Shoprite sells House & Home, OK Furniture to Pepkor

Retail giant Shoprite Holdings has signed an agreement to allow its rival, Pepkor to acquire its furniture stores.

The acquisition details were included in Shoprite’s financial results released on Tuesday. The results are for the 52 weeks ended 30 June 2024. The agreement between the two retail giants was signed on Monday, 2 September 2024.

Shoprite CEO, Pieter Engelbrecht said they have looked at two structural changes to the business, with the first being to dispose of Shoprite’s furniture business. This includes OK Furniture and House & Home brands.

The second structural change is to purchase the remaining 50% shareholding in their last-mile logistics provider, Pingo Delivery (Pty) Ltd.

Pepkor adds 400 stores

In an announcement to shareholders and noteholders of Pepkor, they are informed that they will acquire Shoprite’s furniture business, which operates more than 400 stores in South Africa, Botswana, Lesotho, Namibia, Eswatini and Zambia.

The group recently rebranded to Pepkor Lifestyle, which operates more than 900 retail stores in South Africa, Botswana, Lesotho, Namibia and Eswatini. Pepkor has 50,000 employees, and an overall 5,900 stores in Africa and Brazil.

Bigger footprint

Pepkor Holdings is under the leadership of Pieter Erasmus as CEO. Some of the popular stores under their wings include PEP stores, Ackermans, Dunns, Incredible Connection, Shoe City, Refinery, Tekkie Town, and Bradlows.

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“Over the years, it has developed leading capabilities in supply chain, logistics, and financial services, all supported by best-of-breed scalable integrated systems and data-driven capabilities,” reads Pepkor’s announcement.

They are of the view that merging Shoprite Furniture with Pepkor Lifestyle will expand its customer base and retail footprint.

“The Proposed Transaction will allow Pepkor to expand its value proposition through a complementary product mix in furniture, bedding, appliances and consumer electronics, while also expanding its presence in under-represented regions.”

The announcement also outlines that the proposed transaction includes the Shoprite Furniture credit loan book and related insurance cell captive arrangements in addition to inventory and certain fixed assets.

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Shoprite in a crossroad

In its annual financial results, Shoprite noted how it found itself at a crossroads with the business’s future growth and profitability. “The growth is hamstrung by the requirement of a level of investment that would have resulted in us re-directing capital and project management resources away from that currently dedicated to our food retail operations.”

“Sales in the group’s furniture segment, representing 3.0% of group sales, increased by 2.3%. Like-for-like sales increased by 2.0%. Credit sales participation remained in line with the prior year, measuring 14.9%. On a net basis, the segment’s store base decreased by four over the past 12 months to end the period with 430 stores (South Africa: 341 stores, outside of South Africa: 89 stores).”

For the first half of the year, the group’s furniture segment’s trading profit increased by 82.2% to R195 million. The report stated the increase can be attributed to the combination of an improved gross margin and increases in finance.

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Shoprite’s going concern

The report also includes that the group had unutilised banking facilities of R9.0 billion and is well within the financial covenants with its various financiers.

“The board of directors evaluated the going concern assumption as at 30 June 2024, taking into account the current financial position and their best estimate of the cash flow forecasts and considered it to be appropriate in the presentation of the condensed consolidated financial statements.”

After the board reviewed the cash flow forecast for the next 12 months, it believes the Group has sufficient liquidity to adequately support its working capital requirements. The board is also satisfied with the group’s ability to continue as a going concern for the foreseeable future.

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