What Major Retailers Closing Means for SMES

South Africans are shocked by the news that major retailers are closing. This is indicating that in some cases consumers are spending less, and in other instances that they are moving to the digital world. So perhaps it’s not all gloom and doom, but where does the SME whose product is sold through retailers stand?

Retail chains are not the enemy to SMEs. Although it appears that large stores are there to steal the business that small shops would usually get. However, every business owner that has some experience knows that this isn’t true.

Symbiosis between Retailers and SMEs

The relationship between retailers and SMEs are mutually beneficial. This can be summarised as follows:

• Retailers create a market place for SMEs to sell their products through Supplier Development Programmes
• SMEs that sell their products through retailers satisfies a wide client base
• Entrepreneurs have the opportunity to become a franchise owner
• Retail stores generate foot traffic in surrounding areas for small businesses

Major Retailers on the Chopping Block

It was announced that quite a few of the popular retailers will be closing stores across the country. Much of this comes as a response to the financial losses they experienced or operation struggles.

Pick n Pay

Pick n Pay has shut down 32 store closures. 24 of these were company-owned stores and eight franchise stores. Additionally, five company-owned stores were converted into franchises.

SPAR

SPAR has decided to close thirteen underperforming stores in the South Rand Region. Further issues included a failed SAP integration at the KwaZulu-Natal distribution center that lead to major supply chain disruptions.

Italtile

The home-improvement retailer Italtile has suffered many losses due to recent criminal activity. However, the company remains financially stable in spite of these losses and increased competition from manufacturers in SADC countries that are benefiting from tariff free imports.

Woolworths

Yes, Woolworths. The home and fashion giant has been zooming in on premium farm fresh and locally produced offerings. This restructuring led to the closure of five food stores, yet the beauty and home stores expanded with 21 locations.

Shoprite Group

Shoprite has had sixteen store closures over recent months, but the aggressive expansion, this is barely making an impact. Across its multiple brands (Shoprite, Checkers, Checkers liquor, and Absolute pets to name a few), 264 new stores opened over this same period. These consist of 32 new Shoprite stores, 37 new Checkers stores and 81 liquor stores in total. The USave brand is also planning to open 43 additional stores in coming months.

The Impact on SMEs

According to Retail Brief Africa, there are many small businesses within the the retail sector who employ between 50 – 60% of South Africa’s workforce. This contribution is approximately 34% of GDP growth.

It is difficult to summarise the full impact that the closure of large retail brands closing stores will be on small to medium-sized businesses. Instead, an overview of the impact can be seen. Let’s divide it into three areas.

1. Retail Stores Owned by SMEs

SMEs who fall into the category of franchise businesses can be impacted by these store closures. Pick n Pay is a great example of the eight franchise stores that were closed. This means losses in jobs for staff and business owners who sadly have to either move to another type of franchise or start a new business.

2. SMEs Supplying Retail Change

In the case where an SME is supplying a specific retail store – think farmers with fresh produce, speciality goods like preserves or snacks, or even other suppliers who provide goods on consignment – can be caught in a tight spot. Either the fact that the store such as a SPAR is underperforming might indicate it is time to pull a product in a certain area, or their only market place in a particular area is now gone. Entrepreneurs need to find new markets to ensure they still reach their clients.

3. SMEs Relying on Retail Foot Traffic

Some small businesses such as clothing shops, nail salons or other retail businesses in a mall benefit from the major retailer present in the same shopping centre. The big brand serves as the attraction to customers who then pass these other businesses, becoming aware of them and considering to purchase their products. Without the “main attraction” there is a possibility that customers might not want to come to certain shopping malls.

The small and micro businesses have felt the larger businesses are feeling now. Although this economic pressure has caused a lot of businesses to fold, many SMEs have adapted. Factors such as weak consumer spending, increasing operational costs, and criminal activities continue to plague all businesses across South Africa and no one is immune.