South African retail stocks have been among the worst performers on the JSE over the past 18 months, battered by pressured consumers, sluggish GDP growth, the rise of online gambling and intensifying competition from Chinese e-commerce platforms.
The JSE retailers index lost about a quarter of its value last year, making it one of the worst-performing sectors at a time when the broader JSE all share gained 28%-38%, depending on the index measured. Within retail, food held up better than clothing or discretionary items.
Amid the wreckage, a debate is emerging among seasoned investors: is the sector a value trap, or does the selloff mask genuine opportunity? The answer, it turns out, depends on who you ask — and how they define value.
John Biccard, portfolio manager at Ninety One Value Fund, is the most outspoken advocate for selective exposure to the sector. His argument is less about the sector’s inherent quality and more about what the market has already priced in. “Retail is the weakest part of domestic shares, and domestic shares have already lagged the market significantly,” he says. “When something has done that badly, you need to look at it.”
Biccard believes the key headwinds are turning. GDP growth, while still modest, is expected to accelerate from its recent 1%-1.2% range, supported by improved terms of trade and structural tailwinds. Interest rates have started dropping. And online gambling — which he identifies as a meaningful drain on consumer wallets — is plateauing. “It goes straight up, takes that share of people’s wallets, and then it flattens out. We’re at the flattening-out stage,” he says, citing patterns seen in other markets.
While Biccard is certainly not buying the sector, he is explicit that clean investment cases are hard to find. Mr Price is encumbered by its controversial offshore acquisition in Europe, with the market likely to take years to pass judgment. Shoprite faces low food inflation. Spar, he notes, carries a risk many investors underestimate: it is a buying club, not a traditional retailer, meaning its fortunes depend heavily on franchisee confidence — confidence that a prolonged turnaround and leadership change could strain.
But the macro backdrop shapes two core stock positions. On Woolworths, Biccard’s thesis is straightforward: the food business is performing well, clothing is improving, and the Australian operations are being priced by the market at close to zero. “It’s not super cheap, but it’s cheap and it’s doing better.” He bought at R50, sold at R60, and says he would buy again below R50.
Pick n Pay is the more striking call — and his largest position, despite not having owned the stock in 25 years. The investment hinges on an unusual valuation anomaly: strip out the Boxer stake, net of debt, and the market is effectively ascribing a negative R5bn value to the core Pick n Pay business. In other words, the market has concluded that the turnaround under Sean Summers will fail.
Biccard disagrees with that level of certainty. “I’m not confident he’ll do it next year, but I don’t think you can say never.” The group also holds roughly R4bn in cash and the Boxer stake on the balance sheet. “It’s unique that you get something with a minus valuation and a really solid balance sheet. That doesn’t happen often.”
There’s also a potential wildcard in the mix. Biccard believes Walmart may be more serious about expanding its South African presence than its current Game store footprint suggests. Pick n Pay — with more than 600 stores, a comparable merchandise format and strong locations — could be an attractive acquisition target at a negative implied valuation. “It’s not the reason we bought it, but it obviously is a factor.”
Rounding out his retail exposure, Biccard holds positions in Cashbuild and Italtile, both of which are tied to the home improvement cycle he believes is recovering. He also has a small position in Truworths, which he describes as “still breathing, still got a pulse” — cheap on earnings, debt-free and needing only modest growth to re-rate. In total, about 10% of his fund sits in retail, a significant overweight for a sector most investors are shunning.
Cheap, however, is not the same as good value for some. Stanlib’s multi-asset head Marius Oberholzer is more sceptical. He places South African retailers squarely in the “too hard” bucket, arguing that low valuations relative to historical averages only matter if there is a credible path to earnings growth — and he doesn’t see one.
Retail is the weakest part of domestic shares, and domestic shares have already lagged the market significantly
— John Biccard
“There is a perception of value because retail companies’ valuations are low relative to their own history,” notes Oberholzer in a report, “but the South African economy is only growing at around 1.8%.” In that environment, discretionary spending remains under pressure, and the consumer wallet is being stretched in multiple directions.
Stanlib’s concern extends beyond the macro. The arrival of global e-commerce giants — Amazon, Shein and Temu — has structurally altered the competitive landscape. Local retailers, many with large physical store networks built over decades, now face competitors with global supply chains, sophisticated logistics and the ability to undercut on both price and variety. Without a clear growth catalyst, Oberholzer argues, even a low valuation offers little margin of safety, and they don’t stand out as compelling relative to many other opportunities across emerging markets.
Instead, Stanlib favours banks as a better vehicle for capturing South Africa’s economic recovery. South African financial stocks are seen as attractively valued relative to global peers, with strong profitability and leverage to improving economic activity. Listed property is also preferred. The team does not see a path to GDP growth exceeding 3% over a 3- to 5-year horizon, driven by five structural reforms — fiscal consolidation, a new inflation target, private sector electricity investment, rail concessions and port improvements. It believes banks, not retailers, are best positioned to benefit and offer a smoother, lower risk-return profile than the broader retail sector.
Oberholzer is more concerned about the implications of the Middle East conflict, noting that renewed supply pressures are pushing inflation higher and reducing the likelihood of near-term rate cuts. Combined with structural factors such as the disruptive impact of AI on labour markets, these shifting probabilities are prompting a more measured approach to risk.
Paul Steegers, senior equity research analyst at Nedbank Securities, is cautious about the sector as a whole but selective in terms of outlook on retailers. He agrees recovery will be slow — GDP growth forecast at about 1.7% for the current year, with geopolitical risks to the downside — and that structural challenges from global e-commerce and online gambling are real and lasting. Some estimates suggest international online competitors have already captured as much as 4% of the apparel market.
Steegers believes the conditions for a sharp retail rebound simply aren’t in place yet, with a need for more job creation to provide higher consumption and retail spend.
Not everything is bleak, though. Steegers identifies online retail as a growth area, pointing to strong performances from players such as Checkers Sixty60 as evidence of where consumer appetite is heading. The challenge, he concedes, is that online retail tends to be structurally less profitable than traditional brick-and-mortar formats — so growth in the channel doesn’t always translate neatly into earnings.
But Steegers doesn’t dismiss the sector entirely. He favours the defensive end of the retail spectrum, where consumer spending is least discretionary. In food and grocery, he highlights Shoprite and Boxer as preferred names. In pharmacy and health, he favours Dis-Chem and Clicks, citing their essential-goods positioning as a source of resilience. Within apparel, he singles out Pepkor for its well-executed positioning across price points and its exposure to the lower-income consumer through Pep and Ackermans, as well as its growing fintech operations.
Steegers believes the sector will recover gradually. “I don’t think it’s going to be a wonderful situation,” he says. “It’s going to be a slow, slow recovery.” For investors, that means being highly selective, favouring defensively positioned, value-orientated operators over the sector as a whole.
They all acknowledge that the macro environment is slowly improving and that not all retailers are equal. The dividing line is whether you believe the sector’s beaten-down valuations reflect a temporary overreaction or a permanent re-rating in the face of structural change. As Biccard puts it: “The world is uncertain and everything is closer to 50-50 than the market implies. Pick n Pay’s share price says it’s never getting better. I don’t think you can be that sure.”
