HomeChoice by CMB Media Group

HOMECHOICE

HomeChoice Announces

Strong Results and Growth Against Tough Backdrop

PRODUCTION: David Napier

Leading South African home retail business, HomeChoice, is continuing to grow in this, a purple patch for the historic company. HomeChoice recently released another strong set of results for the period ending 30 June 2018 and CEO, Shirley Maltz told Enterprise Africa more about what is keeping the company ahead of the rest. www.enterprise-africa.net / 3

INDUSTRY FOCUS: RETAIL

Picture a perfect environment for a retail business – would it include extraordinary unemployment levels, technical recession, record-high fuel prices, unprecedented VAT increases, and a soft Rand versus the Dollar? Probably not, but that is the reality for today’s retail businesses in South Africa. Consumers are feeling the pressure, there’s no doubt about that. And for retailers that distribute products around the country, there is stiff competition with prices under pressure as cheaper alternatives are imported from around the world. But never fear; now is not the time for a total capitulation of retail (like what is beginning on some highstreets in Europe). Even in these challenging and changing times, South Africa’s retailers are embracing transformation

HomeChoice Delivers Strong Growth – Highlights for period ending 30 June 2018: •

Revenue up 16.1% to R1.5 billion

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Retail sales up 18.9% to R856 million

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Loan disbursements up 30.0% to R853 million

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Credit extended on digital channels up 54.7% to 39.1% of all credit

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Cash generated from operations up 37.9% to R240 million

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Headline earnings per share up 14.7% to 250 cents

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Interim dividend up 15.9% to 95 cents

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Customer base up 5.0% to 836 000

and continuing to thrive. A good example comes from HomeChoice, one of the leading

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providers of innovative retail and financial services products to a growing female mass market customer base across southern Africa. This is a retailer that has shunned the recent negativity emerging from the retail sector and the wider economy, and has set its sights firmly on growth. Since its establishment back in 1985, HomeChoice has been an ever-growing business. Through its history, the company has performed incredibly. Overcoming a difficult period in the early 00s, this is an organisation that has achieved major success thanks to an unwavering focus on its core customer. HomeChoice has adopted a strategy which sees it invest heavily in research to understand its customer – who she is, where she is, what she is like, what her life entails, and what she wants. Today, she is officially recognised as female, usually a mother, in the mass-middle market (75% LSM 4-8), earning around R10,000 a month, between 30 and 60 years old, living in South Africa’s urban areas, and utilising digital channels (specifically mobile) for shopping. “When talking about our customer segment, people forget about the informal economy and that is absolutely massive. There are

HOMECHOICE

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micro enterprises that only exist in the township suburbs,” HomeChoice SA CEO, Shirley Maltz tells Enterprise Africa. “You can speak to some of the wealthier people in this country and they might be down in the mouth, but our customer is positive.” Thanks to this deep connection with the customer, JSE-listed HomeChoice has managed to deliver another set of excellent results for the year ending 30 June 2018.

9/21/2018 3:34:08 PM

STRONG NUMBERS Headline earnings increased by 16.1% to R260 million and HEPS increased by 14.7% to 249.6 cents, continuing its growth trajectory and pleasingly ahead of the five-year annual compound growth in HEPS of 13.2%. “I’m happy with how we are trading but times are tough in South Africa, make no mistake,” said Maltz. “Despite the current challenging retail environment, we are seeing the

// DESPITE THE CURRENT CHALLENGING RETAIL ENVIRONMENT, WE ARE SEEING THE BENEFIT OF OUR CONTINUOUS INVESTMENT INTO IMPROVING OUR CUSTOMER EXPERIENCE AND ACCELERATING OUR DIGITAL TRANSFORMATION //

benefit of our continuous investment into improving our customer experience and accelerating our digital transformation. Credit extended via digital channels increased by 54.7% to R792 million and now accounts for 39.1% of total credit,” she said of the results. “Pleasingly, we continue to acquire more than 20,000 new customers per month, contributing to continued growth in our customer base,” she added. The numbers were positive with group revenue growth substantially outperforming its peer market, increasing by 16.1% to R1.5 billion. Retail sales increased by 18.9% and financial service offering, FinChoice, achieving a 30% increase in loan disbursements. Operating profit increased by 14.4% to R374 million.

www.enterprise-africa.net / 5

INDUSTRY FOCUS: RETAIL

OMNI CHANNEL BUSINESS HomeChoice, unlike many retailers, has embraced the digital age and continues to invest heavily in digital capabilities to take its retail and financial services to consumers in the most efficient manner. Traditionally, HomeChoice is a direct

marketing business, with roots in mailorder and catalogue distribution, but today mobile communication is one of its most important channels. “For the last three years, digital has been our fastest growing channel at around 45% growth in our retail

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business. Our call centres support our digital strategy. “People are time pressed and they want to shop online – it’s easier than going to the high-street. Our competitors who thought that digital would never be a thing in South Africa are now waking up to the fact that it is, and they are all implementing digital strategies,” said Maltz. “We have made notable progress in our transformation to a digital department store. Customer engagement through digital, especially mobi channels is growing rapidly, with 60% of retail digital sales from mobile phones. “We will continue to position ourselves as a leading digital partner in the mass market, with an omni channel offering that provides an attractive and seamless retailing experience across all channels,” she added. Digital connections with customers have been particularly important for the company’s financial services operations, where revenue grew by 13% and EBITDA by 15.9%. “FinChoice is a rapidly-growing FinTech platform,” said Maltz. “Our customers are highly engaged on the platforms; of all loan transactions in the period, 78% were concluded digitally, one-third outside of normal trading hours. “We have entered the insurance market and we are comfortable with how that is trading. It’s exciting to be

HOMECHOICE

developing female-specific insurance products and that is our main new vertical. Our financial services business is also launching value added services for our customer base.” Combine this digital success with the opening of the company’s showrooms in various locations around South Africa and you quickly realise how firm HomeChoice’s grip is on the market. The company recently opened its newest showroom in East London on the corner of Caxton and Buffalo Streets. “From the exclusive bedding collections that have made us famous, to our range of trusted appliances, cookware, furniture, and fashion, the new showroom offers customers an enhanced shopping experience in an exciting 1200m² space,” said HomeChoice. The company’s flagship showroom will open on Rissik Street in

Johannesburg later in the year but the intention is for showrooms to support the company’s omni channel strategy rather than creating a ‘bricks and mortar’ network. The new showrooms will act as another connection between HomeChoice and its customers, and will help feed orders into the new R37 million state-of-the-art distribution centre in Gauteng. “A lot of retailers are used to opening stores, but we are not. If you look at our heritage, we are a direct marketing business. What that meant is that we were used to a distant relationship with our customer. She would call us or mail us, and we would then delivery the product. We are now an omni channel business but our heritage reflects a digital business. “We’ve always had a centralised warehouse and that is one of the things that retailers struggle with. Sometimes,

when they pick a product, they won’t be choosing one product for one customer. They’ll choose thousands of products to be distributed around hundreds of stores. We are not set up like that, we prefer a one-on-one relationship with the customer,” said Maltz. VERY SOUTH AFRICAN How does HomeChoice understand its customer so well and connect with her on such a meaningful level? A lot of work goes into it, but the fact that the business is South African to the core is very helpful. Yes, HomeChoice is active in other southern African markets, and is planning further expansion in Africa when the time is right, but this is a truly South African business, based in South Africa, founded by South Africans, serving South Africans, and employing more than 1600 local people. Maltz tells Enterprise Africa more

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INDUSTRY FOCUS: RETAIL

about the company’s founding: “Our founder, Rick Garratt, had some direct marketing businesses previously in South Africa, the UK, Australia and Germany. He returned back to South Africa in 1985 and set up HomeChoice as a direct marketing company through an insert in the newspaper. He had three partners and they put an insert into the newspaper, selling cast iron pots and pans. They waited for the responses and nothing came back. They were devastated. “Eventually, someone came to them and said they had a PO Box full of replies for the advert and the team realised they had put the wrong PO Box address on the ad. “Despite this mishap, the business grew from there and we still have some employees from 1985 in the business today which is amazing.

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// WE WILL CONTINUE TO POSITION OURSELVES AS A LEADING DIGITAL PARTNER IN THE MASS MARKET, WITH AN OMNI CHANNEL OFFERING THAT PROVIDES AN ATTRACTIVE AND SEAMLESS RETAILING EXPERIENCE ACROSS ALL CHANNELS // Soon after beginning, they launched bedding and that is now the heritage of the business and our biggest category representing 65% of our sales. We now have our own sub-brands for bedding. We are going to be building on our branded strategy. “We were one of the first companies to offer credit to mass-market women in the 1980s during apartheid.” Since then, HomeChoice has gone on to become a retail pioneer, establishing a number of firsts in the

regional market. “We set up our first call centre so that we could speak to the customer in 1994. We also launched our delivery network in 1996 as a CSI project. We wanted a delivery network to bring products to our customers but delivering into a township suburb is much more complex than delivering anywhere else. We decided we must have people who understood township areas, the risks involved and the address complexities. We helped set up small

HOMECHOICE

Sheraton Textiles is a 99 year old household textile manufacturing company with facilities in Cape Town and Pietermaritzburg (in KwaZulu-Natal), and a chain of retail factory outlets in the Western Cape. Sheraton Textiles is the supplier of choice to major hospitality groups as well as the largest supplier of luxury linen to the country’s major retail chains. The Company continues to focus on developing world class manufacturing capabilities, with strategic focus on key product and design development, including an industry leading embroidery plant which is recognized as the largest facility of its kind in South Africa. Fabrics are sourced for the group from both local and overseas suppliers, and undergo meticulous quality control and testing procedures prior to manufacturing. Sheraton has positioned itself as an innovative & design centric business inspired by international trends.

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businesses to make up our delivery network and we now have people who have 30 employees and earn R10 million each year. The average driving business is earning around R1.5 million and they are trained in many aspects of business management. It has been a hugely successful initiative for us and has helped everyone involved as they now have self-sustaining businesses,” says Maltz. The company launched its first website in 1997 and followed this with a listing on the JSE before investing in a new 200,000 m3 distribution centre in Cape Town in 2000. “In 2007, we set up the micro loans business, FinChoice and we opened a 1000 seat call centre in 2015,” says Maltz. One milestone in particular stands out for the CEO, the formation of the HomeChoice Development

Trust which has spent more than R19 million and raised donations of more than R20 million on early childhood development. “We set up as an NGO 13 years ago. We donate 1% of our profits to the trust every year and they own just under 1% of the business, receiving dividend flow. We looked at our customers and asked where she would want us to spend the money and we decided to focus on early childhood development. There are no state pre-schools in South Africa and we focus on early childhood development because our customers work. We try to set up schools and get them registered formally. To date, we have supported around 270 schools and put 15,000 children through those schools,” says Maltz. One thing is for sure, in the retail environment, service is now a key

differentiator. HomeChoice’s investment into an omni channel strategy will help launch its superior service levels even further into the spotlight. The increasing number of touchpoints, where the customer and retailer meet (whether real or digital) mean that HomeChoice is becoming more involved in her life. and this in turn fuels that ever-growing understanding of what she wants, where she wants it, and how she wants it. Even in these difficult times, HomeChoice remains a clear front runner in retail and acts as an example to follow for others looking to succeed in this highly challenging industry.

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