Why do retailers offer financial services?
NOVEMBER 2013
Making financial markets work for the poor
Agenda
Project objectives and scope
Mapping the financial services landscape
Overview of case study retailers
Primary motivation for offering financial services
Agenda
Project objectives and scope
Mapping the financial services landscape
Overview of case study retailers
Primary motivation for offering financial services
The research aims to understand more fully retailers’
motivation for providing financial services
OBJECTIVES OF THE RESEARCH
1
To map the landscape of financial products and services offered by retailers in South Africa
2
Build an understanding of the business case for retailers to provide financial services
3
Unpack the evolution of the product offering and its relative position within the wider area of
value added services provided by these retailers
Four retailer types were identified
based on two dimensions:
Industry
Tender type
(cash versus credit*)
FMCG retailers
Cash-based clothing retailers
Credit-based clothing retailers
Furniture retailers
Note*: For the purposes of this analysis credit retailers are those where credit sales account for 40% or more of total merchandise sales
Agenda
Project objectives and scope
Mapping the financial services landscape
Overview of case study retailers
Primary motivation for offering financial services
As a first step, large retailers in South Africa were identified.
FMCG retailers with more than 500 000 customers in LSM 1-7
were included in the market map
Not included in market map
TOP FMCG RETAILERS*
60%
Included in market map
Size of bubble: number of customers
TOWNSHIP SUPERMARKET
(4.1 m)
50%
SPAR
(13.2 m)
40%
PICK N PAY
(13.5 m)
30%
U SAVE
(810 000)
SPAZA
(12.1 m)
CHECKERS
(6.3 m)
SHOPRITE
(20.1 m)
MAKRO
(454 000)
20%
10%
BOXER STORES
(3.5 m)
7 ELEVEN
(268 000)
WOOLWORTHS
(1.1 m)
DISCHEM
(710 000)
20%
CLICKS
(2.8 m)
40%
POP IN
(206 000)
60%
80%
100%
% LSM 1-7
Source: AMPS 2012A. Note: Total Pick n Pay Group customers (Pick n Pay and Boxer): 16.4 million. Total Shoprite Holdings customers (Shoprite,
Checkers, OK and Usave): 24.7 million
Note*: “From which store or stores do you usually do your food and grocery shopping?”
Clothing retailers with more than 200 000 customers in LSM
1-7 were included in the market map
Not included in market map
TOP CLOTHING AND SHOE RETAILERS*
60%
Included in market map
Size of bubble: number of customers
50%
STUDIO 88 (248 000)
IDENTITY (692 000)
PEP STORES (2.9 m)
40%
SPITZ (310 000)
MR PRICE
(4.6 m)
LEGIT
(710 000)
DUNNS (248 000)
TOTALSPORTS (846 000)
30%
EDGARS
(4.2 m)
JET/ JET MART (5.6 m)
SPORTSCENE (552 000)
ACKERMANS (3.1 m)
20%
EXACT! (340 000)
MR PRICE SPORT (409 000)
MARKHAM (1.1 m)
10%
WOOLWORTHS (2.7 m)
FASHION EXPRESS! (291 000)
TRUWORTHS (2.0 m)
MILADY’S (384 000)
FOSCHINI (887 000)
0%
0%
20%
40%
60%
80%
100%
% LSM 1-7
Source: AMPS 2012A. Note: Total Edcon customers (Edgars, Jet and Legit): 8.9 million. Total Foschini Group customers (Foschini, Exact!, Fashion Express,
Markham, Sportscene, Totalsports and Due South): 3.1 million. Total Truworths Group customers (Truworths and Identity): 2.5 million
Note*: Bought clothing or shoes from this store in the past 3 months
Furniture retailers with more than 100 000 customers in LSM
1-7 were included in the market map
Not included in market map
TOP FURNITURE RETAILERS*
60%
Included in market map
Size of bubble: number of customers
FURN CITY
(120 000)
50%
RUSSELS
(250 000)
40%
LEWIS
(752 000)
GAME
(2.2 m)
FURNITURE CITY
(175 000)
30%
BARNETTS
(212 000)
OK FURNITURE
(516 000)
BEARES
(145 000)
HIFI CORP
(291 000)
20%
ELLERINES
(282 000)
PRICE ‘N PRIDE
(132 000)
JOSHUA DOORE
(309 000)
10%
HOUSE AND HOME
(265 000)
MAKRO (359 000)
MORKELS
(202 000)
GEEN AND RICHARDS (153 000)
0%
0%
20%
40%
60%
80%
100%
Source: AMPS 2012A
Note: Total JD Group furniture retail customers (Russells, Barnetts, Joshua Doore, Morkels, Price n Pride, Electric Express and Bradlows):
1.3 million. Note*: Bought furniture or appliances or household accessories from this store in the past 12 months
% LSM 1-7
In total 25 retailers were included in the market map including
six FMCG retailers, three cash-based clothing retailers, nine
credit-based clothing retailers and seven furniture retailers
FMCG
RETAILERS






Shoprite
Checkers
Pick n Pay
Boxer
Spar
Clicks
CLOTHING
RETAILERS
CASH BASED



Pep
Ackermans
Mr Price
CREDIT BASED









Truworths
Identity
Foschini
Markham
Legit
Woolworths
Dunns
Edgars
Jet
FURNITURE
RETAILERS







Joshua Doore
Barnetts
Price n Pride
Russells
Lewis
Ellerines
Game
There is a clear clustering around dominant payment
mechanism (cash versus credit) and purchase frequency
PAYMENT TENDER
FOCUS ON CREDIT
AND INSURANCE
Truworths (76%)
CREDIT
 Strong customer
relationships
 Rich internal
customer databases
 Monthly instalment
collections platforms
Lewis (71%)
JD Group (64%)
Ellerines (63%)
Foschini (61%)
Identity (55%)
Edcon (51%)
OK furniture (31%)
FOCUS ON
TRANSACTIONAL
Woolworths
(clothing)
Game
Dunns
Ackermans
Mr Price (19%)
CASH
(BI) ANNUALLY
CALENDAR
SEASONALLY
Pep
Boxer
Checkers
Clicks
Shoprite
Pick n Pay
Spar
DAILY/MONTHLY
CALENDAR
 Payments switches
 Retail servicing
activities (such as
scanning barcodes)
FREQUENCY
OF CLIENT
INTERACTION
Agenda
Project objectives and scope
Mapping the financial services landscape
Overview of case study retailers
Primary motivation for offering financial services
Five retailers were selected for more detailed case studies
FMCG RETAILERS
CASH-BASED
CLOTHING RETAILER
CREDIT-BASED
CLOTHING RETAILER
FURNITURE
RETAILER
According to AMPS 2012, Pick n Pay has 13.5 million
customers. Over one fifth are unbanked and 55% are in LSMs
1-7
FINANCIAL SERVICES
STORES
CUSTOMERS
SERVICING MODEL
% UNBANKED
% LSM 1-7
JOIN!
CLUB
174 corporate
282 franchise
13.5 million
Till point
Source: AMPS 2012A
Cash withdrawal
Bill payments
SASSA grant pay-outs

Mobile Money Bank
Account

Retail Savings Bonds

Go Banking credit card
22%
55%
Smart Shopper
Anyone can join
MEMBERSHIP



(7.1 million members
as at September 2013)
According to AMPS 2012, 37% of Shoprite’s customers are
unbanked and the vast majority (85%) are in LSMs 1-7
FINANCIAL SERVICES
339
STORES
CUSTOMERS
SERVICING MODEL
% UNBANKED
% LSM 1-7
JOIN!
162 Checkers
28 Checkers Hyper
20.1 million
6.3 million
Money Market
counter
Money Market
counter
37%
18%
85%
43%
CLUB
N/A
N/A
MEMBERSHIP
N/A
N/A
Source: AMPS 2012A. Note: Total number of customers that shop at Shoprite or Checkers: 23.9 million




Cash withdrawal
Bill payments
SASSA grant pay-outs
Money transfer

Savings book


Funeral insurance
Accident insurance

Checkers Business Card
(niche product)
Pep stores has the widest physical footprint of the case study
retailers with approximately 1 200 stores
FINANCIAL SERVICES
STORES
CUSTOMERS
SERVICING MODEL
% UNBANKED
% LSM 1-7
JOIN!
CLUB
MEMBERSHIP
Source: AMPS 2012A
+/- 1 200
2.9 million




Cash withdrawal
Bill payments
Money transfer
Cross-border money transfer

Lay-bye


Funeral insurance (off the shelf)
Free funeral cover with Pep Club

Personal loan
Till point
40%
86%
Pep Club
Must purchase a
sim card at Pep
Edcon is the largest non-food retailer in South Africa. The
Group’s two largest retail brands are Edgars and Jet
STORES
CUSTOMERS
175
318
(additional 55 Edgars
Active stores)
(additional 121 Jet
Mart stores)
4.2 million
5.6 million
19%
30%
56%
84%
% UNBANKED
% LSM 1-7
JOIN!
CLUB
Edgars Club
Jet Club
(Over 1 million
members)
(Over 1 million
members)
MEMBERSHIP FEE
R29.00 – R49.50
R22.50
CLUB MAGAZINE
1.6 million readers
4.25 million readers
Source: Edcon Annual Report 2012, AMPS 2012A. Note: total customers that shop at Edgars or Jet: 8.6 million
Edcon is the largest provider of credit in South Africa by
number of customers with 3.8 million credit accounts
FINANCIAL SERVICES

Store credit
3.8 million credit accounts
In FY 2012 the credit and financial
services business generated
R1 311 million profit










Funeral
Travel
Accident
Home owners
Household contents
Vehicle
Hospital cash plans
Credit life
Legal
Dental accident
5.6 million insurance policies
(R541 million from the insurance joint-venture)
25% OF TOTAL PROFITS
The JD Group is made up of 7 South African furniture retail
brands serving a total of 1.3 million customers
STORES
% UNBANKED
% LSM 1-7
35%
94%
13%
42%
169 000
15%
68%
160
309 000
23%
77%
113
202 000
12%
57%
149
132 000
21%
91%
219
250 000
35%
66%
1.3 million
24%
72%
133
212 000
97
88 000
132
1 003
Source: AMPS 2012A
CUSTOMERS
The JD Group offers customers both secured and unsecured
credit as well as a range of insurance products. JD Financial
Services accounts for over half of the Group’s operating
profit
FINANCIAL SERVICES






Secured fixed term credit
Unsecured personal
loans
Credit life
Asset insurance
Funeral insurance
Lay-bye
The JD Group also offers long term vehicle
rentals and other credit products sold
through its Cash Retail and Automotive
Retail divisions
CONTRIBUTION TO PROFIT
In FY 2012 the JD Group generated an
operating profit of
R 1 445 million
JD Financial Services contributed
R760 million
Furniture
retail
Financial
services
21%
53%
Other
26%
Agenda
Project objectives and scope
Mapping the financial services landscape
Overview of case study retailers
Primary motivation for offering financial services
Aside from the direct profitability, there are three primary
drivers for retailers to offer financial services
PRIMARY MOTIVES FOR OFFERING FINANCIAL SERVICES
$
INCREASING FOOTFALL


Attracting new customers
into the store
Increasing the number of
interactions with existing
customers
$
$
DRIVING MORE
PROFITABLE BEHAVIOUR


Encouraging customers
to increase basket size
Incorporating higher
margin products into
baskets
LEVERAGING EXISTING
INVESTMENT

Retailers can leverage
their physical store
networks, payments
infrastructure, brand
name and client data to
sell financial services
PRIMARY MOTIVES FOR OFFERING FINANCIAL SERVICES
$
INCREASING FOOTFALL


Attracting new customers
into the store
Increasing the number of
interactions with existing
customers
$
$
DRIVING MORE
PROFITABLE BEHAVIOUR


Encouraging customers
to increase basket size
Incorporating higher
margin products into
baskets
LEVERAGING EXISTING
INVESTMENT

Retailers can leverage
their physical store
networks, payments
infrastructure, brand
name and client data to
sell financial services
Retailers can increase footfall by increasing client acquisition or by
increasing the number of interactions with existing customers
INCREASE FOOTFALL
1. Increase client acquisition
STORE
 Retailers offer financial services
that are in demand within their
target markets in order to draw
more customers into the retail
environment more frequently
Transactional services offered by
FMCG retailers and Pep
2. Increase the number of
interactions with clients
 Retailers offer financial services
that require customers to come
into store monthly to pay
premiums and instalments
STORE
Credit and insurance products that
require customers to go in-store
monthly to pay premiums
“Money Market forms part of the Group’s non-core value-added
strategy aimed at increasing consumer traffic in its stores.
The main focus of the services offered is adding value to
consumers’ shopping experience by providing convenience and
saving the consumer time, so turning outlets into
destination stores”
- Shoprite Annual Report (2007)
In-store servicing models for convenience-based services differ. There is
a clear trade-off between delivering high convenience to the financial
services client by offering services at till point, and negatively impacting
the shopping experience of the ‘next in line’ customer
CONVENIENCE AND IN-STORE SERVICING MODELS

Retailers offer services at the till point
(Pick n Pay and Pep, or at a separate
financial services counter (Shoprite)
Negatively impact
on the shopping
experience of
other customers
Offering high
convenience for
financial services
Increasing footfall: When being a destination store backfires
Facilitating SASSA grant pay-outs ensures feet in-store; Pick
n Pay capitalises on this by offering direct incentives for grant
recipients to spend in store
Facilitating SASSA grant pay-outs ensures feet in-store; Pick
n Pay capitalises on this by offering direct incentives for grant
recipients to spend in store
PRIMARY MOTIVES FOR OFFERING FINANCIAL SERVICES
$
INCREASING FOOTFALL


Attracting new customers
into the store
Increasing the number of
interactions with existing
customers
$
$
DRIVING MORE
PROFITABLE BEHAVIOUR


Encouraging customers
to increase basket size
Incorporating higher
margin products into
baskets
LEVERAGING EXISTING
INVESTMENT

Retailers can leverage
their physical store
networks, payments
infrastructure, brand
name and client data to
sell financial services
Retailers have adopted various approaches to drive behaviour
using financial services
DRIVE MORE PROFITABLE BEHAVIOUR
1. Increase basket size
 The provision of credit allows
customers to purchase goods and
pay back over time
Furniture and credit-based clothing
retailers facilitate sales through
credit
2. Sale of higher margin products
 Retailers incorporate thresholds
that customers must meet before
they can use financial services
Pep customers must spend R50 instore to withdraw cash from the till
 Access to financial services is
conditional on purchase of a
specific good
Pep Club’s free funeral cover is
dependent on air time usage
Example: Pep Club
Pep Club’s free funeral cover is
specifically linked to the
customer’s purchase of airtime
and the length of time that the
sim card has been active
To join the Pep Club
customers must
purchase a sim card
at Pep
CLUB
To encourage take up of
the club only club
members are able to
make use of the money
transfer services
Example: Pep Club
Pep Club’s free funeral cover is
specifically linked to the
customer’s purchase of airtime
and the length of time that the
sim card has been active
Average airtime usage
To encourage
of
R0-R50
R50-R75 take up
R75-R150
Months sim
activated
the club only club
0-6 months
Accident cover Accident cover Accident cover
are able
to only
of R500 onlymembers
of R500 only
of R500
7-12 months
R0
13-24 months
R0
25-36 months
R0
R2 500
37 months +
R0
R3 500
makeR750
use of the money
R1 000
transfer
services
R1 500
R2 000
R150-R500
R500+
Accident
cover Accident
cover
Drives
persistency
and
of R500 only
of R500 only
higher spend
R1 250
R1 500
R2 500
R3 000
R3 00
R3 500
R4 000
R4 500
R5 500
R6 500
PRIMARY MOTIVES FOR OFFERING FINANCIAL SERVICES
$
INCREASING FOOTFALL


Attracting new customers
into the store
Increasing the number of
interactions with existing
customers
$
$
DRIVING MORE
PROFITABLE BEHAVIOUR


Encouraging customers
to increase basket size
Incorporating higher
margin products into
baskets
LEVERAGING EXISTING
INVESTMENT

Retailers can leverage
their physical store
networks, payments
infrastructure, brand
name and client data to
sell financial services
Retailers can generate revenues at low marginal cost by leveraging
existing infrastructure
LEVERAGE EXISTING INVESTMENT
Trusted brand
 Retail chains that
have been operating
for many years have
trusted brands that
they can leverage
when selling
financial services
Physical store
networks
 The physical
footprint of a retail
chain enables
delivery of
financial services
such as money
transfers
Existing payments
infrastructure
Communication
platform
Client
data
 Payment and
collection platforms
used in the core
retail business can
be leveraged to offer
financial services to
clients
 Retailers often
have existing
lines of
communication
with customers
through club
newsletters and
magazines
 Client data
collected through
application for
credit or loyalty
programmes
facilitates the onselling of
additional credit
and insurance
products
Retailers can generate revenues at low marginal cost by leveraging
existing infrastructure
LEVERAGE EXISTING INVESTMENT
Client Data
Generates
Informs
Client
data
Financial
services
Merchandise
Informs
Generates
Client Data
 Client data
collected through
application for
credit or loyalty
programmes
facilitates the onselling of
additional credit
and insurance
products
Examples:
PICK N PAY
Pick n Pay was the first retailer in
South Africa to introduce secure,
PIN-based Electronic Funds Transfer
at Point-of-Sale (POS) in 1989
This enabled customers to use their
debit cards to purchase groceries
This technology has been leveraged
to offer cash withdrawals at POS
and SASSA withdrawals
PEP
Pep uses its extensive physical
footprint to facilitate its money
transfer service
Many Pep stores are located in rural
areas with limited access to banking
infrastructure
Edcon has utilised client data and credit infrastructure to offer a wide
range of insurance products. The Edgars and Jet Club magazines are
the perfect communications platforms to advertise these insurance
products
EDCON
Client data
Existing payments
infrastructure
Communication
platform
Source*: AMPS 2012
Edcon has 3.8 million
credit accounts…
… as well as payment
and collections
platforms required
for credit
The Edgars and Jet Club
magazines have a
combined readership of
5.4 million*
10 insurance products
5.6 million active policies
R541 million in profits
Questions?
Thank you
Making financial markets work for the poor