BluChip Retail Solutions

In November 2017, Enterprise Africa spoke to BluChip Retail Solutions - one of the country’s leading manufacturing and fitment companies that has delivered endto-end solutions for leading retail chains – and CEO Brett Stagman was excited about the company’s prospects with many big projects in the pipeline.

But 2018 was a challenging year for South Africa. A technical recession and a lack of certainty in the markets resulted in just 0.8% GDP growth. This impacted on the ability of both consumers and organisations to spend money. This, combined with a switch in spending habits which has seen more people opt to shop online, has resulted in South Africa’s retail sector to slam on the brakes. Stores are cutting back hard on investment and, in some cases, scaling back store networks and consolidating footprints. For BluChip Retail Solutions, which has focused on retail for more than two decades, this situation fuelled a strategy change.

“Retail has taken a big blow in South Africa,” says Stagman. “Traditionally, 80-90% of our revenue was coming from retail but the retailers are now pulling back and a lot of the big retailers are consolidating and closing some of their doors – it’s not a very pretty picture in the country in terms of retail.

“We’ve gone on a big drive to find new, smaller clients that we previously would not have taken on because we were busy with big brands. We are now working with a lot more smaller brands, and we’ve moved into other avenues - we’re in construction, we’ve built schools and we are continually trying to de-risk ourselves from the retail environment.”

ALTERNATIVE AVENUES

Today, BluChip is happy to offer construction services, installations services for office and residential industries, refit and refurb for new industries, as well as maintaining its portfolio of retail work.

While its core offering remains similar, applying its service in new industries has helped to stabilise the project pipeline while the retail industry is shaky.

“Online shopping is taking a big chunk of the spend in retail and property landlords are struggling with leases being cancelled. Edgars, one of the biggest anchor tenants to all of the landlords in South Africa, is completely restructuring and closing some of its doors as it looks to make all of its sites smaller,” says Stagman. “We’ve moved into gaming, hospitality, restaurants, and we are moving away from retail as much as possible. Food will always grow and we are concentrating on Popeyes and other restaurants at the moment. we will always have a retail focus but we are trying to de-risk the organisation and grow with other types of business as well.”

On the construction side, the company has demonstrated its capabilities successfully by putting up new school buildings for SPARK Schools, a network of independent and private schools in South Africa.

“We manufacture and deliver all school furniture,” explains Stagman “We did a massive roll out with around R5-6 million of school furniture. This combined with the actual physical construction of the schools makes for an interesting project. We are excited about construction after this build.” Add construction to shop

fitting, glass and aluminium services, signage, property advisory services, steelwork, tiling, logistics, project management, design, digital display, biometrics, radio frequency identification, and many more services and you quickly realise that BluChip is a company that truly offers a turnkey solution.

“That continues and it gives us the edge in terms of pricing,” says Stagman. “We can go to a retailer and provide a whole host of services and that reduces overall cost. The one division that has taken off quite nicely is our tiling division. We import all the tiles for our clients and where they were paying a large fee for tiles from a distributor, we can import and offer savings but allow everyone to still make margins.”

However, even with slow retail and unpredictable conditions, BluChip has continued to perform well. Perhaps because of the change in focus, perhaps because of brand strength, or perhaps because of the range of services it can offer – whatever factor it is, Stagman is pleased to report that growth continues.

POSITIVE POSITION

“We are up 10% on the previous year in terms of revenue and we anticipate flat revenue for this year. We went up in revenue but down in margin and that is because the new clients we have taken on have smaller margins and there has been a lot of pressure on us from retailers to push down prices constantly.

“You have to work a lot harder to make the same amount of money. It’s a lot of effort and the revenue is not as big as what you get with the big retail chains. Yes, we are doing a lot of stores, but it is still a very difficult market.

“But we had a very busy end to the year – September, October and November were monster months to deal with. We could not take on anymore work and we had our biggest month ever in November 2018 where our factory was at full capacity so physically we could not deliver more,” he says.

In the smaller but newer divisions of the company, including tiling and glass, growth has been easier to come by. Marketing to both commercial and residential clients, these divisions have helped the company’s staff count to grow from the 320 back in 2017.

“We are up to around 400 staff,” details Stagman. “Some of our divisions, for example signage and glass and aluminium, are new businesses and they are growing continually. With glass and aluminium, we are doing a lot of residential at the moment – probably 60% of turnover is residential.

“The focus for 2019 is for us to move further into residential where we will fit the kitchens and cupboard for large developments. We are also doing a lot of office developments and internal constructions where we will take care of the all the manufacturing for the office. One of our businesses is focussed on digital so we are also going after digital revenues such as online advertising,” he adds.

CORE BUSINESS

Retailers in South Africa that engage customers in engaging and innovative new ways are those that are still seeing success on the high street. The big, cumbersome chains, held back by red tape and slow decision making, are understandably struggling to adjust to the changing environment. But there are some who are nimble and continuing to invest. This is where BluChip is still realising success in the retail sector.

“That part of our portfolio still exists and we still enjoy a lot of success there, but the spend has dropped,” says Stagman. “Our strategy now is to focus on smaller retailers and other franchise food businesses.

“We are busy with projects for Vida e Caffe who are rolling out around 10 stores this year. We are working on an aggressive roll out for Europcar. Other brands like Lovisa, Bras N Things and HP with smaller stores are also ongoing.

“We are working with the international food brand, Popeyes – a very exciting project. We did five or six stores at the end of 2018 and there is 10 more to come this year.

“Cell C had an aggressive roll out last year and opened around 40-50 stores towards the end of the year. They will be doing around 40 stores from January to May so the roll out continues. We are doing all of those stores and we do everything from design to manufacture to construction and everything between.”

Of course, Stagman and team continue to spread the risk and take on new projects where existing skills can be put to work.

“We’ve put together some very nice, upmarket restaurants,” he says. “We’ve just finished a brilliant one called Bold – a very upmarket restaurant that we are very proud of. It was a R10 million project in Sandton.”

It is the reputation of BluChip that allows it to take on these new projects. For smaller companies in the same industry, especially those that have not invested in diversification, times have not been so kind.

“Our suppliers of raw materials – generally metal or wood – are down by 30% when it comes to us and our competitors, so the market is definitely taking a serious blow. A lot of the competition are following retrenchment routes and going onto short-time contracts, so it is not easy out there,” says Stagman.

Everyone knows the importance of brand recognition and business reputation. Richard Branson said: “All you have in business is your reputation - so it’s very important that you keep your word.” Mark Zuckerberg agreed: “You get a reputation for stability if you are stable for years.” And Jeff Bezos said: “A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well.”

And 2019 will be a year of building reputation for BluChip Retail Solutions as it continues through its transitional period to a brighter future.

“We will weather the storm for the next year or so and build the client base while building on our reputation – that is our focus,” concludes Stagman.

BluChip Retail Solutions CEO - Brett Stagman