Shoprite cashes in on the home improvement frenzy during Covid lockdown

For the first time since 2016, Shoprite’s furniture business has emerged as a bigger sales driver than its core supermarket operations (food and other consumer goods).

In 2016, Whitey Basson was still at the helm of Shoprite, and regulations around issuing credit to consumers hadn’t been tightened, allowing SA retailers to easily throw debt at consumers to purchase furniture and other big-ticket home items.

Over this period, Shoprite recorded annual growth in furniture sales of 15.3% while supermarket operations grew sales by 10.9%. After 2016, the credit taps started to close as regulators clamped down on the powers of retailers to gleefully issue credit to consumers, resulting in slower growth of furniture sales at Shoprite and other retailers.

But the Covid-19 lockdown has been a boon for retailers in SA, including Shoprite. 

The pace of furniture sales at Shoprite for the six months to 27 December 2020 has outpaced those at its supermarkets. 

Over the period, sales at Shoprite’s furniture business – comprising OK Furniture and House & Home – grew by 15.7% to R3.8-billion while Shoprite’s supermarket business – comprising Shoprite branded stores, Checkers, Checkers Hyper and Usave – pencilled in sales growth of 5.6% to R65.1-billion. The supermarket business is still a money-spinner for Shoprite, contributing 78% to the retailer’s total group sales of R83.4-billion, compared with the furniture category that contributed 4.5%. 

Furniture boosts sales during liquor sales ban

Shoprite received a boost from furniture sales as liquor sales fell by 22% for the six months to 27 December 2020 due to SA’s ban on alcohol sales since March, which was designed, in part, to limit alcohol-related demand for trauma beds in hospitals that are needed for Covid-19 patients. Even when alcohol bans were lifted by the government, alcohol sales were often closed for trade on Fridays and weekends. This meant Shoprite’s LiquorShop business lost 79 trading days over its six-month reporting period, the company said.

Furniture sales at Shoprite have received a fresh lease of life because consumers have shown a renewed interest in furniture and homeware products as people started spending more time at home due to lockdown regulations.

Said Wayne McCurrie, portfolio manager at FNB Wealth and Investments: “With the stay-at-home trend, more people are buying furniture to improve their homes. Home improvement projects that have long been deferred by consumers are now being done.”

Cassie Treurnicht, portfolio manager at Gryphon Asset Management, said the series of interest rate cuts by the Reserve Bank in 2020 had also played a major role in boosting furniture and homeware sales during the lockdown.

“The repo rate cuts by the Reserve Bank [to 3.5%] incentivised people to sell their homes and upgrade to bigger homes. The interest rate cuts even incentivised people who couldn’t afford to buy new homes to embark on home improvement projects,” he told Business Maverick. 

Treurnicht said Shoprite would benefit the most from the lockdown furniture and homeware-buying frenzy because, like Pep (owned by retail group Pepkor), it panders to lower- and middle-income consumers, who can probably afford to improve their abodes instead of moving to new ones. 

Other retailers benefit

Shoprite is not the only retailer profiting from the stay-at-home and home improvement trend. Sales at bathroomware company Italtile, which owns CTM and TopT, grew by 14% for the six months to 31 December 2020. Massmart, which owns Builders Warehouse, Game and Makro, said it saw stronger sales in home improvement and do-it-yourself categories in 2020. Massmart didn’t provide percentages and figures for sales, but will release results for the year to 27 December 2020 on 8 March.

Gryphon’s Treurnicht doubts that the home improvement trend is sustainable, calling it a “once-off blip”. 

“The unemployment and once-off gains in the latter half of the Covid-19 lockdown in 2020 are filtering out. The difficult macroeconomic picture is once again making people realise that times are tough,” he said, adding that the joblessness rate would probably increase over the next few months and more businesses are permanently shutting their operations.

Treurnicht said SA’s troubled economy is starting to hurt Shoprite’s total sales, which grew by 5.6% for the half-year. He expected growth of more than 6.6%. DM/BM