CASHBUILD – More Stores to Come for Cashbuild

Cashbuild is a real rarity in South Africa. It’s one of those companies that doesn’t crop up all that often – a JSE-listed, that the general public still seems to trust and enjoy. So many corporates that go from small, regional start-up to major international player lose the trust of the market. There is a negative sentiment that surrounds big business. The consumer is now more aware than ever about where their money goes, and they are not keen on lining the pockets of fat cat executives. Much more popular is the idea of shopping local, helping the owner-run and managed business, being part of a movement towards sustainability.

But those big companies that have not strayed from their roots, those that have remained committed to their values, and those that have always put their customer at the forefront of planning – rather than becoming embroiled in an endless pursuit for profit – are the companies that have grown to become trusted, respected, and continually top performing.

Cashbuild is the perfect example. Opening its first store in King Williamstown in 1978 (this store is still trading today), quality customer service and strong product range delighted customers, helping Cashbuild to grow. By 1986, the company was listed on the JSE and its 27 stores were turning over R87 million. Today, the company has more than 310 stores all over southern Africa and stays true to its mission of providing products at the lowest possible prices and always have advertised line in stock. 

Thanks to this commitment, Cashbuild is now universally recognised as southern Africa’s largest retailer of quality building materials and associated products, selling direct to a cash-paying customer base through its large chain of stores. After acquiring the business of P&L Hardware and Buffalo Timbers in 2016 and 2017 respectively, Cashbuild has been looking for further growth as it tries to conquer 30% of the market.

The company’s customers are made up mainly home-builders and improvers, contractors, farmers, traders, as well as all other customers requiring quality building materials at the best value. In South Africa, while this market has been subdued in recent years – suffering from the fallout of the wider macro-economic environment – it remains a big sector, with a lot of potential (especially in a country where at least 2.1 million new homes are still needed).

Earlier this year, the Financial Mail described South Africa’s DIY retail stores as ‘mostly immune to economic downturns’ but as the challenging period lengthened, conditions began to take their toll. A VAT rise, increases in the fuel price and poor wage growth have left consumers with less disposable cash, and many have shelved home purchase plans and home improvement projects.

Stats SA released figures that showed total retail sales growing only 1% in 2018’s Q4, however, for hardware, paint and glass retailers, sales shrank 1.5% across the same period

The South African economy has been in a stagnant state for some time, flittering between modest growth and technical recession for the past decade. But, with government debt and continued slow GDP growth, ratings agencies have looked to South Africa as a market that could be worthy of a downgrade. Essentially, this would result in government having to pay more to service its debts, leaving less money to service social initiatives and infrastructure, including home building.

Growth in the country is not expected to exceed 1% in 2020, despite a previous prediction of 1.7%. Further forward, in 2021, growth is now forecasted half a percent lower than previously thought, at 1.3%. For the consumer on the ground, this is not good news. And when the consumer is feeling the pressure, Cashbuild feels it too.

Fortunately, Cashbuild has seen highs and lows before; it has faced multiple recessions and socio-economic changes across different nations in southern Africa. When things get tough, Cashbuild gets strong, and continues to serve clients with the best products at the best prices, with a unique approach to each area that it operates.

CEO, Werner de Jager said, as Cashbuild released its Integrated Report at the end of June, that conditions were tough but, because of the company’s fantastic people, things were moving in the right direction.

“This has been my toughest year in my 15-year tenure at Cashbuild,” he admitted. “Both the second half of 2018 and the first half of 2019 were disappointing, but I am pleased to report that due to the tremendous efforts by the Cashbuild team to control costs, the second half of 2019 improved.”

De Jager, who gained his CA(SA) in 1994 before joining Cashbuild as Finance Director in 2004, was reasonably satisfied with the company’s performance, highlighting new store openings as a real source of success.

“The Cashbuild business in South Africa performed at acceptable levels bearing in mind the weak economic environment,” he said. “Gross margins improved, notwithstanding the highly competitive trading conditions. Expenses were well controlled resulting in a 9% increase in operating profits. On the other hand, the P&L Hardware business experienced good sales growth at 11%.”

Overall, the numbers were positive. The group reported revenue growth of 6% to R10.8 billion; gross profit growth of 6% to R2.7 billion; operating expenses increasing by 3% in existing stores; and headline earnings of R434 million, an increase of 2%.

The increase in revenue is primarily attributable to sales growth experienced by 34 new stores opened since 1 July 2017 contributing 3% of the increase.

By sticking to long-held core values, the company has come through a difficult trading environment and is positioned for further growth. In 2017, the company made its first move into Zambia, opening a store in Kabwe. The company is already present across South Africa, Botswana, Swaziland, Lesotho, Namibia and Malawi, and Zambia was the obvious next step. But it has not been a straightforward move and, while still viewed as an important strategic move, Zambia is receiving attention to maximise potential.

“Our venture into Zambia has also been more challenging than initially anticipated. During the year we approved the opening of one new store in Lusaka, which will happen in the first quarter of the new financial year. The plan is not to open more stores until the situation has improved in that country,” said de Jager.

“Zambia is currently not performing as expected due to various factors which have been identified and addressed or are in the process of being resolved,” he added. “The cost of getting stock into Zambia from South Africa is excessive and negatively contributes to our competitiveness in that country. Through a logistics company, a process is being explored and will be introduced with a view to reducing the cost of getting stock into Zambia. Furthermore, an aggressive drive is in place to engage with more local suppliers which will improve our competitiveness. In addition, the medium of marketing has been revisited and a new strategy, more applicable to the local environment, has been put in place, which includes increasing the brand’s awareness. Excessive stock levels and slow-moving stock have also been addressed with effective reduction plans in place.”

Other developing markets in Africa have been extremely positive for Cashbuild and de Jager highlighted Botswana and Malawi as stars where double digit operating profit growth has been achieved.

“We remain committed to our strategy of being one of the leading southern African-based retailer of building materials and products, providing these materials and products at the best value, directly to the public,” he said.

“Opportunities to expand further into the rest of Africa will continue to be carefully considered and their viability assessed, as and when they become evident.”

Going forward, the wider economy, along with Cashbuild’s sector, will remain under pressure. Many issues combined – chiefly, the Eskom situation – will continue to disrupt investment and future planning, but Cashbuild has developed a sound strategy. 

“For the first six weeks of FY2020, total sales amounted to R1.2 million, representing an increase of 1% over the prior period, which is an indication of the continued tough trading conditions,” said de Jager.

“We are expecting the DIY retail market to remain exceptionally competitive going into the first half of FY2020 given the immense financial pressure under which all consumers find themselves and the muted South African macro-economic growth. The alarming increase in retrenchments across all industries does not bode well for our market.”

To negate negativity, Cashbuild will continue to roll out further stores to bolster its presence. Each store has its own manager and emanates local knowledge for local conditions. This is how the company manages to retain its fantastic and loyal customer base.

“A critical element in the achievement of our strategic objectives is a sustained and sustainable increase in the number of Cashbuild stores, as well as the physical location of each store within its catchment area,” detailed de Jager in June. “The group plans to open on average 10 new stores per year. These additional stores are approved on the basis of identified locations showing clear potential to meet strict financial and operational criteria. Furthermore, from a human resources perspective, investment in a new store requires significant operational and store management experience to be available within the group for deployment into new locations.”

Adding to a continued store network expansion, Cashbuild is also busy developing its ecommerce offering, bringing the product portfolio online for easy ordering. This forms another tactic from Cashbuild to do all that it can to help its customers achieve.

“Cashbuild has an e-commerce channel which its currently limited to Gauteng and kept at a small scale to fully understand impact on our business. The planning phase of allowing ecommerce functionality in every store is complete, and the first phase of revamping the website to support this initiative is close to completion. Expected roll out will be in the 2020 calendar year, and we will maintain our normal cautious approach,” said de Jager.

Recently retired Cashbuild Board Chairman, Stefan Fourie said that the well-researched strategy employed by the company will serve well going forward and, if and when the economy does swing, Cashbuild will undoubtedly capture further market share.

“Cashbuild’s strategy remains robust, and the in-depth quality product range that is tailored to the specific needs of the communities the Group serves, as well as the adherence to the Cashbuild Way, positions the Group well, for any slight upswing in the economy,” he said.

Importantly, even in these trying market conditions, Cashbuild has managed to forge and maintain close relationships with its customers. By providing much-needed products at the best prices, and being available country-wide, Cashbuild has built that much-desired position of offering local service but being backed by big business. The demand for housing and home improvements will always continue, and the economic cycle will swing. For Cashbuild, consistent strength will always be displayed.