With the International Monetary Fund forecasting that South African GDP will grow only 1% this year against a backdrop of load shedding and logistics disruptions, retailers will need to focus on diversification into new sectors as well as expanding market share at the expense of their competitors, if they are to grow and thrive.
That’s according to Steven Heilbron, CEO of Capital Connect, a fintech that offers fast and flexible business funding to South African retailers. He says that weak consumer confidence, a flat economy and uncertainty ahead of the national elections are all headwinds for the retail sector.
This follows several difficult years of trading, with StatsSA data showing that overall retail trade sales decreased by 1.0% in 2023 compared with 2022—despite stronger than expected sales over the December period. “Even against this backdrop, we have seen some retailers take the gap and grow their businesses,” says Heilbron.
Heilbron says that he has noted that successful retail businesses implement the following tactics and strategies during difficult times:
Focus on growth markets: While the StatsSA data shows downward trends in most retail sectors, there are exceptions such as clothing and textiles sectors. Retailers should look at ways to move into these markets, whether that’s by acquiring or partnering with a complementary business or adding new product lines to their offering.
Segment the customer base and hit each segment with the right value proposition: Many retailers are focused on trade by foot traffic rather than thinking about who their best customers are and how to attract them. A winning strategy is to market different propositions to different segments to gain share and cover the market. For example, retailers can target great deals on essential goods at mass market customers, and one-hour delivery or premium products at higher LSMs.
Improve inventory management: Optimising inventory levels and reducing excess stock can free up capital and improve cash flow. Retailers can use data analytics and demand forecasting tools to better align inventory levels with customer demand and minimise carrying costs.
Focus on customer retention: During economic downturns, retaining existing customers becomes crucial. Retailers can invest in loyalty programs, personalised marketing, and exceptional customer service to keep customers coming back.
Make strategic bulk buys: A well-timed bulk buy can enable a retailer to purchase inventory at a lower cost than usual, to sell it for a higher profit margin. In addition, a retailer could buy products at a discounted rate to offer deals that entice more customers through the door. For example, liquor dealers can tune into the Budget Speech (21 February) to learn about sin tax increases. They can stock up on popular products before the duties are hiked, to boost profits.
Find new points of presence: Retailers can grow by finding new points of presence, such as containerised coffee shops, pop-up stalls at events, or ecommerce websites.
Consider high-margin convenience offerings: Retailers can grow revenues by offering grab-and-go meals or coffee to busy consumers. Using some floor space in this way can be a highly efficient way to attract customers and add a new revenue stream.
Heilbron says: “During tough economic times, retailers must seize opportunities as they arise. Fintech providers are making it easier for retailers to access the funds they need to grow and thrive. With Capital Connect, you can apply for opportunity capital of up to R5 million from our app and the funds will be in your bank account within 24 hours, or less.”