Turnaround Strategy in Action: Pick n Pay Closes Supermarkets Amidst Declining Sales

South African retailer Pick n Pay has taken a significant step in its restructuring plan, announcing the closure of 24 supermarkets across the country within a 26-week period ending 25 August 2024. The move, part of a larger turnaround strategy, was unveiled after market hours on Tuesday through a trading statement that painted a grim picture of the company's financial performance.

During this period, earnings per share (EPS) are forecasted to plunge by 30% to 40% year-on-year. The retailer is grappling with a headline loss per share and a diluted headline loss per share, both expected to worsen from the previous year.

Pick n Pay’s weak performance stands in contrast to its Boxer brand, which enjoyed a 12.0% growth in sales, underpinned by solid like-for-like sales and a flurry of new store openings. Boxer launched twelve new stores within the same period, with more anticipated in the latter half of the year, underlining a growth trajectory for this segment of the business.

While Pick n Pay experienced a sales dip of 0.3%, its South African segment saw a marginal sales increase of 0.1%, with slightly better like-for-like sales growth at 1.1%. Nonetheless, sales growth was stunted by the net closure of supermarkets, which included 10 corporate-managed and 14 franchised stores.

This phase of store closures was anticipated after earlier announcements that the company planned to shut down or pivot over 100 stores. Sean Summers, CEO of Pick n Pay, outlined that the strategy includes closing 35 underperforming stores and changing 70 outlets to the more successful Boxer brand. The closures target locations that are no longer viable due to demographic shifts or problems within their shopping centers.

Summers emphasized their intent to avoid past mistakes of converting struggling stores to franchises, a move that previously led to high franchise debts and excessive pressure on franchisees. In a bid to revitalize the brand, Pick n Pay is also retracting several initiatives from its Ekuseni strategy, including converting Qualisave stores back to Pick n Pay.

Despite the store closures and the disappointing trading update, the retailer remains optimistic about its future, pointing to improved like-for-like sales growth in Pick n Pay SA supermarkets as a primary indicator of a successful turnaround. The like-for-like sales for company-owned supermarkets showed an encouraging increase from -0.4% in the second half of FY24 to +1.3% for the reported period, marking a significant step toward recovery.

Nevertheless, the path to recovery is lined with challenges. Notably, franchise supermarkets saw a 1.4% decline in like-for-like sales, a trend the company aims to reverse. The current focus is on revitalizing franchise store performance, which has historically outperformed company stores.

With an eye on progress, Pick n Pay is gearing up to release its outlook for the first half of the 2025 financial year on 28 October 2024, providing stakeholders with a clearer picture of the effectiveness of their turnaround efforts.