Pick n Pay shutting down stores across South Africa
Pick n Pay has started closing some stores as part of a plan to close or rebrand around 100 outlets.
Pick n Pay, one of South Africa’s leading retail chains, has recently released a trading statement highlighting a troubling period of stagnant growth and store closures.
The statement, covering the 21 weeks ending 21 July 2024, reveals the retailer’s harsh realities over the first five months of the year.
Sales growth during this period was minimal, with overall sales increasing by only 0.1%. Even like-for-like sales, which compare sales performance at existing stores, saw a modest rise of just 1.1%.
Pick n Pay South Africa’s sales increased slightly more, with total sales up by 0.6% and like-for-like sales by 1.7%.
The company attributed the difference between total and like-for-like sales to the closure of several stores in recent months.
In fact, in the first 21 weeks of the financial year, Pick n Pay shut down 16 supermarkets, including four corporate-owned stores and 12 franchise outlets.
The company stated that its company-owned supermarkets, which contribute most to the group’s reported sales, have significantly underperformed in recent years.
As a result, these closures are part of the broader strategy outlined by Pick n Pay CEO Sean Summers in May 2024.
Summers’ turnaround plan involves closing 35 underperforming stores and converting 70 outlets to the Boxer brand, which caters to the mass market or to Pick n Pay franchise operators in areas where it makes strategic sense.
Overall, more than 100 stores will either be converted or closed, representing a substantial portion of Pick n Pay’s footprint, considering it operates only 300 company-owned supermarkets in South Africa.
The closure of these stores equates to roughly 10% of its total owned store base.
These measures also mark a departure from the strategy implemented by former CEO Pieter Boone, which involved splitting the Pick n Pay brand into two distinct segments: the main brand targeting more affluent shoppers and QualiSave for middle-market consumers.
This division proved unsuccessful. The product ranges in QualiSave stores were cut too drastically, negatively impacting margins and profitability.
Some of these underperforming QualiSave stores are now slated for conversion to Boxer, which operates with a structurally lower cost base, making it more suitable for the target market.
In addition to the 100 problematic stores, Summers indicated that Pick n Pay will “right-size” the rest of its store portfolio as leases come up for renewal, signalling further potential changes to the retailer’s footprint in the future.
Another notable point from the trading statement was that company-owned supermarkets have consistently underperformed compared to their franchise counterparts.
However, the group is seeing early signs of progress in its efforts to turn around its company-owned stores.
Pick n Pay’s operational challenges have been compounded by external factors, particularly the South African economy’s sluggish growth and ongoing load shedding.
The financial strain of maintaining backup power during load shedding has significantly affected profitability.
Rising operational costs, increased competition from rivals such as Shoprite and Woolworths, and a reduction in consumer spending have all contributed to the company’s struggles.
The combination of these factors, along with mismanagement and outdated systems, pushed Pick n Pay to the point of technical insolvency earlier in 2024.
However, despite the many difficulties, the company has made some headway in shoring up its financial stability.
Earlier this month, Pick n Pay successfully completed a R4 billion rights offer, bolstering its balance sheet.
The group also reported that its capital expenditure remains within expectations, and inventory levels are being well managed across both Pick n Pay and Boxer outlets.
Looking ahead, Pick n Pay is focusing on the next phase of its recapitalisation plan, which includes a planned IPO of the Boxer brand.
The Boxer chain, which has become a key asset in Pick n Pay’s portfolio, caters to a cost-sensitive market and operates with lower overheads compared to traditional Pick n Pay stores.
This IPO is expected to bring in additional capital and further strengthen the group’s financial position.
While the road to recovery remains long and challenging, Pick n Pay is taking decisive steps to improve its fortunes.
The combination of store closures, strategic conversions, and recapitalisation efforts offers some hope that the retailer can regain its footing in an increasingly competitive and difficult market environment.
With a stronger balance sheet and a renewed focus on operational efficiency, Pick n Pay’s new management is working hard to guide the company through this tumultuous period and towards a more stable future.
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