The market is in for a bumpy ride, says Louis Greef, managing director of Elite Star Trading Africa (EST). But it’s not going to stop EST from adapting while still remaining true to its roots.
It’s always good to have someone in your corner, and in the case of the smaller players in the hardware industry, EST is that someone. The company is focused on ensuring that smaller, independent retailers can pool their purchasing power.
Can you go into the backstory of the company?
We started the hardware division in 2012, after already being in the FMCG buying space for several years. We started with same objective that we had with the EST FMCG division as we were acutely aware that independent retailers can’t survive given the concentration of buying power within a few chain stores. We have grown from 32 stores affiliated in 2012 to more than a 1000 in 2022.
Why was the company started?
We were influenced by the fact that apartheid and other discriminatory laws and practices of the past that had resulted in, as the Competition Act of 1998 states, ‘excessive concentration of ownership and control within the national economy’ and that ‘the economy must be open to greater ownership by a greater number of South Africans’.
There was a call for buyer groups to enable wholesalers and independent retailers that lack the economy of scale, to be able to pool their purchasing power in bargaining with suppliers, that they would not be able to do on their own.
Why has it been so important to empower smaller retailers?
Again, the hardware retail sector is extremely concentrated in SA, with only a handful of corporate retailers. If there wasn’t some sort of buyer cooperative that allows independent stores to pool their purchasing power, this independent channel would soon be eradicated. The channel was outsmarted/out negotiated/outpriced by the large retail groups to the detriment of consumers, who are largely bottom end consumers with very little disposable income. It’s common knowledge that if an industry is concentrated, competition is reduced, suppliers get abused and retailer margins increase as it is simply a supply and demand system that applies.
How did you find 2022 in terms of sales and profitability?
Volumes are showing a downward trend. Turnovers were not great, but we had to adapt to the conditions. We are now in an environment of extreme shopper price sensitivity. They are actively shopping around and bargain hunting. As we trade predominately in the bottom-end of the industry where disposable income is under severe strain due to factors such as the impact of inflation, reduced real income, increased unemployment, super food inflation and increased cost of borrowing. Up to 60% of income is being used to service debt in the R5000 to R15 000 income level consumers. It’s a toxic mix in an industry or sub-section of the hardware industry who have these consumers as the core of their customer base. Simply put, lower-income consumers have no disposable income left.
Which of your divisions showed the best performance, and why do you think that was?
We were very aggressive on cement and other building materials regarding price points and little if any store margins. Paints were ok, and the same for DIY products. Of course, the winners were ‘alternative energy’ such as batteries/lights/back-up systems, even in our core market. Metal and wood related products, however, went into a tailspin and we found it hard to entice consumers as demand and/or prices were lacking.
What is the group’s outlook for the year ahead?
It’s very, very challenging. If we can’t overcome the issues discussed above, we are in for rough ride. But it’s a cycle to be managed, and our plans should be adaptable to see it through. We have been through these cycles in the 1980s, so we will just have to manage to survive again. Price points, products and successful ranging will be of extreme importance.
Even more so will be the EST Hardware responsibility to ensure a level playing field for the store owners relative to the top-end corporate retailers. Of course, at a shop level, it will be the ability to control expenses.
Why do you think your business model is successful?
Success is a relative term. It these conditions even survival is a success. This we hope to achieve. But in essence our success is determined by how we can contribute or ensure the survival of this very important route to market. Many if not most of our core consumers live in very isolated areas. They are very low income, are not mobile, and need the small independent stores in their area to survive. At a trader/store level, most are non-white and previously disadvantaged individuals who are also trying to survive both in this economic cycle, but also against very big corporate retailers with big pockets and financial resources. So, if we can successfully look after their interests, we should continue to do well. Most of the retailers are also shareholders in the company. It’s for everyone’s benefit that EST Hardware survives and prospers. Suppliers are, however, the ‘indirect’ backbone of our survival. We openly share this with them, and need their buy-in and together we can ensure the survival of these SMEs who should be the backbone of our economy… not only in hardware, but in ALL sectors of our economy.
Where do you foresee the best areas for growth?
It’s hard to say. I suppose the normal 80/20 principles will apply on the core ranges. Alternative energy will continue for some time to come but if disposable income continues to be under strain, I can’t see an upswing of any sorts in the medium term. I do not even think we are in the eye of the storm yet. So, it will be hard going forward and only the fittest will survive.
Is your supplier base constantly growing?
As I hope that our store base will survive, I also hope that our supplier base will survive.
Both manufacturers and wholesalers to the trade must be going through hell and we really do feel for them. Manufacturing must be one of the most difficult industries in SA right now. I truly hope they can and will survive, because the alternatives are just too bad to comprehend. As a customer base, my belief is that, as an industry, we must ensure that the SA supplier base stays intact, even if we need government intervention to ensure the survival and protection against cheaper imports from countries that have no labour laws and protection. Regarding the supplier base, yes, it’s growing but we rather focus on a having a manageable amount.
Digitalisation and automation are key words now. How do you see these as fitting into your world?
We continually evaluate what we do, and how to adapt this for the poorest of the poor who drive a very big percentage of our sales. It’s not easy, and not all interactions create awareness and/or realise sales. Hardware is very much localised and concentrated as close to home or work as possible.
The market is in for a bumpy ride, says Louis. But it’s not going to stop EST from adapting and remaining true to its roots, which is looking after the interests of independent retailers.
There are plenty of challenges facing SA. How does EST go about mitigating these?
Our partners know who they are, our stores trust us to look after their interests and as shareholders they have full visibility of the company’s inner workings. This creates trust and harmony while allowing everyone the freedom to run their store in any way they feel that works for their environment.
What’s the most important thing the hardware industry should be thinking about right now?
What we should be thinking is not how can we only increase sales, but have we got a model and a strategy that can see us through these very difficult times. If that means stealing someone else’s lunch, then that can be the strategy.
Article Credit: DIY News