Over the past three years, South African retailers have navigated a difficult landscape with challenges including the fallout from the pandemic, global supply chain disruptions, rising inflation and unprecedented load shedding. But those that are agile in readjusting their cost bases and finding new revenue streams will be set to thrive in the future.
Data from Statistics South Africa paints a grim picture. Retail trade sales decreased by 1.3% in the three months ended April 2023, compared with the three months ended April 2022. General dealers and retailers in food, beverages and tobacco in specialised stores are experiencing an especially difficult time right now, with load shedding eroding margins and consumers tightening their belts.
“South Africa’s retailers have shown that they can be adaptable and innovative over the past few years,” says Steven Heilbron, CEO of Capital Connect, a fintech that offers fast and flexible business funding to South African retailers. “But to keep pace with the current operating environment, they need to find smart ways to manage money, so they can invest in their future growth.”
It’s important that retailers don’t cut costs in a way that harms their customer experience, he adds. They need to enhance profitability and pass cost-savings on to a cash-strapped consumer—but they also need to remember that the customer is more discerning than ever. He suggests some ways retailers can improve efficiencies:
Buy in bulk
Retailers can usually save significantly by purchasing popular, fast-moving product lines in bulk. They should also keep their eyes open for opportunities to stock up on key product ranges at discounted rates when, for example, when suppliers have a glut of inventory. This can enable them to boost their margins or run promotions to attract customers and grow wallet share.
Optimise usage of floor space
Rental is one of a retailer’s biggest expense lines, especially if it has a prime location. It’s thus important to ensure that every square metre is put to profitable use. In some cases, creating a takeaway counter or a small coffee shop might be a great way to drive new revenues. Or consider subletting some floor space to a non-competitive retailer.
Automate cash management
An automated cash management solution with a robust cash vault or an intelligent retail ATM recycler can enable a retailer to reduce costs of cash management by up to 40%. According to Mark Templemore-Walters, operations director at Cash Connect, these savings come from cutting operating and back-office costs and shrinkage. Plus, a retailer should be able to convert cash from the vault into instant value whenever they need it, or access growth capital at a click of a button in just 24 hours, helping to improve cash flow. By deploying a smart cash management solution at a retail store, retailers may benefit from earning a rebate from transactions at the instore ATM recycler, to gain an additional revenue stream.
Improve energy efficiency
With experts forecasting that electricity prices will double between 2022 and 2027, improving energy efficiency is one of the smartest ways a retailer can position itself for long term operational cost savings. Something as simple as installing glass doors on open perishable food fridges can save up to 40% on electricity costs.
Another simple step retailers can take is to use motion detectors to trigger lighting in low-traffic areas such as bathrooms, stockrooms and passages, or to install sensors that switch off artificial light when there’s sufficient daylight. Modern heating, ventilation and air conditioning (HVAC) with programmable thermostats can also help to save costs.
Pay down expensive, inefficient debt
One of the paradoxes retailers face during difficult economic times is that they need to borrow more money on high interest instruments such as credit cards or secured bank loans to keep their doors open — but with the risk that the loan repayments compound their financial strain. This is a good time to investigate debt consolidation as an option.
Negotiate more favourable repayment terms from suppliers
Retailers can often secure a discount from suppliers for paying cash or settling the invoice within less than 30 days. This small discount can either help the retailer to keep prices down for its customers or to defray some of the extra costs it faces at this time of rising inflation.
Invest money to save money
“Retailers will usually need money at hand to achieve their cost-saving goals, or to grab business opportunities. Yet traditional lenders are often reluctant to provide funds for purchases such as doors for perishable food fridges and may take weeks to approve a loan—by which time it’s often too late to seize the opportunity. Fintech lenders are addressing this gap by offering fast access to capital,” says Heilbron.
“With Capital Connect, you can apply for opportunity capital of up to R5 million from our app and the funds will be in your bank account within 24 hours. That means never losing out on a golden opportunity to save money or drive revenue, such as a time-limited offer to make a bulk stock purchase at an attractive rate or to get a discount for early payment to a supplier.”