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In a world where coronavirus is the end of the day, healthcare retail and the pharmaceutical industry will see considerable changes in consumption patterns. What does this change mean for Clicks, the pharmaceutical merchant and distributor, which has stood out among a class of retailers struggling due to strategic mistakes in a slow domestic economy context?
Given the heightened sensitivity around health as a result of the current crisis, this industry, which is seldom analyzed in detail beyond a “large pharmaceutical industry that hurts the world for its benefit”, is a sector that will attract much interest from the investors.
“This moment of accepting praise for our results is quite bittersweet as we look at the world around us right now,” said Vikesh Ramsunder, the retailer’s chief executive, who presented his six-month earnings earlier this week.
While the retailer continues to report double-digit growth, the sharp deterioration in SA’s economic outlook as a result of the pandemic may mean a marked change in the retailer’s growth strategy, which has outperformed its rivals in the past five years .
Over the past five years, Clicks’ stock has gained 142%, compared to a JSE All Share index that has fallen nearly 17%. Its closest and closest competitor, Dis-Chem, which was listed in November 2016, has seen its shares drop 0.3% at the time. Pick Pay n Pay, which has been heralded as the story of change among all retailers, has seen its stocks rise by only 9.2% compared.
Clicks’ success is based on a multifaceted strategy, says Nolwandle Mthombeni, analyst at Mergence Investment Managers.
This includes customer loyalty through the rewards program, strong distribution through UPD, market share gains through organic and pharmaceutical acquisitions, and margin expansion through white label growth, added.
“They have been delivering all of this at the same time without dropping the ball and still have a solid balance sheet.”
It is a strategy that has focused on domestic expansion and does not seek a beachhead in foreign and predominantly developed markets that has been the subject of other Cape Town-based retailers such as Truworths and Woolworths.
Instead, Clicks has increased its footprint of physical stores with a key focus on increasing its presence in peri-urban areas and building stores in municipalities. They are currently found in almost all South African municipalities, except Khayelitsha in their province of origin.
Clicks increased its retail store footprint to 721 with 17 stores open in the last six months and another 38 planned for this financial year. Its pharmacies increased to 572 with plans to open 40 more in the current fiscal year.
“Our strategy and brand are resilient in terms of UPD and clicks, and over the years, we have shown that we can adapt to a series of changes in the business landscape and in the country, and that is what we remain committed to as need to get closer to the second half of the year, “said Ramsunder of his strategic approach to his business and future local expansion.
In light of a stagnant South African economy and Covid-19, it seems interesting that Clicks is still looking to continue the physical expansion of its network of stores and pharmacies, while other retailers appear to be shifting their focus online.
Both Ramsunder and the company’s chief financial officer, Michael Fleming, were not willing to share the numbers of what their online sales contribute to their bottom line in an analyst call this week, but they indicated that it is a key area of growth for its businesses and its “fastest growing store”.
Clicks has been operating online for approximately three years, but Ramsunder is quick to point out that the online dynamics in SA were still very different from the rest of the world and will still see a lag in absorption. Click Group takes a much more specific omnichannel direction for now.
Despite its reservations, the pandemic has translated into changes in consumer purchasing patterns with fewer people buying items in the store. Its convenience stores are doing better during the shutdown than, in what the CEO referred to, as “destination malls” like Sandton City, highlighting concerns about its future in a post-coronavirus world.
Changes in consumer habits, coupled with a struggling SA economy that has not passed the 2% growth mark for nearly five years, were already contributing to a drop in pedestrian traffic and increased tenant vacancies. before the pandemic.
The focus on bricks and mortar is in line with the key strategy of the group of 50% of the country’s population that lives within a five kilometer radius of Clicks Pharmacy.
Having a pharmaceutical distributor at UPD, with related storage capacity that allows the group room to maneuver during closing for inventory management, has been a challenge.
When it comes to preparing for supply chain impacts when the coronavirus entered our shores, Ramsunder is proud to note that “they prepared for Covid-19 when it arrived in China and not when it was announced in South Africa.” This ensured that they placed and received orders in advance and that they had a sufficient inventory, especially of household and hygiene products.
These product ranges will still be affected in the coming months, he added, as manufacturers begin production again and return to supply the market.
While supplies may be depleted as suppliers increase manufacturing as lockout regulations decrease, Ramsunder says the retailer is in a position where they can proactively manage supply disruptions. Although he also points out that in the first half of the year, “the shedding of cargo was the biggest disruption to the business.”
As we listen to rumors of divestments, commercial bailouts, and the like across the business landscape right now, it’s interesting that Clicks speaks decisively about the expansion and continues its planned store and pharmacy deployments later in the year.
