Major South African retailer closing stores

SPAR is recovering from the past few years of strategic missteps, but the retailer’s sales remain challenged, with 13 stores having closed in the 18 weeks through January 2025.

In a trading update released on Thursday, 27 February 2025, SPAR provided shareholders an overview of its performance for the 18 weeks ended 31 January 2025.

Many of SPAR’s troubles over the past few years have centred around the botched implementation of a SAP enterprise resource planning (ERP) system at its distribution centre (DC) in KwaZulu-Natal.

This was significant because SPAR is the second-largest retailer in South Africa and its KwaZulu-Natal distribution centre is its largest.

The unsuccessful implementation of the new SAP system made fulfilling orders to retailers extremely challenging and was compounded by staff being inadequately trained to deal with such a scenario.

SPAR had to resort to encouraging their KZN retailers to source products from other suppliers, leading to a drop in loyalty. 

Some bigger SPAR retailer groups opened accounts at rival wholesalers, businesses that SPAR is still fighting to win back.

The sharp drop in their earnings from the South African business combined with growing foreign currency debt led to SPAR breaching its debt covenants. 

At the same time, SPAR’s largest competitor, Shoprite, went from strength to strength and is consistently gaining market share from other retailers.

In its latest trading update, the retailer said it has effectively resolved the SAP system issues in KwaZulu-Natal, yielding notable improvements, particularly in pricing visibility.

“Through targeted interventions, SAP architectural modifications and a comprehensive understanding of the system, KZN has experienced a positive recovery,” the retailer said. 

“Loyalty levels continue to improve, and both gross profit and trading profit margins have seen a recovery, achieving four consecutive months of profitability.”

It said the next phase of the full system rollout will focus on its Build it Imports Warehouse and Eastern Cape distribution centre in the first half of 2026.

“Our Southern Africa margin recovery will be supported by the improved performance of the KZN distribution centre, the ongoing disposal of non-performing corporate stores, and enhanced operational efficiencies,” the retailer said.

Another hamper on SPAR’s results has been its poor European acquisitions, of which the most problematic has been its Polish business.

Purchased for just one euro, SPAR took over its Poland business’ existing debt and invested heavily in the ailing business.

However, SPAR Poland had low retailer loyalty and operated a sub-scale distribution centre, generating significant losses and high interest costs from its mounting debt burden. 

With fewer than 200 stores and under 2% market share, management overestimated their ability to turn the business around and grow it.

Therefore, SPAR has been in the process of selling its Polish operations for over a year and finally completed the disposal in January 2025.

The company said that, with this sale completed, its European strategic review, which it aims to complete by June 2025, is progressing well.

Therefore, the retailer has made significant moves toward improving its operations over the past year and is on its way to a full recovery.

However, until then, the retailer’s financial performance continues to struggle.

SPAR’s 18-week update

The trading update revealed that SPAR’s total sales from continuing operations decreased by 1.6% over the 18-week period.

In the company’s Southern African division, retail sales performed better, growing by 3.4% across the retailer’s 2,029 supermarket and liquor stores. SPAR’s same-store sales grew by 3%.

The company reported that growth was particularly robust in its lower-income grocery stores, with subdued growth in its middle- and higher-end stores.

However, SPAR’s sales growth was impacted by the planned closure of 13 grocery stores in its South Rand Region, lower levels of promotional activity and erratic supply into Mozambique for its grocery business.

The retailer added that its operating losses from corporate grocery and liquor stores were reduced during the period due to improved performance and the closure of non-performing stores.

One standout performer in the company’s results is its on-demand shopping platform, SPAR2U, which grew order volumes by 285%.

Build it, SPAR’s building material supplier business, also delivered solid top-line growth of 7.3% with similar growth experienced at retail.

In addition, the retailer’s pharmaceutical business delivered strong turnover growth of 13.3%, attributable to a strong performance in Wholesaler and Scriptwise sales.

However, the company’s European operations – which include the BMG Group (Ireland and South West England) and SPAR Switzerland – continue to struggle.

BWG Group reported a sales decrease of 1.6% in euro terms, primarily impacted by decreased consumer spending in response to increased costs of living. 

The retailer explained that, in the UK, consumers are shifting their spending to larger supermarket formats.

In addition, while inflation in Ireland has moderated, consumers are still highly price-sensitive and value-driven. 

However, SPAR said the BWG Group’s strategic efforts, which include cost management, sales initiatives, and new store developments, have helped address the impacts of challenging consumer and trading conditions.

“Operating expenses were well managed in the period, with margin improvement driven by a better sales mix and strong performance in certain categories,” it said.

SPAR Switzerland’s performance was affected by increased living costs and intensifying competition, resulting in a decrease in turnover of 5.2% in Swiss franc terms.

However, the retailer noted that its private-label range remains a strength, addressing the growing demand for affordability and competitive pricing.

SPAR will release its full financial results for the six months ending 31 March 2025 on or about Wednesday, 4 June 2025.