Which retailers grew spend in December?
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As we described in this week’s Nugget, November and December are especially important months for retailers. In certain categories, combined, they account for nearly 25% of annual spend, even though they comprise only 17% of days in the year.
It’s common for listed retailers to provide trading updates to the end of December – these announcements are likely to start being published next week. To get ahead of the game, we’ve analysed the debit and credit card transaction data of a large sample of real consumers to estimate the spending growth that these retailers may announce over the coming weeks.
Less cheer than last year
In general, our data shows that consumer spending growth continues to weaken. Spending growth slowed in December in most categories. There were some categories (like Eating Out, Pharmacy and Grocery) that increased ahead of total spending growth, but others (like Apparel, Media and Home) lagged behind. Across all categories, spending on Apparel slowed most in December.
December 2022 saw much higher rates of spending growth, making it harder for consumer-facing companies to maintain their growth momentum, especially since the trading environment hasn’t become any more favourable.
Growth in spending by category (22seven users)
Bringing it together for the listed retailers
In anticipation of January trading updates from the major retailers, one method of consolidating the info gained from spending growth data is to compare spending growth with share price movements.
There are many ways to do this. In the chart below, we contrast the change in share price since early December (45 days; relative to the JSE General Retail index) with the three-month, year-on-year growth in spending. We provide this for each retail brand and its listed parent. For example, you’ll notice that PnP supermarkets (PIK – PnP) is shown separately from Boxer (PIK – Bxr) to highlight differences within companies. We do the same for Shoprite and Pepkor.
In this view, we’d expect points to be clustered along a diagonal trendline through the origin. (We’ve plotted this to make it less imaginary.) While there are other permutations of period and metric that could be plotted, and a multitude of other considerations to take into account, our attention is focused on the companies and brands that lie furthest from the straight line.
Want to see where the major retailers fall on the chart? Contact us to find out more. Clients can also request the underlying spreadsheet to evaluate their own permutations of data in this chart.
Showmax, slowmax
Lastly, if you’re a media company reliant on a sports audience, it may be hard to grow when the past 11 months have included three major world cups!
For instance, annualising the dividend from the FIFA World Cup in late 2022 seems to have meaningfully knocked spending on Showmax in November and December 2023. For spending in this category to return to growth, we may need to wait until the end of 2024 for the benefits gleaned from the rugby and cricket world cups to have fallen out of the base period. Especially considering that spending on DStv weakened during the last six months, notwithstanding the boost from the two world cups, which has dragged overall spending in the category lower.
Spending growth on media and streaming services (22seven users)
A Black Friday to remember
Welcome to our newsletter that provides commentary on major themes emerging from the Insights' dashboards. This month, we dissect November's Black Friday spending frenzy...
Black Friday has come and gone. The spending jamboree helps make November the second most important month in the retail calendar after December. In a handful of categories, it’s the most important month of the year.
With that in mind, it’s valuable to know which retailers are doing better than others, since they’re all competing for their share of consumers’ year-end spending.
We begin with a top-down view, looking at user spending by category, before focusing on the winners and losers during the month of Black Friday and two other significant observations that make November an even more noteworthy month for South African retail.
Wins for discretionary spending categories
Despite the November spending frenzy, the rate of annual spending growth by 22seven users in most retail categories is unchanged compared to last month. For example, spending in the Grocery, Pharmacy Retail and Eating Out categories grew at mid-single-digit rates, while the amount spent on Apparel was relatively unchanged compared to last year.
The most significant change in growth occurred in the Home category, which captures user spending at ~100 retailers across sub-categories spanning General Merchandise, Furniture & Homeware and DIY & Garden. User spending in these more discretionary categories has been in decline throughout 2023, but the rate of decline nearly halved during November. This improvement was mostly driven by better performance in the Furniture & Home sub-category.
Growth in spending by category (22seven users)
Black Friday winners and losers
We argued last year that a retailer’s Black Friday performance should actually be measured across the entire month of November because so much promotional activity takes place in the weeks leading up to the actual day (24 November this year).
The chart below shows the year-on-year growth for different retailers in November across the Grocery, Apparel, Home and Pharmacy categories. Boxer delivered the strongest improvement in the Grocery category, while spending at its big brother Pick n Pay declined compared to last November. 22seven user spending at Pharmacy retailer Dis-Chem increased faster than spending at Clicks.
The standout performer in Apparel was Shein (see the next section for more detail) while spending across the rest of the category increased at modest rates.
In the most discretionary category, Home, which includes electronics and furniture retailers where Black Friday discounts on big-ticket items can be more persuasive, @Home delivered a very strong performance. Spending at Takealot also increased – off a very high base in 2022 – to achieve its highest ever share of total spending in the category.
Annual growth in spending by category and retailer: November 2023
What’s so memorable about this?
Not much, maybe it’s just another month. Except that Shein and asap! (and their competitors) might be interested in some important milestones achieved during November…
We’re delighted you’ve read this far. But research is only valuable if it’s exclusive. To be fair to the retailers and investment teams who subscribe to Insights, we have to say goodbye before we get to the juicy bits. Contact us to find out how our research can help you: Simon Anderssen simon.a@22seven.com +27 84 730 0309
Do the drugs still work?
Our objective at 22seven Insights is to equip investment and market analysts with alternative data that helps inform investment decisions. Today, we’re delighted to add Pharmacy Retail to the list of consumer spending categories available to subscribers.
Broadly defined as any purchase by a 22seven user at Clicks, Dis-Chem, Pharmacy @ Spar, MediRite or a long list of other pharmacies and apteeks across the country, the retail pharmacy market is more concentrated than any other category we track. Just two companies account for ~90% of 22seven user spending in this category.
This might raise a red flag for growth within the relevant listed companies, but at another level, the idiosyncrasies of this category could mean that 22seven’s view of the level of market share is overrepresented. However, as we’ll demonstrate later, market trends within this category and our depth of data both offer rich insights.
The key difference in the Retail Pharmacy category is that the customer is not always the one paying: medical aids and insurers often fund a customer’s medicine purchases from a pharmacy. The retailer reports this transaction as a sale but the transaction doesn’t appear on a user’s bank statement.
As a result, 22seven’s ability to track the rate of sales growth at pharmacies is compromised. This is evident in the correlation between growth in 22seven user spending at Clicks and Dis-Chem, for example, and the companies’ reported sales growth. Compared to the high correlation for major grocery retailers, correlation in the retail pharmacy sector is poor.
Correlation between Insights’ estimate of user spending growth and retailers’ reported interim sales growth
Instead, our data is more reliable in tracking the retail performance of sub-categories within these pharmaceutical groups. As the next chart shows, growth in 22seven user spending at Clicks correlates more strongly in sub-categories where customers typically pay themselves – such as Beauty, Personal Care and General Merchandise – than in categories where medical aids or insurers are more likely to pay for the products.
Correlation between Insights’ estimate of user spending growth and Clicks’ category growth
Finally, it is our observation that Clicks and Dis-Chem have a much larger offering of non-dispensary retail categories, on average, than other pharmacies. Therefore, the relative contribution from these ‘front shop’ categories, where customers pay directly, may also play a role in explaining Clicks and Dis-Chem's exaggerated level of spending share in the data.
When we look at market share trends, however, Insights’ data offers a unique view of a large sample of customer spending decisions at these two retailers, on products that represent at least 70% of Clicks and Dis-Chem’s reported sales. In this note, we describe some of the key trends over the past few years.
You play high, I play low
Market analysts will be aware that the retail pharmacy industry is 20+ years into a period of consolidation. Catalysed by amendments in 2003 that allowed corporate ownership of pharmacies for the first time, many health and beauty retailers began opening in-store dispensaries, often within malls, and acquiring independent pharmacies. Some independent pharmacies established groups or other structures to amass scale to compete against the retail juggernauts.
Based on the analysis of 22seven user spending, and taking into account the caveat regarding spend versus sales, our data reflects a retail pharmacy market that consists of two very large retailers – Clicks and Dis-Chem – and a long list of individual pharmacies or smaller chains that we’ve grouped into the category, ‘Other’.
These Other pharmacies include chains like Pharmacy @ Spar, Shoprite’s Medirite, Dis-Chem-tied The Local Choice, and Alphapharm etc. Relative to Clicks and Dis-Chem, the number of transactions at each is too small to show these chains separately, although we can do this on client request. Spending in Other also includes transactions at a sizable number of independent pharmacies.
In 3Q23, Clicks and Dis-Chem accounted for 89% of all user spending at retail pharmacies, with Dis-Chem (44.9%) attracting slightly more spend than Clicks (43.9%). On reported numbers, Clicks is actually a bigger business: ~10% larger than Dis-Chem based on total retail sales and ~23% on non-dispensary sales.
22seven users' share of spending at retailer pharmacies in 3Q23
Our data reflects this relationship among lower-income shoppers. As the table below shows, spending share at Clicks is larger than Dis-Chem’s among users earning less than R15k pm, while Dis-Chem attracts more share from higher-earning customers.
Spending share by income bracket in 3Q23
When we evaluate changes in market share over the past two years, we find that both Clicks and Dis-Chem have done better in the segments where the other is more dominant: Clicks gaining in the higher-income market, for example, and Dis-Chem gaining among lower-income users. In general, pharmacies in the Other category have been shedding spending share.
Change in spending share by retailer and income bracket over two years to 3Q23
A different formula
The data also shows that Clicks and Dis-Chem accumulate their market share in slightly different ways. Consider the R15-25k pm income bracket, where spending share is most similar across the two groups. Segmenting this market share into three factors highlights the differences. These factors, shown in the next chart, are:
- Number of users
- Transactions per user per month
- Average transaction value
Segmenting spend for users earning R15k–25kpm
From this chart, we can see that Clicks attracts 30% more users each month than Dis-Chem does. These users visit the stores slightly more often (4%), but they spend 26% less per visit. In other words, higher transaction values at Dis-Chem compensate for fewer customers and a lower purchase frequency. These trends are similar in other income brackets.
The key challenge for the retail pharmacies in the Other category is that they attract so few customers. For example, relative to Dis-Chem, these pharmacies attract just 43% of the number of customers that Dis-Chem does. Those customers shop 13% less often and spend 27% less each visit.
Thinking about growth
Our data might present an imperfect view of the entire retail pharmacy market, skewed towards the non-dispensary portions of these businesses, but for retailers trading on weighty market multiples, it would be foolish not to consider how this data can be used to evaluate future growth for Clicks and Dis-Chem.
Clicks and Dis-Chem each report market share in their pharmacies of ~24%. It’s possible, therefore, that there may be significant market share to be gained in this category in the future – and associated opportunities for supplier incentives.
But perhaps the differentiated view provided by our analysis is that Clicks and Dis-Chem both have a significant share of everything else sold in their stores. For context, non-dispensary categories account for 72% and 64% of sales at Clicks and Dis-Chem respectively. We estimate this to be worth roughly R41bn in annual sales.
Undoubtedly, Clicks and Dis-Chem are specialists in these non-dispensary categories, many of which are niche, and they have extensive product ranges featuring popular private brands. But it’s also true that most of the non-dispensary products can be purchased elsewhere. Furthermore, these products generally have a long shelf life and they’re often recurring purchases, which makes them perfect for online delivery.
Clicks and Dis-Chem report market share in non-dispensary categories between 20 and 50%. Clicks is most dominant in ‘Skincare’ (43.6%) and Dis-Chem claims 47% of ‘Healthcare and Medical’. We wouldn’t be surprised if the suppliers of these products felt uncomfortable with these levels of market share concentration.
The ‘Baby’ category has the lowest share for each retailer. To our knowledge, every listed retailer, except for Pick n Pay and Spar, has ventured into a standalone Baby format in the past five years.
The challenge for Insight to conduct a more thorough analysis of non-dispensary spending is that each sub-category has a different set of competitors. For example, many apparel retailers compete in Beauty and Skincare, while Takealot and Makro are go-to destinations for purchases in the Small Appliances sub-category.
If we were to pick one group of competing retailers with a product range that most overlaps with Dis-Chem and Clicks, it would be Grocery Retail. Again, however, each grocery retailer defines its competitor set differently: some include pharmacy retailers; others don’t.
This tells us that there isn’t agreement on how grocery retailers target the overlap in product categories like Personal Care, Vitamins and Health, Nutrition, Home Cleaning and Small Appliances.
Should grocery retailers focus more on these categories?
To explore this question further, we looked at how often a 22seven user transacted at a grocery retailer and a pharmacy retailer on the same day during the three months ending September 2023. For instance, what is the likelihood that a Checkers shopper will also shop at Dis-Chem on the same day?
Just as a retailer might evaluate the sales uplift from different combinations of products inside a store, such as whether to put the crisps next to the Coke on a gondola, or alongside a fridge of braai meat, this analysis attempts the same approach by evaluating combinations of purchases between stores. Our thinking is that a customer purchasing from two stores that both sell the same products on the same day suggests that the customer was unsatisfied by at least one of the retailers.
This perspective of shoppers' actual buying behaviour is rare and reveals the growth opportunities for...
We’re delighted you’ve read this far. But research is only valuable if it’s exclusive. To be fair to the retailers and investment teams who subscribe to Insights, we have to say goodbye before we get to the juicy bits.
Contact us to purchase the full report or to find out how our research can help you.
Simon Anderssen
simon.a@22seven.com
+27 84 730 0309
On-demand hits prime time
Our monthly Shop Talk newsletter provides commentary on major themes emerging from the Insights dashboards. This is a truncated version – contact us to become a subscriber and you'll receive the full report.
This month, we turn our attention to the Grocery category…
As rugby fans are well aware, Checkers Sixty60 is spending big money as a leading sponsor of the Rugby World Cup broadcasts, which began in early September on DStv’s Supersport.
In Checkers' 360, we concluded that it would be very difficult and costly for any competitor to unseat Sixty60, given how dominant the service is in the on-demand category. But Pick n Pay asap! seems to be trying… They’re the leading sponsor of the Cricket World Cup broadcasts on Supersport, which started in early October. Yes, there are delivery scooters all over our TV screens right now!
We haven’t seen any asap! ads with highly-paid pundits commentating on braai techniques (yet) but it is noteworthy that the Pick n Pay advertisements do not feature the partnership with Mr D that was launched with much fanfare this time last year. In other words, although customers can still order Pick n Pay groceries through Mr D, it seems the group is also pushing ahead with asap! as a standalone offering. This makes sense, to us at least, but it calls into question the original strategic decision to dilute control over this driver of growth in the first place.
When it comes to analysing performance, it’s difficult to split the asap!/Mr D partnership from Mr D’s existing business. What we do know is that Mr D has outperformed its main rival, Uber Eats, over the past 12 months. If we attribute this difference in performance to asap!, then we have a generous assessment of asap!’s adjusted performance over the past year.
Even so, it’s not flattering, especially when compared to the towering example of Sixty60. This might also explain why Pick n Pay is pivoting to take back control of their on-demand service.
On the other hand, the marketing spend allocated to this battle is a small respite for DStv executives, who have had a horrid year…
We’re delighted you’ve read this far. But research is only valuable if it’s exclusive. To be fair to the retailers and investment teams who subscribe to Insights, we have to say goodbye before we get to the juicy bits.
Contact us find out how our research can help you.
Simon Anderssen
simon.a@22seven.com
+27 84 730 0309
Checkers' 360
At no time during the past two decades has the Shoprite Group been worth so much more than the Pick n Pay Group. The extent of this deviation is shown below, highlighting that much of the change in relative value has occurred in the past three years.
We’re calling out Pick n Pay to highlight the outperformance of Shoprite because it’s the latter’s closest and long-time rival, but we could make similar assessments about Shoprite against many other listed South African retailers.
Given this extreme deviation in market values, some investors are likely to be banking on a reversion of this trend, perhaps expecting this reversion to be driven by better trading and market share gains by their preferred retailer?
This report intends to account for some of the drivers that have caused the disparity in fortunes between Shoprite and other grocery retailers and to highlight flags that investors can look out for when evaluating if competitors are making up ground.
We do this by looking at the spending of a panel of 22seven users over the past two years. Analysing the same users over time eliminates user churn from the results. Then, to allow us to attribute changes in spending to different types of customers, we add a new dimension to the analysis: loyalty.
A user is loyal to, say, Pick n Pay if more than 45% of their total grocery spend over a period goes to a Pick n Pay branded store. Loyalty helps to group customer numbers based on their preferences for certain stores. More importantly, it allows us to evaluate where growth comes from.
The logic is simple. A retailer attracts spend from three groups of customers: those who regularly shop at the store; those who previously bought groceries from a competitor; and those who tend to shop around.
By attributing change in spend in different time periods to these three groups of customers, we can see which types of shoppers are accounting for growth at the retailer.
Let’s begin by explaining our method. We started by comparing how spending by the 22seven sample has grown compared to the reported numbers from the major grocery retailers. These are shown in the chart below.
The blue columns show Insights’ best estimate of the reported (actual) growth in sales at each retailer for the two years ending March 2023. The red columns show the growth in spending at each retailer for a very large sample of 19,170 shoppers who are also 22seven users, for 1Q23 compared to 1Q21.
Three things about this chart: the sample of 22seven users is likely to overestimate growth at Checkers and Woolworths, and also overestimate the weak performance at Pick n Pay. However, our Spar growth-rate data is similar to what the company has reported. Importantly, the sample data corresponds with the main growth trend: Checkers significantly outperforming Pick n Pay.
At the same time, we can use our sample to unpack additional trends that are not available to company outsiders, while being cognisant of the differences between the sample and the national population.
This is important because, as the next chart highlights, the divergence in spending growth at the major grocery retailers over the past two years has been extreme.
For example, aggregate grocery spending by users earning R25–R60k pm increased by 22.1% over the two years* between 1Q21 and 1Q23 (i.e. 10.5% pa CAGR). For reference, official food inflation increased by 21.9% over the same period.
However, what is significant is the enormous divergence in growth between retailers. In the same R25–60k pm income bracket, user spending at Checkers increased by 47% over two years, while spending at Pick n Pay declined by 7%.
What explains this discrepancy in growth rates?
To attribute growth, we grouped users based on their loyalty in the 1Q21 starting period. As mentioned earlier, a user is loyal to a retailer if 45% or more of their total grocery spend in a period goes to that retailer. A few further points on loyalty:
- A user can be loyal or have no loyalty.
- A user can only be loyal to one retailer – we take the maximum loyalty in the rare cases where a user spends more than 45% of their total grocery budget at more than one retailer.
- Loyalty is evaluated across eight predominately grocery-based retailers. Insights further distinguishes expenditure by channel and format. For example, our analysis of Pick n Pay may include spending at Pick n Pay supermarkets, and spending at its Clothing, Liquor, asap! and online channels. We have not included Boxer, which is a separate retailer in this analysis. For Spar, we include Tops, Spar2U and Spar supermarkets. Checkers is made up of Checkers stores and Checkers Sixty60.
- Woolworths includes grocery and clothing spend because Insights cannot reliably distinguish from user transactions whether purchases are in the Food or the Fashion, Beauty & Homeware (FBH) divisions. 70% of Woolworths South Africa’s reported revenue is from its Food division, and our other investigations have suggested that Food accounts for the majority of 22seven user spending at Woolworths. Furthermore, over the period of the analysis, the two years between 1Q21 and 1Q23, we estimate very minor differences in the reported sales growth of Woolworths Food and FBH divisions.
Our analysis finds that there is always some churn in loyal customers shifting between retailers, or customers shifting to ‘no loyalty’. The following chart tries to visualise this dynamic process over the period of the analysis.
Can you guess which retailer is which?
We’re delighted you’ve read this far. But research is only valuable if it’s exclusive. To be fair to the retailers and investment teams who subscribe to Insights, we have to say goodbye before we get to the juicy bits.
Contact us find out how our research can help you.
Simon Anderssen
simon.a@22seven.com
+27 84 730 0309
Sofa, so good... Or not?
This report is about spending in the Home category, but first let’s have a look at general spending trends that emerged during July. Apparel was a standout category: 22seven user spending on clothes and footwear held up well – it was one of the few categories to record stronger growth. Elsewhere, spending growth slowed once again.
Spending on Prepared Food Delivery decelerated the most of all categories, perhaps signalling an end to the boost that services like Uber Eats and Mr D Food enjoyed as a result of load-shedding, which peaked in April and May and has since moderated.
Once again, the fastest-growing spending category that we track was Sports Betting & Lotto. Although it remains relatively small compared to other categories, it continues to grow rapidly.
We identify similar trends within income segments, shown in the table below. In general, the intensity of decelerating growth is more prevalent in the lower two income brackets: users earning less than R40k pm.
Home truths
This month’s Shop Talk focuses on the Home category, which we broadly segment into three sub-categories: DIY & Garden, Furniture & Homeware, and General Merchandise (GM).
GM is the largest of these and includes Takealot, Makro and Game, as well as electronics-biased retailers like JD Tech (Incredible Connection and HiFi Corp). Naturally, there’s overlap between the sub-categories and there’s an element of judgement required to categorise the retailers.
The three largest retailers in each sub-category are highlighted below. The structure of each market is similar, with one main retailer making up 32-42% of total spending; two retailers of roughly equal share as runners-up; and a large number of other retailers (25-35) making up the remaining 35-45%.
The earlier charts show that user spending in the Home category has been the weakest of all the major categories during the past year. When we look at the last three months, our data suggests that this weakness has been concentrated in the Furniture & Homeware sub-category.
The next chart shows relative spending growth among a sample of major retailers within Furniture & Homeware. Yuppiechef and West Pack Lifestyle outperformed while Hirsch’s lost ground.
To get a snapshot of what middle-income shoppers are spending in the broader Home category, we segmented spending into income brackets. In the R15-25k pm income bracket, users spent R657–R1,077 per month at retailers in the three sub-categories.
The chart below further breaks down this average monthly spend into average transaction value and frequency of transactions. In this example, average transaction values at Furniture & Homeware retailers are comparable to average transaction values at General retailers. The difference is that users transact ~23% more often at General retailers, which leads to a higher average monthly spend per user in that category. DIY & Garden retailers capture the lowest average monthly spend, mainly due to low average transaction values.
That’s it for this month. There are many more insights available from our spending dashboards. Please set up a time to discuss these in more detail to ensure you get the most from this unique data set.
If you want to know more about data-driven consumer trends in South Africa, sign up for Nugget, our bi-weekly newsletter. You can also follow Insights on LinkedIn and Twitter.
Analysing UNIQ's glow
Some reports have criticised Shoprite’s newest venture: a basics clothing line that not-so-subtly copies the successful Uniqlo brand, which was originally started in Japan. However, since most of South Africa’s clothing brands are built on foundations that ‘borrow’ fashion trends from the northern hemisphere and replicate them here, the criticism of Shoprite may be unfair.
Instead, given Shoprite’s pedigree, formidable scale and extensive resources, it's arguably more important for investors and competitors to keep a close eye on how this new venture is performing…
It will be many years before UNIQ is material to the Shoprite group; and going by prior precedent, its performance may also never be separately disclosed to shareholders, irrespective of how significant the brand becomes to profitability.
With that in mind, we set out to answer four questions to help analysts evaluate UNIQ’s performance to date, and to use this early evidence to contextualise its potential scale in the future.
- How is UNIQ performing? We look at the market share it has gained since launch in March 2023.
- Who is shopping at UNIQ? We compare the income and age demographics of UNIQ shoppers, compared to other 22seven users.
- What is UNIQ’s market positioning? We contrast the average transaction values at UNIQ with other clothing retailers.
- What is UNIQ’s potential market share? We compare the spending of 22seven users at UNIQ stores in two malls in Cape Town (Canal Walk, the first in the country, and Table Bay Mall) with other retailers in the same malls, including Mr Price, Ackermans, CottonOn, PnP Clothing, Edgars and others.
How is UNIQ performing?
In June 2023, UNIQ accounted for a respectable 30bp of the aggregate spending of all 22seven users at the 140+ clothing and footwear brands that we track. This puts it on a par with a host of other recognisable outlets.
In the chart below, we compare user spending at UNIQ with spending at JAM Clothing and G-Star. These brands were selected because all three had the same share of spending during the period, and JAM and G-Star are useful extreme examples that we can use to highlight differences in each retailer’s market positioning. Insights data allows us to split market share into three factors:
- Number of customers: Is there an increase or decrease in the number of customers transacting?
- Frequency: Are customers shopping more or less frequently compared to previous periods?
- Average transaction value: Are customers spending more or less per transaction?
Lets begin with the number of customers. In this example, nearly twice as many 22seven users shopped at JAM Clothing than at UNIQ, and nearly 10 times more users shopped at UNIQ than at G-Star.
The difference in frequency of purchases is less significant: during the same period, the average customer made 1.2 purchases at each of these stores.
Average transaction value shows the reverse trend to number of customers: the average purchase at G-Star is nearly 3.6x greater than the average purchase at UNIQ, and ~7x greater than what users spend at JAM Clothing.
The chart highlights that JAM is a high-volume, low-value retailer, whereas G-Star is a premium outlet. UNIQ seems to sit between these two extremes, and the overall result (so far) is that each of these retailers, despite different positioning strategies, make up a similar proportion of total user spending.
Who is shopping at UNIQ?
Digging deeper, we separate the users who have shopped at UNIQ into age and income brackets and compare this to the distribution of all 22seven users. The results suggest...
We’re delighted you’ve read this far. But research is only valuable if it’s exclusive. To be fair to the retailers and investment teams who subscribe to Insights, we have to say goodbye before we get to the juicy bits. Contact us find out how our research can help you.
Simon Anderssen
simon.a@22seven.com
+27 84 730 0309
Even in this market, some retailers are (relative) winners
Trend-setting taxonomy
The apparel market encompasses a wide range of products and caters to various customer preferences. While some retailers specialise in specific product categories, others offer a diverse range of clothing options for all demographics. For example, Markham focuses exclusively on menswear, whereas Mr Price operates as an own-label department store, offering formal and casual apparel for women, men, and children. Additionally, related categories such as footwear, accessories, beauty, and homeware are also prevalent in the market. And in today's landscape, nearly every ‘clothing’ store will also sell you a smartphone.
To enhance the dataset of actual consumer transactions, Insights has refined the categorization of spending within the Apparel category. We have introduced three sub-categories for spending: Clothing, Sports & Outdoor, and Footwear. This allows for a more detailed analysis of spending patterns across the 165 individual retailers that comprise the Apparel category.
The chart below displays the composition of the Apparel category. The majority of spending is attributed to the Clothing sub-category, which includes major retailers and department stores such as Mr Price, Edgars, Ackermans, Markham and others.
For analytical purposes, we have grouped retailers like Sportsmans' Warehouse and Decathlon, along with standalone stores of major sports brands like Nike and Adidas, into the Sports & Outdoor sub-category. This grouping proves valuable in our analysis, and the chart demonstrates that the contribution from the Sports & Outdoor sub-category increases with higher incomes.
Finally, the Footwear sub-category, while relatively small in size, distinguishes retailers primarily focused on selling shoes, such as sportscene, Tekkie Town, and Crocs, from other categories within the apparel market. Spending at specialist Footwear retailers consistently represents a notable share of total apparel spending across different income brackets.
Pulse check: a leading indicator of clothing retail sales
Sales growth is the most important driver of corporate value* and Insights’ estimate of users’ clothing spending offers clients an early indicator of near-term category growth. Moreover, this estimation helps identify retailers that are either outperforming or underperforming.
Over the past five years, the 22seven growth index has exhibited a strong correlation (around 77%) with the monthly growth in StatsSA's Textile, Clothing, and Footwear Retail Sales Index. This correlation underscores the increasing reliability of the 22seven growth index as a valuable metric.
In the context of a weakened market, the following chart highlights the retailers that have gained or lost the most market share among 22seven users over three and twelve months.
Among 22seven users, Shein remains the fastest-growing apparel retailer. We recently published a comprehensive analysis of how 22seven users make their first purchase from za.shein.com, including the retailers they engage with during the lead-up and those they reject. Further details can be found in our publication.
DuPontifying changes in market share
Investment analysts are likely well-acquainted with the DuPont analysis, a powerful tool that dissects return on equity (ROE) into three vital components: profit margin, asset turnover, and financial leverage.
Typically, applying such an approach to analyzing market share proves challenging.
However, equipped with transaction data from 22seven users, Insights seeks to emulate this approach to deconstruct the driving forces behind changes in market share. This decomposition process focuses on three key elements:
1. Customers: Examining whether there is an increase or decrease in the number of customers transacting.
2. Frequency: Assessing whether customers are shopping more or less often compared to previous periods.
3. Average Transaction Value: Analysing whether customers are spending more or less per transaction.
The accompanying chart illustrates each of these factors for a selection of major apparel retailers, specifically for 22seven users earning between R15,000 and R25,000 per month. The purpose is to decompose the change in market share between the first quarter (1Q23) and the second quarter (2Q23).
Through this analysis, it becomes evident that attracting customers is the most significant driver of market share growth. All retailers that gained market share in 2Q23 were successful in attracting more customers compared to 1Q23. Conversely, retailers that experienced a decline in market share attracted fewer shoppers.
While Frequency and Average Transaction Value occasionally contribute incremental improvements in market share, a consistent trend is not clearly discernible from the data.
Checking out bash.com
Recent media articles indicating that TFG's newly launched online marketplace, bash, has outperformed its established competitor Superbalist in terms of online traffic serve as encouraging signs for TFG shareholders. However, since bash is consolidating traffic from other TFG brands, like sportscene.com and Markham.co.za, establishing the extent of net traffic growth is more difficult than these reports suggest. And traffic doesn’t always translate into sales.
Investigating this issue further, Insights’ identified significant growth in bash transactions during June. Notably, bash ranked either first or second, based on the value of spend, among the 17 TFG brands that Insights monitors across seven income brackets.
Differentiating between existing TFG online domains and bash.com, Insights estimates a net 10% increase in transactions between May and June. As the chart demonstrates, bash.com transaction volumes increased c3.4x between May and June, but mostly reflect redirected payments from existing domains.
For context, 22seven users recorded a comparable number of transactions on za.Shein.com in June 2023 as they did on bash.com, however the value spent on Shein was 75% higher.
If you haven't already, read this report on Shein. We think you'll learn something new..
That’s it for this month. There are many more insights available from our spending dashboards. Please set up a time to discuss these in more detail to ensure you get the most from this unique data set.
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The road to Shein
Shein is a global phenomenon. Consumers are smitten with the Chinese retailer’s heady blend of hot fashion and low prices. From 2019 to 2021, revenue increased by 398% and although growth has slowed since then, the company has ambitiously predicted sales of $60 billion by 2025.
Shein has a loyal South African fan base and its share of spending among 22seven users has increased significantly – we have shown previously that this market share is composed of a relatively small number of customers spending relatively large amounts, especially when compared to the average transaction values at competitors.
Shopping at Shein is not as simple as one might expect from the world’s largest online-only fashion company. Since all items are manufactured in China and shipped from there, delivery times are slow and customs fees come into play. Similarly, returning items is a headache.
But local consumers seem quite happy to overlook these issues. 22seven users are just as likely to shop at Shein as they are at well-known brands like Cape Union Mart or Zara.We wanted to find out why, by asking this question: How do consumers arrive at the decision to purchase from Shein?
The starting point is to assume that every consumer is on a journey. Decisions about where to spend money are informed by the user’s needs, wants and current circumstances. Such decisions are also informed by past transactions and the purchase and product experience of transacting with other retailers.
In the research note Mirror, mirror, we provided quantitative evidence that success in the apparel market is dictated by variety and choice, especially when attracting customers in higher income brackets. If anything Shein offers plenty of choice!
In this report, we seek to understand the purchase decisions that precede a Shein purchase: What experiences did the customer go through to make them decide to shop on a foreign platform with import duties, that takes two weeks to deliver? Also, which purchases did this customer forgo when they moved to Shein?
The beauty of Insights data is that we have sight of a user’s entire purchase history over time. For this analysis, we identified all 22seven users that transacted at Shein in 2022. There are 4,450 of them.
Next, we sequenced all of these users’ apparel transactions at more than 125 clothing and footwear retailers, ending up with each user’s purchase journey until the moment they decided to buy from Shein.
To make it easier to explain the methodology and findings, we’ll focus on users earning R25 – 40k pm. We’ll highlight where the findings differ in other income groups.
What does a Shein customer look like?
The chart below shows how 22seven users who shopped at Shein allocated their total apparel wallet during 2022, compared to those who didn’t shop at Shein.
The first insight from the data is that Shein shoppers are valuable apparel customers. Controlling for income, these customers spent R1,062 a month on apparel in 2022, more than 2x what non-Shein shoppers spent.
Next, these Shein customers spent 20% of everything they spent on clothing and footwear in 2022 at Shein. That’s a lot!
The split of the other 80% is shown on the top right pie chart, where TFG, MRP, Superbalist, Retailability and PEP make the top five by share.
The spending split by users who didn’t shop at Shein has similar proportions, but the difference (shown in the lowest chart) shows that Shein customers spend more on average at Zara, Superbalist, PnP Clothing and Pep, and less at Sportsman’s Warehouse and Cape Union Mart.
At the risk of stereotyping, this evidence suggests that Shein customers are more likely to be female. (Shein mostly sells women's clothing.)
Which retailer is the gateway?
Now let’s look at the sequence of purchases preceding a customer’s first Shein transaction. The example below depicts a 10-purchase journey for a random user in our sample. Seven apparel transactions before this user spent R1,578 at Shein, they spent R499 at a TFG store. The very last purchase before they clicked ‘buy’ on za.shein.com was R650 at Tekkie Town.
Does a user’s behaviour change in the lead-up to the first Shein purchase? Our hypothesis is that the proportion of spend for all users in the sample should be the same at each point leading up to the Shein order.
To test this, we aggregated all the user journeys and compared the spending share immediately before the first Shein order (the green block above) with transactions earlier in the users’ history (the red block).
We’re delighted you’ve read this far. But research is only valuable if it’s exclusive. To be fair to the retailers and investment teams who subscribe to Insights, we have to say goodbye before we get to the juicy bits. Contact us to find out how our research can help you.
Simon Anderssen | simon.a@22seven.com | +27 84 730 0309
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