False eyelashes had a bumper season, but mascara sales dropped during the lockdown. Who knows, maybe eyelashes are just more noticeble on Zoom.
That’s just one of the changes in buying patterns noted by pharmaceutical, health and beauty retailer Clicks, which released year-end numbers last week.
For the first time in years, lipstick showed negative growth, along with colour cosmetics, as people stayed home or wore masks.
But while shoppers may be buying differently, they’re still buying — and there is little indication that the pandemic is holding back Clicks’s expansion as the group continues to roll out new stores and refurbish others.
Clicks plans to spend R745m for the 2021 financial year, which includes up to 30 new Clicks stores, 30 to 35 new pharmacies and 45 store refurbishments.
The target is to have 900 stores locally, up from the 743 it owns now (it opened 39 during this period).
Ultimately, Clicks plans to have a pharmacy in every store.
Unlike some of its peers in retail, Clicks has no rest-of-Africa expansion strategy — CEO Vikesh Ramsunder says there are enough consumers in the domestic market.
As for online, while the percentage of business generated online was up 200% for the year, it’s still only 1% of Clicks’s sales. Ramsunder says he finds "no commercial benefit in driving the growth of online".
Online, he says, "has a lower margin and is more expensive to deliver. And from a business perspective, you would prefer a customer in your store. But you need to offer customers a choice."
Clicks will be offering home delivery from all its pharmacies from November.
More consumers shopped at convenience stores rather than big destination malls during the lockdown, and though Clicks customers are visiting stores less frequently, basket size grew 11% this year.
Clicks stores and pharmacies are also well located, with a pharmacy within a 6km radius of about 50% of consumers, and outlets in nearly all destination malls.
In this context, Clicks continues to outperform its peers in the food and drug retailers index. It’s one of the few businesses in the current environment to report double-digit earnings growth — up almost 14% — and declare a dividend of 450c a share for the year ended August.
"I would say that 80% of products we sell are essential; that makes us highly defensive," says Ramsunder.
According to Clicks, one in four medicines sold in SA goes through its stores, while the ClubCard loyalty programme now has 8.6-million members. Clicks this week also launched an antibody test for R199 for customers to find out if they’ve built up antibodies to Covid-19.
Personal care and homeware were the winners in the reporting period, while the pharmacy division had lower sales growth.
Despite the presence of Covid, pharmacy sales growth was up just 3.2%, with the biggest challenge a low prevalence of colds and flu owing to social distancing, travel restrictions and many people working from home.
Health and beauty sales, on the other hand, rose 8.4% with shoppers spending more on personal care — notably soap and sanitisers.
Soap sales surged 58% and household appliance sales jumped 20% as millions of South Africans — cooking, baking and working — were confined to their homes.
Richard Cheesman, senior investment analyst at Protea Capital Management, says it’s another "classic Clicks" result. "The only disappointments were that the dividend could have been higher, and cash generation was a bit weak."
Cheesman says Clicks is a high-quality business with a good long-term growth trajectory of new stores and pharmacies, "but we struggle with the valuation".
"The Clicks business deserves a high rating, but perhaps UPD [United Pharmaceutical Distributors] and Musica less so."
He argues that despite the retailer’s resilience, "we can find more attractive valuations and maybe better risk rewards in this environment. It’s a very good business at a pretty expensive price."
As for the protests against the Tresemmé hair-care advert, few analysts expect much long-term damage to Clicks’s popularity.
Ramsunder says it’s too soon to quantify reputational damage, but by the following month trading patterns returned to where they were before the event.
He says the biggest lesson from that crisis is to focus on approving all marketing material, even from trusted large suppliers. "It’s critical to acknowledge the value of diversity and I’ve introduced an advisory forum to assess all creative material before it is loaded on any of our media platforms."
The fallout over the ad attracted a barrage of interest, from political parties to customers, shareholders and suppliers.
Ramsunder did close to 20 interviews on the Monday the outrage bubbled over — and says that in a crisis "you have to communicate, communicate, communicate".
He adds: "We did the best we could … I was guided by my values and what was important to me, which was protecting my employees and my customers and my business."
Clicks’s health contrasts strongly to that of the property companies in whose malls it is growing.
But while new malls are unlikely to go up at the same rapid rate as they have in the past decade, Ramsunder does not see this as a problem for Clicks’s expansion plans.
There are more than 2,000 shopping centres already in SA, and Covid-19 has simply made more space available.
It’s also opened up previously inaccessible markets. For example, the group has been trying for years to get into Khayelitsha, without success. Now it’s opening three stores there because space has become available.
Ramsunder says trading conditions will remain fluid and unpredictable for the foreseeable future. "The economic devastation and fallout from the Covid-19 lockdown is still ahead of us."
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