Pick n Pay CEO’s warning for South African retailers

South African retailers are opening too many new stores, putting their financial viability at risk, according to Pick n Pay CEO Sean Summers.

The top five retailers in Africa’s most industrialised economy opened more than 700 stores last year, according to company filings. They have set up 230 already this year.  

“South Africa is about to equal, or squeak past, the US on the square meter per capita of retail,” Summers said in an interview after unveiling the company’s earnings.

“If you’ve got retailers who are prepared to just open stores at any cost, then a shopping centre works. But I would question the medium-to-long-term wisdom of the strategy,” he said.

The National Treasury last week lowered its economic growth forecast over the next three years to an average of 1.6% from 1.8% previously for the continent’s biggest economy, partly due to the trade turmoil unleashed by US President Donald Trump.

“Sales densities in South Africa must be much lower than in the US because obviously per capita spending in South Africa is well below the US,” said Charles Allen, a London-based analyst at Bloomberg Intelligence.

“It does make you wonder how people eventually are going to justify the return on the investment.”

Pick n Pay, which just completed the first year of its multi-year recovery plan, is also trying to grow its business by targeting the lower-income market.

The grocer has closed numerous outlets where there was no prospect of them returning to profitability, even as competitors such as Shoprite Holdings Ltd. sustain the pace of new store openings.

While annual sales at Pick n Pay’s discount Boxer outlets rose 13%, revenue for its core Pick n Pay South Africa segment, which accounts for about two-thirds of group sales, increased only 1.9%, the company reported earlier Monday.