With several South African retailers having recently released results, it’s become clear that the taps have been opened on credit sales. This says a lot about the resilience of South African consumers, despite all the bad news we are confronted with daily.
South African retail executives might have been naive in previous years about international dealmaking, but they probably aren’t asleep at the wheel when it comes to understanding domestic issues. South Africa’s consumer risks aren’t hidden from sight; they hit you in the face everywhere you go. This is ironically a good thing for investors, as it suggests that retailers would accelerate credit sales only with caution.
Mr Price, for example, has always been predominantly a cash model. Credit sales contributed 10.7% of total sales in the year ended March. Though year-on-year growth of 3.8% in credit sales is nothing to get excited about, the more interesting point is that its approval rate averaged 20.3% for the year and increased to 23.8% by end-March. In other words, as interest rates have started coming down and household balance sheets have improved, Mr Price has been able to allow more credit sales through the door.
Not only have credit sales grown, but impairment provisions as a percentage of the book have been reduced. This has been justified based on affordability criteria applied to new loans, as well as the overall macroeconomic environment. While this is only a best estimate of the situation, it seems unlikely that management would risk its reputation on something as silly as being aggressive on credit impairments, particularly when credit sales are a small part of the business.
Credit sales are a larger part of the story at TFG Africa. We can safely ignore TFG London and TFG Australia for this, as the focus is on South African credit sales. Credit sales are roughly 26% of TFG Africa’s sales. Though credit approval rates were fairly steady during the year ended March 2025 (20.3% in the first half and 20% in the second), they were well up on the 17.4% and 18% for the same periods in the previous year.
Credit quality has also shown positive signs, with the year-end percentage of up-to-date accounts at its highest since the pandemic
More importantly, credit quality has also shown positive signs, with the year-end percentage of up-to-date accounts at its highest since the pandemic. As we’ve seen at Mr Price, this has given the management team the confidence to have more modest write-off provisions in place, thereby boosting earnings alongside the higher sales growth.
Mr Price and TFG may have credit as part of their offering, but neither group is telling that story to nearly the same extent as Pepkor and its “credit interoperability strategy” that gets so much airtime in presentations and management discussions. This is despite credit sales being only 15% of Pepkor’s sales mix in the six months to March. You can expect that to change over time, as cash sales grew 7.2% for the period and credit sales were up by 28.9%. The focus area is clear.
There are several different credit books at Pepkor, ranging from cellular to clothing, with the overarching message being that the books are in good shape. There must be some interesting lessons from Pepkor’s Brazilian acquisition Avenida, which achieved 42% of its sales on credit in this period. Avenida isn’t having a fantastic time at the moment, with one of the noted management interventions being reduced granting of credit. This is a strong reminder that credit sales are like the monsoon in the 1995 film Jumanji: a little rain never hurt anybody — yeah, but a lot can kill you!
We simply have to finish off with Lewis, the poster child for this space. Furniture is different from clothing, with 68% of sales being on credit. When the products are more durable, the credit proportion tends to be higher. This is why a better credit environment is so great for Lewis, with credit sales up 12.1% and satisfactory paid accounts at record highs. The Lewis share price is up 64% over 12 months!
Of course, if all the retailers start ramping up credit sales, then we will reach a point where quality diminishes and the taps are turned off again. Based on recent reports and the hope for more interest rate cuts, we don’t seem to be at that stage yet. The credit party is only just getting started.
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