cross-border processing of trucks and cargo, with the N4 corridor to Maputo through the Lebombo border post being the most affected.

The South African Revenue Service (SARS), the South African Police Service (SAPS), the Border Management Authority (BMA), the Road Freight Association (RFA), and the South African Association of Freight Forwarders (SAAFF) are working collaboratively and with urgency to manage the challenges that are currently being experienced and to restore border processing to normal as soon as possible.

We call on all affected transporters and truck drivers to assist with this effort, exercise patience and restraint, and to refrain from acting in a manner not conducive to maintaining the organised flow of traffic to and through our borders. These include disregarding traffic rules, blocking lanes, and disabling trucks from moving.

Maintaining the orderly and continuous movement of trucks to the border is imperative to enable the processing of trucks to take place on a manual and interim basis pending the resolution of the technical challenges being experienced. In this regard, and to avoid further congestion, we also request trucks without a “Proceed to Border” notification status not to approach the border and not to park at the border while awaiting clearance documents. We urge all traders to use the functionality to pre-clear consignments.

Stakeholders can be assured that our technical teams are working around the clock to resolve the issues being experienced. Our respective officers are collectively doing their utmost to manually process trucks as fast as possible and we endeavour to maintain law and order on the affected cargo corridors, as well as in border control areas.

We kindly request your assistance in communicating this message to your drivers and business partners and will keep you informed and updated of progress made to remedy the situation.

It was not acceptable for women to wear shorts in public until World War 2.


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