Undaunted by intensifying competition from fast-growing offshore discount platforms such as Shein and Temu, fashion retail conglomerate Pepkor is expanding its women’s apparel portfolio.
Long dominant in children’s clothing, school uniforms and babywear through Pep and Ackermans, Pepkor has bought Legit, Style, Swagga, and the Boardmans homeware brand from Retailability for R1.7bn. The acquisition is aimed at strengthening its position in adult apparel — particularly womenswear — and follows other moves into this segment. The group bought Choice Clothing last year and launched its Ayana women’s brand early this year.
The deal broadens Pepkor’s presence in the value-based mass-middle market, complementing its value-focused core. It also comes as Shein and Temu expand aggressively: combined, the two generated R7.3bn in South African sales last year, equal to 3.6% of the total market and 37% of all local e-commerce. Shein alone is estimated to hold 28% of online womenswear sales.
The transaction represents about 1.7% of Pepkor’s market capitalisation. The new businesses will be absorbed into the Pepkor speciality unit, adding scale and expanding its adult apparel offering, especially through Legit. Pepkor says the deal will open opportunities to consolidate sourcing, logistics and e-commerce across the group.
It is a competitive space, but I wouldn’t bet against Pepkor in competing successfully with the online retailers
— Steph Erasmus
It adds 469 stores to the 979-store Pepkor speciality portfolio. The Boardmans online homeware offering will move into the Pepkor lifestyle division. In total, Legit, Style, Swagga and Boardmans generated about R2.4bn in revenue last year across South Africa, Botswana, Lesotho, Namibia and Eswatini. Retailability retains Edgars, Edgars Beauty, Red Square, Kelso and Keedo.
Pepkor this month forecast higher full-year earnings, reporting a 12% rise in revenue to R95.3bn, supported by continued strength in its fintech operations. Its Flash business maintained strong momentum in the informal market, despite a muted macroeconomic and competitive environment. “The Pepkor business model — highly focused on solving our customers’ needs — has again proven its resilience and defensiveness,” the group said in a Sens statement.
It expects headline earnings per share to rise between 10% and 20% to 153.6c-167.6c.
Anchor Capital investment analyst Steph Erasmus says that while the Retailability brands are small in the Pepkor context, their acquisition bolsters a category in which Pepkor is arguably lagging. He backs management’s ability to create value from the deal. “I’d imagine [it] is value-add,” he says.
As for the competitive threat from offshore e-commerce players, Erasmus believes Pepkor’s infrastructure will allow it to integrate the new businesses. “Pepkor has the infrastructure to plug-and-play these businesses fairly easily. It is a competitive space, but I wouldn’t bet against Pepkor in competing successfully with the online retailers. The investment is small enough to test the category without risking material capital for Pepkor.”
Gryphon Asset Management portfolio manager Casparus Treurnicht says Pepkor’s recent gains reflect the recovery of market share previously lost. He argues that the group, given its value proposition, should have performed even better because of the pressure on consumers. Yet Pick n Pay Clothing has emerged as the standout performer.
He says the Retailability brands mark a departure from Pepkor’s core business. With this diversification, he says, Pepkor is trying to get a less cyclical element into the top line.
Treurnicht expects Pepkor to perform better on a relative basis, particularly now that the boost from two-pot withdrawals, low inflation and strong real wage increases has passed.
Pepkor’s share price is up about 20% over the past year; it was trading at R26.77 at the time of writing, not far from its 12-month high of R29.89.
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