After shutting stores, Pick n Pay now plans to trim the size of others

Retailer Pick n Pay will continue to trim space across its store estate after a reset plan saw it shut dozens of loss-making stores in the last three years.

It will do this as leases come up for renewal. Because the group doesn’t disclose its total footprint (area), it is not clear how extensive this is. In the six months to 30 August, its occupancy costs declined by 2.6% on a normalised basis.

CEO Sean Summers says “there are a lot of stores that are still too big and not fit for purpose” and that he doesn’t “think it’s any different for most retailers that are out there today that run big store estates”.

He offers a few examples, including a “classic” at Kenilworth Centre around a kilometre from its head office. He says the store is “about” 6 000m2 in total currently and it could “literally halve that store”.

“We could take 2 500m2 [or] 2 800m2, and I can tell you now, we’d run a better business with far less wastage. And we may still [do] even more turnover, ironically.”

Landlord engagement

Summers says the group has been seized with discussions with landlords to get the stores to appropriate sizes.

According to Summers, new CFO Tina Rookledge put the team “to the sword the other day and made them do [an] analysis” and that team was shocked that they had “actually achieved a lot”.

“We’re getting to lease renewals – that’s where we’re really focused, in terms of repurposing our stores.”

Summers offers another example in the big-box Hypermarket division: Brackenfell.

“You know, that store in its current construct, just size-wise, can never ever do enough sales again to warrant having a building that big,” he says.

“I think our GLA [gross lettable area] is about 14 000m2. I mean … it’s nuts.”

He says the group has to get to the point where it works with landlords to completely reconfigure the centre, much like its doing at Faerie Glen in Pretoria East.

Summers says as part of that project, the entire centre will “be redeveloped and we’ll end up with what we call the ‘New Age Hyper’ now – about 6 500m2 and the balance of the other eight or nine thousand square metres “will be redeveloped in the centre”.

In that centre, a new 3 000m2 Woolworths Food will open, along with other line shops.

Capex

In the first half, Pick n Pay spent R300 million on capex, in line with the amount for its subsidiary, Boxer.

In the second half, this will increase to R1.4 billion, which according to Rookledge, will be prioritised to “revamping strategic stores”, “certain franchise acquisitions that make sense for the business” and “critical repairs and maintenance as well”.

Typically, capex is weighted to the second half across both Pick n Pay and Boxer.

Summers says there are a number of “big stores as well” that will be renovated next year, including the V&A Waterfront and Canal Walk.

Store footprint

Pick n Pay added a net five supermarkets to its estate in the six months to 30 August, as a result of acquiring a number of franchise outlets (for a total of 290). In the franchise division, this number declined to 207, 11 less than six months ago.

Summers says the “pace at which developments are currently taking place in the country has definitely dropped off… there’s only so many areas you can continue to open stores”.

He says many of the decisions made by the Shoprite group in term of store openings would’ve gone back to “most probably four or five years ago”.

This article was republished from Moneyweb. Read the original here.