Industrial Reporter
FURNITURE and appliance retailers have good reason to feel happy about the state of the industry.
Lower interest rates, fewer stores and a swing back to the retailers from microlenders are all reasons that the sector should feel smug about its short-term prospects.
The sector is now putting two difficult years behind it. The large number of stores in the sector saw it severely over- traded, while the amount of credit being granted by microlenders saw some consumers overextend themselves resulting in several retail chains seeing a sharp increase in bad debt.
Conditions were so poor that the market celebrated when Ellerine pushed up operating profit a mere 3,1% to R313,7m in its results for the year to August last year.
Looking at the state of its competitors at the time, it is understandable so many glowed over this modest rise in earnings.
The JD Group was caught out by the way microlenders had altered the credit profile of their client base.
Profurn had to be recapitalised by its bank and was about to be taken over by the JD Group.
Relyant also had to be recapitalised by its bank and had a German retail group take a holding in it.
Even with these clouds hanging over the sector, things started to change for the better. It was given a boost with Profurn closing 70 stores even before the JD Group took it over. With fewer stores, the overall profitability of the remaining outlets was enhanced, so making the sector more sustainable.
SCMB Securities retail analyst Evan Walker said it looked as if furniture retailers could be entering a new growth cycle, as the recent drop in interest rates could soon stimulate growth in the consumer sector.
Walker said the recovery in the sector could be seen in the JD Group, Ellerine and Lewis Stores all recording double digit sales growth.
Although the sector is showing signs of a recovery, its restructuring is not complete. Walker said he expected further store closures.
Another analyst also saw more stores being closed. He said while a number of stores had been shut, it was still a small percentage of the total number operating in the country.
This analyst, while not expecting the large bad debt write-offs of the past, did not expect any drastic improvement in their debtors books.
He said unlike clothing retailers, there were no joint credit evaluation systems among furniture retailers that could monitor the total indebtedness of their customers.
Walker pointed out that the retreat of microlenders had given furniture retailers the space to improve margins on the goods they sold on credit.
A reduction in the amount of debt that consumers were carrying also gave them the freedom to spend a little bit more, Walker said.
Jul 25 2003 07:01:49:000AM Larry Claasen Business Day 1st Edition
Publisher: Business Day
Source: Business Day
Furniture retailers glad at upswing in trading.
Posted On Friday, 25 July 2003 02:00 Published by eProperty News
Analysts say sector could be entering a new growth cycle with recent drop in interest rates.
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