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Focus on consumers puts New Clicks ahead
The groups has experienced a quantum leap in its liquidity and in its share price, writes MARCIA KLEIN
Prior to Malbak's unbundling of its 51% holding in Clicks in April this year, Clicks was a very illiquid and somewhat underrated share. But after the unbundling - to about 8 000 shareholders - there has been a quantum leap in New Clicks' liquidity and in its share price.
The unbundling has also, it seems, given the group further motivation to grow and to introduce new investment return standards. New Clicks this week reported a 27.1% rise in earnings to 27.2c a share in the year to August from 18.1c in the 10 months to August last year on the back of strong growth in all three divisions - Clicks, Diskom and Musica. (Since year-end it has bought the CD Wherehouse). Turnover was 19% higher at R1.85-billion from R1.34billion, while operating income grew 28.5% to R100.5-million (R67-million). Aggressive marketing and a strong focus on customers' needs saw all three trading divisions grow their market share. During the year 37 stores were opened to bring the group's total to 409. Another 45 are expected to open in the coming year. The Clicks chain has benefited enormously from the Clicks ClubCard, which had a very successful first full year and had attracted 1.4-million members by year-end. Diskom performed strongly and is expected to be a major vehicle for growth. Musica turned in an exceptional performance, doubling its profit. Trevor Honeysett, New Clicks' chief executive, says "food-based shopping is a grudge shop, while we, on the other hand, have tried to create a shopping environment for our consumer - who is predominantly female - which is more friendly and the products more personalised. We try to keep the environment moving and changing, and when you can be creative with the merchandise you can sell a lot more of it." "With the loyalty card, if you come to us more frequently, we acknowledge that loyalty and will reward you." Honeysett says technology is changing shopping patterns. "One can start to communicate with the customer in a more concrete way, profiling requirements to the extent that you can anticipate when a certain customer's shampoo will run out." Once we are honing in on certain people and transacting with people in this way, other opportunities emerge. For example, we can find out who else would like to market to that particular customer, and we are involved in lots of discussions with affinity partners." The success of the card will not entice the group into launching a credit option. "We were on the verge of going to credit, but fortunately chose another direction. We are into a consumable commodity and we cannot see how it is healthy for customers or the economy as a whole to offer credit for these purchases." Honeysett says the group is focusing on the international concept of economic value added - a measurement of investment return linked to a bonus scheme which has taken off in the US and is being adopted by an increasing number of SA companies. Economic value added is based on the theory that companies create value only if the return on capital is more than the opportunity cost of it. Financial director Peter Green says that companies are constantly asking staff to improve efficiencies and are trying to motivate the work force which is saying: "What's in it for me?" But economic value added shows that if the staff can effect changes, they can benefit through the bonus scheme linked to those changes. "We are getting to a stage now where more than half the staff are involved … we have been running financial literacy and training programmes. "Foreign investors find it refreshing that we are focused on the efficient use of money … too many companies are concerned about earnings a share," Green says.
Honeysett says New Clicks has, over the past few years, been ensuring the brands it has are in great shape and it still has new stores to open. While many retailers are complaining about depressed consumer spending, New Clicks is not experiencing the lull. In Clicks, the ClubCard and loyalty are enabling it to maintain growth. Diskom is positioned to the emerging market which is receiving higher levels of disposable income in percentage terms than the middle to upper income bracket. Unlike many competitors, the group is not reeling from the after effects of the credit boom of the previous year.
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