The South African home improvement store market increased by 11% in current value terms through 2012, reaching a value of R17.7 billion.
The effects of Wal-Mart's entry into the South African retail market are slowly but effectively manifesting in all the channels in which Massmart operates. Home improvement and gardening stores is one channel which is feeling the impact through the lower prices being offered by Massmart through its store formats Builders Express and Builders Trade Depot.
This will force other retailers, such as Spar Group with its Build It format, to review their pricing in order to try and contain the competition from Massmart Holding.
The number of outlets in home improvement and gardening stores increased by 5% in 2012. This was very strong growth in an environment characterised by rising operational costs and shrinking purchasing power.
Growth in outlet numbers was stimulated by the expansion drives by leading retailers such Spar through its Build It format, which grew by 3% in terms of outlet numbers in 2012.
Spar Group led home improvement stores in 2012 with a value share of 41%, whilst Massmart Holding was in second place with its store formats, Builders Trade Depot and Builders Express. Spar managed to gain share through outlet expansion across the country.
Retailers in home improvement and gardening stores still face a challenge in maintaining a balance between finding cheaper store locations versus accessibility to consumers. Home improvement stores usually require a large sales area, which tends to be expensive in shopping malls, where most consumers shop.
Serious price competition is expected through to 2017, with Massmart dictating the pace. If this happens, value sales are expected to take a slight dip, as retailers would use low prices as a tool to retain customers.
This is expected to reduce the overall growth in value sales over the next five years although sales are still expected to grow at a stable rate. The growth in value terms is, however, expected to become faster, due to factors such as inflation and rising production costs, and profitability for most retailers may be limited.
For more information on the South African home improvement store market, see the latest research: South African Home Improvement Store Market
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