By making it easier for consumers to shop using fintech and digital offerings, affordable fashion retailer Pepkor Holdings has added 3-million users to its retail credit base.
Pepkor is the country’s largest retailer in terms of store footprint, with an array of brands from Pep to Ackermans to Incredible Connection, Tekkie Town, Shoe City and Bradlows. But fintech and cellular services are now important “fashion accessories”, with vast potential for growth in the years ahead.
Pepkor CEO Pieter Erasmus says the company’s strategic focus on digital inclusion and fintech has added a powerful dimension to the group’s traditional retail strengths. “This is positioning us to serve our customers better, while building sustainable long-term value.”
FoneYam, which provides smartphones on an affordable rental basis, has already reached 1-million customers
The group’s customer acquisition capability in its sprawling retail footprint of nearly 6,000 stores has enabled rapid growth in fintech through financial services and mobile connectivity. Erasmus says the strategy of offering value-driven, accessible products, while broadening its reach into key growth areas, has produced tangible results.
The fintech segment increased revenue by a sprightly 26.8% to R12.7bn, with gross profit margin expanding by 129 basis points to 48%. Operating profit rocketed 55.2% to R1.4bn.
More importantly, the group added 3-million customers to its A+ retail credit base, FoneYam and Abacus, a niche insurer that caters to Pepkor’s retail customers.
Fintech now contributes a chunky 15% of group revenue and 14% of group operating profit. The group increased its market share in prepaid handsets and sells 7½ out of every 10 prepaid smartphones in South Africa, up from seven the previous year. It sold 11.5-million cellular handsets during the year and maintains an active base of 29-million SIM cards. Handset and accessories sales were up 14.7%.
FoneYam, which provides smartphones on an affordable rental basis, has already reached 1-million customers and now exceeds 120,000 monthly activations.
About 23% of the group’s total profits come from cellular, at R2.3bn. Pepkor sees long-term operating profit improving even further.
For the year ended September, insurance through Abacus contributed R254m to group operating profit. CFO Riaan Hanekom expects insurance’s contribution to increase to R1bn in three years’ time. Financial services doubled its contribution, and the group is growing in the informal market with its large Flash footprint.
Casparus Treurnicht, portfolio manager at Gryphon Asset Management, reckons Pepkor is well positioned to provide credit, insurance and cellular services to the lower LSM market, as this part of the market in particular occasionally needs to access credit to provide for basic needs. “Regarding cellular, everyone is connected nowadays … Cellular is almost as important as bread and water, and is an enabler of work and income.
“This is the kind of model that works quite well for Pepkor. While [customers] shop for clothing and furniture, Pepkor will provide credit and insurance plus cellular goods and services that have become a basic necessity. It’s become a good profit contributor at almost 14% of total operating profit, so it’s an important part of its business.”
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