Western Cape Business News

Send  Share  RSS  Twitter  26 May 2011

VENTURES: HomeChoice Spins It Around


Recent Western Cape Business News

WHO would have believed that Wynberg-based direct retailer HomeChoice, which left the JSE in 2003 with its business model battered and bruised, would emerge in 2011 in the finest fettle.

HomeChoice, which directly retails (via mail order and online) a variety of household ranges from linen to cutlery, was worth around R25 million when it delisted from the JSE - the business, at that point, strained by bad debts and fickle consumer spending patterns. CBN estimates the business must be worth close to R1 billion today.

Over the years a lot of questions have been asked about the sustainability of direct retailing models with two other Cape-based companies, Heritage Collection (which at one stage owned the local rights to Readers’ Digest) and Mas Holdings departing the JSE with their tails between their legs.

In fact, Mas Holdings, controlled by the Van Emden family, endured a strenuous restructuring with several banks (which it owed some R40 million) before the business was placed in liquidation in 1997.

HomeChoice may have run from the public eye, but it has managed a comeback that is nothing short of a minor miracle. The shabby, dishevelled looking company last seen by the public in 2003, is now churning profits from its core retail business and earning more than a fair keep from a fledgling financial services arm.

Group revenue for the year to end December 2010 jumped 33.5% to R869 million with operating profit soaring 77% to R250 million.

HomeChoice chairman Rick Garratt reckons the strong results were mainly due to increased customer demand for the company’s improved merchandise ranges and the continued strong demand for personal loan products.

HomeChoice’s core retail business increased sales by a third to R485 million driven by enhanced customer loyalty and a broader merchandise offering.

Garratt says average retail sales per customer grew by 18% and the customer base increased by 12% to 354 000.

HomeChoice retail CEO, Shirley Maltz says the division was able to build on its core strength in textiles (particularly bedding), while the new appliances and electronics categories experienced excellent growth. The retail business also experienced strong growth in online sales as a result of continued focus and innovation in this channel.

The growth in online sales may explain HomeChoice’s marked shift up in gross profit margins, which increased from 50% to nearly 55%. Maltz says margins were helped by the strength of the Rand (many products are imported) and also because of a change in the product mix.

FinChoice, Home- Choice’s financial services business (which was only founded in 2007) grew revenue by 67% to R121 million.

Garratt says the loan book, which was funded entirely from internal resources, increased by 72% to R232 million with a strong demand for repeat borrowing by existing customers.

FinChoice’s services revolve mainly around marketing personal loans to selected HomeChoice customers of good credit standing, resulting in low acquisition and marketing costs.

Loan products offer terms ranging from six to 24 months, with the ability for customers to access additional credit on a recurring basis. There are currently 42 000 active loan customers (watch out Capitec Bank!).

Remarkably, bad debt provisions at FinChoice declined from 11.2% to 10.9% of the debtors’ book. Garratt says this, together with a stable fixed cost base, resulted in operating profit at the three year old FinChoice more than doubling to R57 million.

Looking to capitalise on the strong demand, Garratt suggests HomeChoice could re-look a JSE listing as a means to raise fresh capital to fund expansion – especially the company’s credit business as well as the financial services side of the business.

It will be interesting to see how much funding HomeChoice, which appears to generate substantial cash flows, intends raising on the JSE and if new strategic shareholders will be brought aboard.

As things stand, the company is controlled by Garratt (via Garfam) with a couple of significant minority shareholders (including financial services giant RMB) in tow.

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