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Revenue is vanity, profit is sanity… but cash is king.



Until you have run your own business or been tasked with managing the financial affairs of a high-growth entity, it will be hard to get a true appreciation of this oft-repeated business mantra. The events of 2020 have highlighted the reasons why vanity metrics in your business count for nothing and why you need the right tools in place to ensure you are measuring the right elements.



With COVID-19 disrupting many of the traditional banking channels &#8211; including in-branch networks – having access to technology and the right banking partner has often proven to be the difference between success and failure for businesses on the continent.&nbsp;



As a bank, we are constantly being challenged by our clients to develop and rollout integrated digital solutions that can help them do more business, more efficiently and across multiple technology channels including mobile phones and tablets.



The rapid adoption of our Absa Access solutions appears to be a sign that we are on the right track – we are not just building technology for the sake of technology but rather developing tools that solve real-world problems to address the rapidly evolving business environment.&nbsp;



Cash management is a perfect example: The lifeblood of every organisation is its ability to understand its financial position at any point in time and this includes understanding and efficiently managing its own cash conversion cycle (CCC). All the invoicing in the world counts for nothing if you are unable to convert it to cash in a cost-effective manner.&nbsp;&nbsp;



Absa Access offers key solutions in optimising our customers’ Cash Conversion Cycles starting with simplifying the bill receivables process for corporates. A corporate can now offer their clients the ability to pay their bills on our platform which decreases bill reconciliation challenges and improves liquidity management.



Cross-border trade on the African continent is expected to boom in the coming years as new trade zones are introduced and it becomes easier to move money and goods between African countries. As a forward-thinking bank, we have focused on developing solutions to assist companies which import products from suppliers in other countries and need simple solutions to make the required payments. Absa Access enables clients to initiate trade-related transactions, such as Letters of Credit to international suppliers, to apply for Foreign Exchange and to make international payments all on the same platform.



This integrated offering enables Absa corporate clients to have greater visibility and control of their financial obligations at any time and from anywhere, a proposition that is superior to the brick-and-mortar option that has dominated banking for decades.



Corporate customers have taken this adoption of technology one step further, asking their bank to integrate into their systems to harness efficiencies and enhance their control environment.&nbsp;



Digital platforms provide banks with a far more efficient way to scale.&nbsp; Banks are investing in the architecture needed to host more services in order to reduce their own operating costs, while ensuring they cater for clients that expect more services to be provided online.&nbsp; Failure to do so by banks with longstanding heritage and legacy, could mean losing customers to FinTech companies or new digital-first banks.



At Absa, we have embraced this innovative path and have focused a lot of effort over the last couple of years on finding solutions that put customer experience at the heart of our transformation plans.&nbsp;The approach we have followed includes some key partnerships, as well as investment in strong technology skills for in-house developed technology.



One of the key items that many in digital banking circles are debating is whether the shift to digital channels is a pandemic inspired or motivated trend or whether it will become a more permanent part of banking interaction with corporate clients.



In February 2021, consulting house Accenture released a report following 47000 interviews with consumers globally and there was a telling quote from Jigyasa Singh, Technology Managing Director for Accenture Africa where he notes:



&#8220;The pandemic-inspired increase in digital engagement is a double-edged sword for banks. While it has allowed them to serve customers efficiently throughout the pandemic – and advanced their digital strategies by up to five years in some cases – it has pushed them to launch solutions that are functionally adequate but devoid of emotion. To forge strong customer connections, banks must reimagine the digital services they provide and make those connections more personal and relevant.&#8221;



This is where we believe that Absa and our suite of digital products intersect perfectly with our skilled banking and sectoral specialists. We have been able to couple innovative technology solutions while using big data analytics to provide insight to our corporate clients around their business and customer behaviour.  We can take a business challenge and then provide an integrated technology and finance solution that fits the business requirements.  The boom in mobile telecommunications has resulted in the digital banking revolution in Africa being more pronounced, and we at Absa believe that we have developed solutions that don’t pander to vanity metrics but rather allow you to make better informed decisions about your business.

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Africa driving the banking revolution

Small and medium-sized businesses are likely to lead the economic recovery on the African continent, but until they can secure a genuine foothold in corporate value chains, the sector is likely to be dominated by a handful of players who had early-mover advantage and access to finance.



As a finance partner to a number of emerging businesses in Africa, we need to understand how we not only improve access to finance, but give them the right tools to facilitate access to market as they grow.



A question we often ask ourselves:



“Are we growing the corporates of tomorrow while at the same time giving opportunities to youth and women-led businesses who need a foot in the door?”



In South Africa, Absa has recently released its Procurement Portal to focus on diversifying its supplier base but we are also excited about other developments on the continent which suggest we are entering an exciting new era for small and medium sized businesses.



Botswana for instance has had a big focus on localisation which has been accelerated by COVID-19 supply chain interruptions. Government and the private sector is focusing on capacitating local suppliers to ensure that they will be less vulnerable to future shocks to the system. Instead of relying on vast quantities of imported goods and services, the country has focused on an import substitution programme to ensure local manufacturing and provision of services.&nbsp;



Ghana is another example of progressive thinking from government – particularly as they are benefiting from the resources boom across the globe. The mining sector is resurgent at the moment and the supply of goods and services to the mines, represents a significant opportunity for smaller businesses.



Currently 75% of our lending in Ghana is going into the Natural Resources sector and an interesting dynamic playing out here is finding a way to help smaller suppliers graduate to be able to fulfil larger contracts. Typically these contracts are higher in value than supplying a school or a small manufacturing business so – unless they have the right finance partner &#8211; emerging entrepreneurs struggle to bridge the gap to actually complete these contracts.



In Kenya the telecommunications sector is vibrant and we enjoy a great relationship with the team from Safaricom. Here is a large focus on bringing women-owned businesses into their supply chain. It is estimated that the funding gap for women-owned businesses in Africa is over $2 trillion and a lot of work needs to be done to ensure that these entrepreneurs are given equal opportunity to participate in the market.



While localisation and local manufacturing capacity is a key focus for all stakeholders in the SME sector, we can’t ignore the role that multi-national organisations have in terms of bringing foreign products into the continent. An organisation like Coca Cola may have very limited opportunities for SMEs to participate in the traditional supply chain at a manufacturing level. That doesn’t mean they are excluding smaller entrepreneurs from working with them. In Kenya we are working closely with the Coca Cola team to help them develop entrepreneurs on the distribution and transport side which has required some innovative funding models.&nbsp;



Lastly we can’t ignore the opportunity presented by the agriculture sector both at a primary produce and secondary market level. The International Food Policy Unit has spoken about a “quiet revolution” that has been taking place in Africa over the last few years where smaller farmers are playing a critical role in ensuring food security for all role players.



In a report released in 2019, they noted: “Many small- and medium-sized enterprises are channelling food from farms to households and creating employment for millions in this middle part of the food system which is not “missing” but “hidden” and often ignored by policy makers.”



Our colleagues across the bank are seeing this trend starting to play out in terms of new funding mechanisms being made available to support these businesses who are moving from subsistence businesses to fully-fledged entities. Food security became very topical during the COVID-19 lockdowns and with agriculture playing an important role in job creation, there has been a very progressive attitude from policy makers to build local support.



While there is no magic wand that can be waved at the small business sector, we as a bank believe that there is a revolution of sorts taking place on the continent. Access to finance and access to markets is inextricably linked and we believe that our mandate is to help facilitate both.

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SMEs in Africa: A revolution is coming

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In the step towards energy stability in South Africa – government is presented with a world of opportunities but, how they use them will determine the futures of thousands of South Africans.



In the shift from coal to gas – keeping the existing infrastructure is crucial to avoid unnecessary investments, says Maximilian Niederehe, Business and Solutions Development Manager at Siemens Energy.



There are two steps in the shift from coal to gas, explains Niederehe. “We need to look at the whole energy system a bit differently – and try to use the geographical advantages that some of the locations might have and, bring the power via storages to those points where it’s really required.”



The market exists and, so does the technology – the general question is, who is capable of operating the storage?



Typically, Africa is very good at extracting minerals and then exporting those minerals. Is there an opportunity on this continent for extraction, exploitation and, development, asks The Money Show’s Bruce Whitfield.



“This is something that African governments should be looking at,” says Bhavtik Vallabhjee, Head of Power, Utilities and Infrastructure at Absa Corporate and Investment Banking. “We are blessed with an abundance of resources and, as you quite rightly point out, this is actually beneficiated – manufactured products are actually produced elsewhere.”



Bearing in mind South Africa’s gradual shift away from being a mining economy – to address the country’s high unemployment rate, “we’ve got to look at other ways of actually stimulating our economy,” says Vallabhjee. He believes that government should look at providing incentives to entice foreign investors to set up local factories to create opportunities for South Africans.



On the political perspective – Ted Blom, Power and Mining Expert and Partner at Mining and Energy Advisors, believes that the Mining Charter is an impediment to the hundred years of growth in the mining industry. He says, “with this new mining charter demanding 51% BEE requirements, no organisation can put shareholders’ money into a project where… you’re supplying all the capital but you’re not part of the decision-making process.”



To take a major step toward energy stability in South Africa – Blom encourages the government to restore the playing field and, to give mining companies reasons to reinvest in the country.

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Coal to gas shift – a major step toward energy stability in SA

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The African continent is blessed with an abundance of natural wealth – her limitless potential casting an illuminating glow over her people.



So, as we begin to move to hydrogen future – away from this dark cloud of coal and into the glow of renewable energy, we have already seen a significantly reduction of carbon emissions and tremendous potential for the application of battery storage, says Maximilian Niederehe, Business and Solutions Development Manager at Siemens Energy.



“Some of the technologies are also capable of having a sector coupling potential,” says Niederehe, in reference to the potential of multi-usage of energy and its flexibility to allow users to decide how to make effective use of storage.



So, what does Africa’s energy future look like 20 years from now?



“The future of energy is really bright from a renewable energy perspective,” says Bhavtik Vallabhjee, Head of Power, Utilities and Infrastructure at Absa Corporate and Investment Banking.



“You will find that our landscape of energy will actually move away from coal – there will be gas supplementing variable renewable energy, wind, solar, energy storage will be a big dominant part and, the storage element will actually enable renewables to be dispatched as and when needed,” predicts Vallabhjee.



He believes that the considerable amount of capital invested in the evolution of battery technology and energy storage, coupled with tapping nature’s natural resources, “really makes for a green future going forward.”



Ted Blom, Power and Mining Expert and Partner at Mining and Energy Advisors says electricity will become commoditised.



“In 2040 and after that, the terrain will be very different and hopefully we’ll also be in a very prosperous position,” he affirms.

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The future of renewable energy is bright

South Africa is lagging far behind in the transition to renewable energy. Sadly, tackling Africa’s energy crisis starts with policymakers and evidence shows that they’re not moving fast enough to secure economic prosperity for the African people.



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“Energy is the key ingredient for economic development,” says Ted Blom, Power and Mining Expert and Partner at Mining and Energy Advisors. Having traversed the African continent for over 30 years, Blom believes that the African people now see energy as “the gatekeeper to a very prosperous future”



Considering this – he foresees a rise in competition in the medium term, which will inevitably lead to affordable energy prices, which will undoubtedly be welcomed by the African population.



The role of policymakers



“Unfortunately, you need things to go wrong first before they come right,” says Bhavtik Vallabhjee, Head of Power, Utilities and Infrastructure at Absa Corporate and Investment Banking.



In light of South Africa’s power struggle – Vallabhjee believes that the South African government’s Integrated Resource Plan is a step in the right direction. “There’s a very clear shift there where we are clearly moving away from over-reliance on coal to diversifying our energy mix.” 



The obsolescence argument: Where does that leave the future of energy provision on the continent?



Eskom’s coal-fired power generation fleet is old, inefficient and expensive to run. Couple that with the fact that its transmission grids were designed for centralised power generation – if Eskom fails to install a generation plants at load centres, it will continue to expose itself to significant power losses during long transmission distances.



To avoid obsolescence, Vallabhjee advises Eskom to consider the redesign of its centralised transmission grids.

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Energy is the gatekeeper to a prosperous future

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As a bank at the forefront of financing the country’s emergency power program, Absa has seen significant interest from international developers, with various forms of energy storage at the centre of that interest.



Relieved to see battery technology coming to the fore – Ted Blom, Power and Mining Expert and Partner at Mining and Energy Advisors says “the Eskom that we knew and relied on for over hundred years is no longer capable of satisfying the needs of both the South African economy, South African households as well as the industrialised countries as our neighbours.”



Wherever there is a problem, there is a solution and, a solution is an opportunity, says The Money Show’s Bruce Whitfield.



The electrification will proceed…



With its focus steadily on the energy sector, Siemens Energy has bore witness to some of the major trends shaping the electrification of the world.



“From a global perspective, we see the increase in demand in all areas of the world, so the electrification will proceed and, as we learn that all the emerging technologies are very energy-hungry… we see this as a major trend,” says Maximilian Niederehe, Business and Solutions Development Manager at Siemens Energy.



On the topic of regulation, he explains that there have been movements towards enabling energy storage as part of the landscape in Germany.



Asked whether the storage of renewables feasible – Niederehe says “what we see in Germany there is a lot of push, also looking at the decarbonisation of an existing fleet, making coal-fired power plants into storage power plants, which is possible using thermal energy storage.”

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The race to win the battle of energy storage is on

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By Craig Brewer, Managing Director: Investment Banking Division, Absa Corporate and Investment Banking



The mining and resources sectors have always attracted larger-than-life personalities and it is unfortunate that the 2021 Mining Indaba won’t be held face-to-face, especially when there is an underlying sense of anticipation around potential M&amp;A transactions.



There is a real energy in the resources sector at the moment and we could be at the start of a commodity super-cycle. There are a few key drivers: &nbsp;



<ul><li>Favourable commodity prices across most commodities have ignited the underlying operational cash flows and this has been reflected in upward share price movements. If the global vaccine program rollout picks up momentum, this will also build real confidence in the global recovery which will underpin the commodity cycle and be the catalyst for M&amp;A. &nbsp;</li><li>While there is a degree of skepticism about the COVID-19 data coming out of China, what is clear is that China is continuing to invest in its infrastructure program to generate its own economic recovery, and with supply constraints for key commodities &#8211; partly caused by COVID-19 &#8211; this demand is creating pricing pressure for base metals. </li><li>No one can doubt that COVID-19 has fundamentally changed the way the global economy works. Supply chains were quickly exposed, production forecasts vaporized, and expected supply evaporated in days and at the same time demand cratered overnight and if there was demand, supply was either not available or inventory was at the incorrect point in the supply chain. This has resulted in the shortening of supply chains with a global shift back to localization throughout the supply chain, which is bolstering more balanced yet increased demand now spread across the globe. &nbsp;</li></ul>



With these underlying drivers, Absa is of the view that 2021 may well be a break out year for mining and commodity M&amp;A with clear trends in acquisition activity:



Consolidation:



While the resources sector is clearly enjoying a more positive outlook, certain mines and producers have not been able to weather the COVID-19 storm and with weak balance sheets and COVID-19 led productivity challenges, their long suffering shareholders may bail out on the sight of any reasonable cash offer.



We expect Private Equity players and cash-flush mining groups to be opportunistic buyers for the right assets.



Pent-up M&amp;A Demand:



In 2020, it was challenging to execute deals as many deal teams were unable to meet their counter parts, discrete meetings between principles couldn’t take place and due diligence teams couldn’t get to site. This was very different from the buzz and haggling of past deal making. It is very difficult to “look under the hood” of a West African gold deposit while sitting in Canada or South Africa.



Whilst remote working is now firmly entrenched, with the anticipated post vaccine decline in COVID-19 cases leading to the removal of travel restrictions, many of these deal teams will be looking to get out and put deals together. There are still commodity assets with reasonable multiples and with rising commodity prices, deals that may have been speculated about may now appear in the public domain.



It is clear that once travel restrictions are removed, the due diligence and technical teams will be unleashed and we will really start seeing deals consummated.



Gold is shining again:



While there are question marks about the long term viability of the South African gold mining assets with declining yields and miners have to go even deeper, there is no dispute that there is global interest in the physical gold price. The recent decline in US dollar strength and ongoing geopolitical uncertainty, even after the US Presidential election, has all underpinned the importance of gold. This is a life boat for South African mines where all in costs require a bullish gold spot price.



Importantly, if China maintains its intention for the Renminbi to be the equivalent of the US dollar as a safe haven global currency, it needs to get access to gold assets as a core part of its reserve base. This will continue to drive demand for physical gold with a real impact on the longer term spot price.



If it’s not China (or Russia) building up their reserves and creating demand for physical gold, it is the global inflow into gold exchange traded funds which pushed the gold holdings of ETFs to a new record in 2020.



In 2018 / 2019, the gold sector saw some major mergers between the heavyweights including Newmont-Goldcorp and Barrick Randgold. While we may not see deals of this scale in 2021, with this positive gold backdrop, there are still plenty of deals to be done.



In South Africa, with the acquisition by Harmony Gold of the remaining South Africa asset of Anglo Gold, there are limited large South African gold M&amp;A opportunities, so you may find the likes of Sibanye-Stillwater, Harmony Gold and Goldfields looking at North America, West Africa or the newer gold frontiers such as Papua New Guinea or South America for diversification and quality yielding gold assets.



Elsewhere on the continent, we expect activity in West Africa to continue and there seems perineal interest in the region albeit this interest does not always convert into M&amp;A. Yields remain attractive though challenges remain on their position on the cost curve due to infrastructure limitations often compounded by regulatory uncertainty. However, in Absa’s view with its regional presence in Africa, there is sufficient confidence in the West African region to underpin and drive M&amp;A.



Overall, we wouldn’t be surprised to see aggressive M&amp;A this year from the likes of Kinross Gold, Sibanye-Stillwater and AngloGold Ashanti.



Fossil fuel exits:



It is quite clear that stakeholders – including financiers &#8211; are facing significant pressure to meet Environmental, Sustainability and Corporate Governance (ESG) standards.



Fossil fuel exits by the larger global miners be it as a result of bank, shareholder or activist pressure will continue. This theme is being played out across the globe and is evident in the exits from thermal coal by South32 and Anglo American particularly in South Africa.



Having said that, emerging markets still require an efficient and cheap energy source to assist in their industrialisation drives &#8211; the developed countries having gained significant benefit from coal in their industrialising &#8211; and despite pressure, Africa, India and China will still be reliant on coal for years to come.



While there are many players who will be exiting the fossil fuels space in favour of renewables and electric vehicle (“EV”) based commodities, we wouldn’t be surprised to see a bit of a “land grab” for cash flow positive assets in out-of-favour commodities.



Conclusion



M&amp;A discipline is critical this time around in this new commodity cycle. There is significant capital available and this leads to a degree of exuberance with commodity producers which historically has not always ended well. In the last cycle, many producers and mining houses materially overpaid for acquisitions which fell well shorty on the intended value creation that was sold to shareholders. Acquisitive groups will have to focus on clear strategies that can create scale and value to shareholders. As we have mentioned, ESG will also drive where this capital is allocated along with the growing demand for EV based commodities.



With ongoing face-to-face interactions being limited, the ability of deal-making teams will be tested. Dealmakers will play a far larger role in M&amp;A than we have previously seen as the ability to “broker” deals in this environment will be even more paramount. Those dealmakers with quality and direct networks will be the catalyst for M&amp;A deals and being a trusted advisor will make a real difference over execution based advisory teams.



At Absa Corporate and Investment Banking, we play the role of both dealmaker and financier &#8211; we can back our deals with balance sheet. Critically, we bring into this environment of potential M&amp;A, an experienced M&amp;A advisory mining team that has demonstrable experience in linking up counter parties and getting deals done. We truly understand the potential of a deal for our clients and assist them in realising their ambitions.

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M&A activity will be all the rage for resources in 2021

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By Shirley Webber, Head of Natural Resources and Energey, Absa Corporate and Investment Banking



<figure class="wp-block-audio"><audio controls src="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/Shirley-Webber-audio-part-1.mp3"></audio><figcaption>On energy exploration</figcaption></figure>



Issues such as climate change are no longer “soft” elements that can be tucked away in a sustainability report somewhere. Shareholders and other stakeholders are demanding that the banking sector adopts a responsible approach to funding of new projects in the mining and energy sector and this is driving a change in behaviour for all sector participants. &nbsp;



These are the key trends that finance and due diligence teams will be monitoring in 2021:



<h2 class="wp-block-heading">Sustainable Energy Sources for Africa</h2>



The players in the Developed world are pushing strongly for the adoption of Renewable and Clean Energy sources but the reality for the African continent is that it is still very dependent on the likes of coal.



The energy transition could decrease Africa&#8217;s economic outlook, especially in areas where oil and coal have played such a substantial role in powering local economies. However, the energy transition also presents an opportunity for Africa because of the global acceleration towards alternative energy sources and as a continent we are rich in natural gas and energy minerals.&nbsp;Apart from natural gas, our continent is also rich in energy metals and minerals like copper, lithium, cobalt and graphite used in battery storage technology.&nbsp;



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Funds that focus on Environmental, Social and Corporate Governance (ESG) mandates are putting a lot of pressure on organisations that fund and operate fossil fuel projects, to exit these investments. The challenge is that many of these assets continue to generate attractive cash flows and remain a key part of the energy mix in the emerging world.



Power supply issues are topical in all countries in Africa and it is encouraging to note that there are a significant number of sizeable diverse renewable power projects being rolled out across the continent. While there has been a major focus on the fields of renewable and more-green energy solutions like gas-to-power, coal will continue to play an important role in our African energy mix in the near-term.



<h2 class="wp-block-heading">The Paris Agreement</h2>



We expect climate change to fundamentally reshape the Resources industry.



The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. Additionally, the agreement aims to increase the ability of countries to deal with the impacts of climate change, and at making finance flows consistent with a low GHG emissions and climate-resilient pathway. To reach these ambitious goals, appropriate mobilization and provision of financial resources, a new technology framework and enhanced capacity-building is to be put in place, thus supporting action by developing countries and the most vulnerable countries, in line with their own national objectives.



The EU formally adopted into law a series of measures that included&nbsp;a binding target for 32% of electricity production to come from renewables by 2030. Achieving this would require at least a 50% reduction in global greenhouse gas (GHG) emissions by 2050, noting that GDP and population is ever increasing.



<h2 class="wp-block-heading">The African continent is becoming more responsible</h2>



While Developed Markets have made big strides in terms of their commitment to sustainability goals, the African continent was often viewed as a “Frontier Market” where profit overshadowed purpose.



Financiers, operators and even governments are becoming more focused on meeting sustainability goals and one of the trends we highlighted from the 2020 Mining Indaba was that there are much tighter and healthier relationships between governments and investors.



Capital providers can guide customers and stakeholders in their requirements for funding by applying the Equator Principles which include applicable IFC Performance Standards on Environmental and Social Sustainability and the World Bank Group Environmental, Health and Safety Guidelines for various sectors and for funding natural resources extraction transactions.



Where investors can see a stable political and regulatory environment, capital tends to follow.



<h2 class="wp-block-heading">What are banks doing for sustainability in the Resources sector?</h2>



The commitment of 130 banks from 49 countries to the United Nations Principles for Responsible Banking, which were adopted in September 2019, marks an important milestone for the banking industry and so for the Natural Resources &amp; Energy Industry as well.&nbsp;



The Principles for Responsible Banking aim to align business strategy to society’s goals within an acceptable risk framework for society, the environment and corporates. Effective governance, transparency and accountability will be of the utmost importance.



Ultimately, all participants in the resources sector will need to recognise that the sector can no longer be open to exploitation. As a leading financier of resource projects, we realize that natural resources in all its forms are diminishing and it’s imperative that we all work in a sustainable and responsible manner to extract only what is needed.&nbsp;



As a responsible lender committed to facilitating economic and sustainable growth, Absa acknowledges sustainability challenges such as social inequality, growing population, increasing unemployment, pressure on natural resources, as well as climate change. Given our key role as systemic bank in the majority of markets we operate in, we also understand how energy poverty and infrastructure deficits worsen these challenges.

Sustainable Energy: A fascinating dynamic for the resources sector

Modern banking technologies from Absa improve the client experience



Absa is investing in modern banking technologies that enable real-time payments to help their clients deliver a better customer experience.



Real-time transactions used to be seen as just a way to make an urgent payment, now their convenience and speed are becoming a source of innovation and competitive advantage.



The real-time transactions world is one where you select a product or service to buy and pay for the item there and then. It’s also a world where you get paid immediately — the cash really is in the bank. There is no overnight processing of payments or long authorisation waiting times. It doesn’t get any faster or more convenient for customers, and that’s a big win for businesses.



“Globally, real time, or instant payments, are growing faster than any other payment type. This growth is likely to accelerate further with&nbsp;<a href="https://www.aciworldwide.com/-/media/files/collateral/trends/keeping-pace-with-innovation-in-real-time-payments.pdf" target="_blank" rel="noreferrer noopener">industry research</a>&nbsp;forecasting annual growth rates of 40% per year for real-time transactions,” says Richard Stocken, head of cash management product at Absa Corporate and Investment Banking (CIB).



“Real-time transactions delivered at the point of customer contact can improve the experience,” says John Molanda, head of product innovation at Absa transactional banking’s cash management team.



Genuine real-time transactions possible with API



While the trend to instant payments isn’t a completely new one, Molanda says the real difference now is how real time payments are happening, including embedding instant payments into the clients’ business systems.



He says that in the past, integration with business systems was only possible through file-based systems that were more suited to end-of-day processing. Which meant customers and business owners had to wait until the end of the day to collate payments into one file and process the transactions.



“Instant transactions are now possible, thanks to API.”



API is the acronym for application programming interface, where programmes and applications talk to each other, all the time. API is revolutionising cash management, making real-time transactions possible, which creates a better customer experience and saves businesses time while helping with cash flow management.



Molanda says two examples of industries where customers benefit from instant payments are insurance and gaming.



“There is a need in the insurance industry, especially funeral policies, to pay a claim — or at least part of it, instantly. This eases some of the customer’s distress and creates a very positive experience that can’t be replicated with traditional transactional banking processes.”



He says another example is in the gaming industry. “Winnings paid immediately reinforce the positive experience.”



Speed builds trust



Stocken says that when real-time payments are combined with mobile technology, the customer experience can be even better.



This makes the payment seem instant, something not possible when you have to log on to a banking system, load beneficiary details and make the payment and send a proof of payment, Molanda says.



Stocken says Absa is seeing some interesting innovations, where payments are embedded directly into mobile apps using API.



“We have a client whose more than 1,000 agents are using mobile applications that have the capacity to authorise a debit order mandate in real time. When you do this with the customer in front of you, you build trust while improving the business’s ability to collect payments.”



Costs coming down



Stocken acknowledges that high costs are an issue in real-time payment technology, but he expects them to come down in future.



“There is an industry initiative to introduce a low-cost instant payment capability as an alternative to low-value physical cash transactions, the initiative is called ‘Rapid Payments’. This project is in the early stages but has the potential to transform how businesses interact with their customers.”&nbsp;



Absa’s CIB cash management team is ready to work with clients to help them use modern banking technologies in their businesses so they can create great customer experiences. Visit the&nbsp;<a href="https://cib.absa.africa/corporate-banking/cash-management/" target="_blank" rel="noreferrer noopener">Absa CIB website</a>&nbsp;for more information.



Get business done. To assist you with your cash management solutions, get in touch with&nbsp;<a href="mailto:John.Molanda@absa.africa" target="_blank" rel="noreferrer noopener">John Molanda</a>&nbsp;or&nbsp;<a href="mailto:Richard.Stocken@absa.africa" target="_blank" rel="noreferrer noopener">Richard Stocken</a>.



This article was paid for by Absa CIB.

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Absa creates a better client experience and saves businesses time with API integration

Isana Cordier, Sector Head: Consumer Goods and Services



Highly regarded marketing and investment commentator Professor Scott Galloway of Stern University recently shared a fascinating statistic: More US households own an Amazon Prime Membership than decorate a Christmas Tree, own a pet or go to Church in 2020.



This statistic speaks to the changing consumer landscape across the globe and the role that digital platforms now play in the retail space.



While South Africa does lag some of its first-world peers in terms of digital consumption, “Black Friday” – and by extension “Cyber Monday” – trading statistics presented some insights into the impact of the COVID-19 pandemic and what it might mean for retailers going forward.



In the past, Black Friday has very much been viewed as an opportunity for retailers to do physical activations and sell “big-ticket” items such as electronics and home appliances through in-store activations. “Cyber Monday” was then an opportunity for the online retail operations to kick into gear.



For obvious reasons, 2020 has not been a normal year and retailers didn’t see queues outside their physical stores and many of the deep discounts that we have seen in the past have not materialised.&nbsp;



While some of this can be attributed to economic pressures, we need to remember that many retailers did not have a normal stock year – it takes up to 6 months to prepare for Black Friday, and many retailers didn’t have Easter specials or the ability to plan their stock levels due to the lockdowns that were implemented across the globe.



With the Festive season upon us, it is worth unpacking some of the data to better understand exactly how consumers reacted this year.



The first stand-out data point is that the “Real Black Friday” actually took place in March 2020 just prior to the Level 5 lockdown coming into effect. Over R1.2bn in transactions took place on the day before the lockdown came into effect and the three days prior to lockdown were 3 of the 4 highest days in terms of transaction volumes.



However, only certain categories benefitted as consumers were stocking up on alcohol, groceries and fitness equipment leading to a spike in consumer activity across the country.



With the lockdowns starting to bite, unemployment spiked in the third quarter of 2020 with the unemployment rate coming in at 30.8% &#8211; the highest unemployment rate on record since the Quarterly Labour Force Survey (QLFS) began in 2008.



This was reflected in the data we saw as the traditional Black Friday rolled around.



According to data out of BankServAfrica, in-store card purchases on 27 November numbered just under five million, a decrease of 30% compared to 2019. Online transactions, by contrast, spiked by more than 60% to just under 870,000 sales in total. This represented an increase of 300 000 extra online sales.



There were two million fewer sales in physical stores according to the BankServ data.



Looking specifically at Absa data, we can see the following:



<ul><li>Black Friday spend in 2020 decreased by 22.4%, with just over 2 million Absa Card customers swiping or clicking on the day. The total turnover for the day on Absa Card customers was approximately R2.7bn and 5.2 million transactions took place.</li><li>Total turnover for Absa acquiring data was roughly around R6.9bn over the Black Friday weekend.</li><li>The total Card Issuing spend for the Black Friday weekend was 22.4% down last year, whilst Payment Acceptance showed a 31% decrease which correlates somewhat with Bankserv statistics.</li><li>There were 86 transactions approved every second down by +- 23 transactions, valued at R47k/second also down with +- R21k/second from the previous year</li></ul>



What are some of the key insights that retailers can use in their decision-making process:



<ol type="1"><li>There was a shift from credit to debit card in 2020: While this statistic needs to be investigated further, it may suggest that many consumers are reaching their credit limits and this may have a material impact on the December spending habits. Our data showed that credit card transactions declined for both credit card “present” and “card not present” transactions. Online spend for debit card transactions had risen 29% over the period.&nbsp; &nbsp; </li><li>Consumer confidence is coming back: Data out of the Stellenbosch-based Bureau of Economic Research (BER) reported a spike in consumer and wholesaler confidence, following a sharp increase in consumer spend in the third quarter.</li><li>…. But consumers are feeling the pinch: Considering that many retailers choose to run a longer sale program throughout the month of November, it is also noticeable that the whole month of November 2020 is comparatively down 2.7% compared to November 2019.&nbsp; This is striking against the previous month of October where traded value was up 17%. Most categories reduced in value processed, except the Building and Home Improvement categories.&nbsp; Even the biggest traders in Food and Groceries category show reduced trading through the month of November. It remains to be seen whether the termination of the UIF and TERS benefits plays a material role in consumer confidence in December.</li></ol>



<ul><li>Consumers are changing what they buy: The December sales update out of Italtile showed the work-from-home trend was driving a clear shift toward greater investment in the home, aided by restrictions on travel and other recreational activities.</li></ul>



<ul><li>Consumers are changing how they pay: Despite some challenges with online channels it’s clear to see that customers are embracing new payment channels like Tap and Go and online more than doubling from 8% in 2019 to 22% in 2020.New payment types like Samsung Pay / Garmin Pay / Apple Pay / Fitbit Pay and others can also be seen to be used to pay for goods such from groceries, fuel to something to eat on the go. </li></ul>



Financial results coming out of the retail groups suggest that those who made the shift toward digital channels have reaped benefits.



Reporting interim results in November, The Foschini Group (TFG) saw online sales now make up 14.4% of total turnover. Online turnover in TFG Africa and TFG Australia saw strong growth of 115,8% (In Rand terms) in TFG Africa and 66,8% (In Australian Dollars) in TFG Australia for the six months ended 30 September 2020.



Woolworths similarly reported a pleasing shift toward digital channels when reporting its sales for the 20 weeks ended 15 November 2020. The group provides an interesting marker for the health of the consumer due to its diversified geographic footprint and product ranges.



While talk of COVID-19 vaccines arriving in early 2021 have boosted market confidence, digital channels are expected to play bigger roles in the consumer and retail space – it just remains to be seen whether the economy has enough momentum to sustain this consumer rebound.

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Black Friday taking consumers from bricks to bytes

Edcon’s sale of Edgars and Jet have changed the dynamics of the consumer goods sector.&nbsp; The resultant consolidation of clothing retailers is long overdue, reckons Evan Walker, a portfolio manager at 36ONE Asset Management.



“It’s a good acquisition for them,” says Walker, referring to the current valuation compared to only a few years ago.&nbsp; “Unfortunately, we need more consolidation,” warns Walker. “And I’m still nervous about the amount of space on the food side.”



Isana Cordier, Head of Consumer Goods and Services at Absa Corporate and Investment Banking, agrees.&nbsp; “It sounds funny, but consumers want less choice – the need to simplify is driving behaviour.&nbsp; More consolidation is likely.”’



<h2 class="wp-block-heading" id="h-deglobalisation-of-supply-chains">Deglobalisation of supply chains</h2>



Covid-19 has disrupted global supply chains severely, showing the value of bringing them closer to home.



“We’ve been heading down that route for the last five years,” <a>says Anthony Thunstrӧm, CEO at The Foschini Group (TFG). </a>&nbsp;“We’re looking at 42-day lead-times in South Africa versus 150 in the Far East. The net result? There’s far less ‘fashion risk’ as we make decisions on real-time data and we’re getting better gross margins. With Covid it’s become absolutely important. There’s too many variables out there.”



TFG has upped local manufacturing to between 30% and 40% in the last year, accelerating the process by about three years.



[23:53 to 34:34]



<a href="https://omny.fm/shows/life-podcasts/consumer-goods-sector-is-consolidating-and-supply">https://omny.fm/shows/life-podcasts/consumer-goods-sector-is-consolidating-and-supply</a>

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Consumer goods sector is consolidating – and supply chains are de-globalising

<h2 class="wp-block-heading" id="h-using-data-to-understand-the-consumer-of-the-future">Using data to understand the consumer of the future</h2>



Author: Isana Cordier, Sector Head: Consumer Goods and Services



As we start to break through what can possibly be described as “the longest winter”, forever to be known as the COVID-19 year, we are left to realign our lives and find some sort of rhythm back with what was left in the wake of the storm.&nbsp;&nbsp;



2020 has forcefully disrupted many consumers, and as a result traditional consumer-facing businesses in South Africa are left having to re-assess and re-configure the road map of their business models and investment plans to the changed landscape that is facing them economically and structurally. &nbsp;



Now, more than ever before, any data available that could potentially shed some light on the scene are being explored and analysed to provide much needed insights into how the road ahead could potentially unfold.



Absa is a transaction enabler to retailers across the spectrum and our card-acquiring services give us a unique insight into the spending habits of consumers at these retailers. This data, coupled with our innovative Pocket Flow tool, mean that we can not only look at what has happened in the past, but can also start to guide clients around where certain industries are headed.



Before we take a deep-dive into some of the consumer card spending data, let’s look at a couple of practical examples of how consumer behaviour has been influenced by the pandemic, and how retailers potentially have to consider adapting their business models as a result.&nbsp;



In the clothing category for instance, with many South Africans now forced to adopt the “Work from Home” trend, we are spending less time worrying about our professional work-wear. &nbsp;Suits are out and functional clothing is in. &nbsp;&nbsp;Yet how many retailers have the agility in their supply chain to embrace this new trend, particularly if the lockdown and work-from-home trends continue to develop? A retailer like ZARA has <a href="https://digital.hbs.edu/platform-digit/submission/zara-achieving-the-fast-in-fast-fashion-through-analytics/">long been recognised</a> for its ability to use data analytics in fashion to adjust its supply chains – in contrast many of its peers have faced declining sales, simply because they are not able to adjust in real-time to what is happening in the market.



Another consideration is the rise of e-commerce. Retailers who had invested heavily in this element of their business pre-COVID, were natural winners. &nbsp;JSE-listed companies are releasing their financial results and organisations such as <a href="https://www.moneyweb.co.za/news/companies-and-deals/mr-price-online-sales-surge-75-post-lockdown/">Mr Price have reported</a> that they saw up to 75% increase in online sales post lockdown – consumers are no longer heading into big retail stores but are increasingly happy to trust online systems.&nbsp;



Pre-COVID lockdowns, technology was already disrupting traditional retailers – the pandemic has simply accelerated many of these trends.



Moving on to what we see when we look at the data from our acquiring services, we notice some interesting insights starting to emerge. We recognise that this view is based on Absa’s share of this particular market, which is sizable to trust as a sample, but we have also tested with our retailers and find clear correlations to what the data is showing us.



In March, just as the lockdown was about to be implemented, there was a 7% increase in consumer spending over March 2019. Much of this can be attributed to panic buying as consumers stocked up on groceries and non-perishable food items in fear of the looming lock down.



Interestingly, consumers also stocked up on funeral insurance, medical aid and life insurance policies. The funeral services category was in fact the only tracked category to rise while under Level 5, whilst consumer spending dropped 38% overall. &nbsp;



With level 4 lockdown starting and continuing for the month of May, we witnessed a lesser overall decline in spending of 11% comparing the same month in the previous year, with decrease in food and clothing category 7% for this period.



In June we entered into Level 3 and spending overall increased by 14% when compared to June 2019. Many retailers reported higher than expected sales. We can assume that most households had excess cash due to the lack of spending on categories such as travel and entertainment, and pent up demand from previous months’ restricted trading conditions. Increased SASSA payments and a possibility of retrenchment packages probably also attributed to an increase in household cash.



With level 3 Lock Down continuing during the month of July, we saw spending for the month increased with 6% comparing to 2019. Grocery and Supermarkets showed a 6% increase, despite restricted trading of alcohol and cigarettes. Clothing stores were more severely impacted with declines in some categories of around 26%, whilst restaurants traded 59% below comparative period.



However, a 147% increase in Fast Food Sales was recorded, reflecting the rise of the “Dark Kitchen” trend. This trend further establishes the consumer’s move to digital channels and the uptake of online food delivery services, estimated to be worth over $110bn globally in 2020.&nbsp;



Earlier we touched on the “Work from Home” trend which evidenced increased sales in the Home and Garden category of 28% for the year up to July 2020.&nbsp; Some of the other developments of interest include:



<ul><li>An increased focus on healthy lifestyle / living</li><li>The world of education is changing with home-schooling and digital classrooms</li><li>A focus on the simplifying and personalising of individual lifestyles</li><li>Re-envisaged travel, both local and international</li></ul>



For retailers, this consumer behaviour has quite some significant implications to be considered in the relevant categories, but also across categories, recognising the interdependency of trends being established.



Although the year still looks fairly positive with a 1.5% increase in overall spending on a comparative year-on-year spending, consumer financial health is finely balanced and much will depend on how quickly the economy can get back on its feet.&nbsp; Discretionary spending, especially in mid to upper LSMs, is likely to continue to stay depressed with slightly more resilience in the lower LSM clothing category.&nbsp; Food retailers should hold their own, but it is expected that investment will rather go to e-commerce and omni-channel solutions than store expansions.&nbsp;



Real-time data analytics is going to be key for the retailer of the future. COVID-19 has forced retailers to adopt digital channels far more aggressively and organisations that fail to adapt will find themselves facing a challenging future. As a bank, Absa is committed to embracing technology and empowering our clients to make smarter business decisions and we look forward to sharing future consumer sector insights with you.



<ul><li>ENDS</li></ul>



<a href="https://omny.fm/shows/life-podcasts/absa-insights-consumer-goods-services-full-webinar">https://omny.fm/shows/life-podcasts/absa-insights-consumer-goods-services-full-webinar</a>

Absa Reboots Image As 100 Years Of Barclays In Africa Ends

Using data to understand the consumer of the future

Food retailers have done exceptionally well, benefitting from an increase in “at home” consumption.



“There’s been a change in consumption patterns,” says Evan Walker, a portfolio manager at 36ONE Asset Management.&nbsp; “But that is beginning to normalise.”



Similarly, in the clothing category, the “work from home” trend is also impacting on retailers.&nbsp; Suits are out; tracksuits and pajamas are in. “You don’t even know if I’m wearing trousers,” quips The Money Show’s Bruce Whitfield from behind his webcam.



Nimble retailers with the ability to use data to quickly adjust supply chains haven’t faced the declining sales of less agile peers. 



<h2 class="wp-block-heading" id="h-wellness-and-local-is-lekker-are-having-a-moment-and-consumers-demand-value">“Wellness” and “local is lekker” are having a moment – and consumers demand value</h2>



Covid-19 has massively accelerated consumers’ shift towards anything related to “wellness”, says Anthony Thunstrӧm, CEO at The Foschini Group (TFG).&nbsp; He expects the dramatic shift to casual wear and wellness to continue for another 12 to 24 months.



Thunstrӧm says consumers across income groups are demanding better value.



SAB already sources more than 95% of the ingredients it uses locally.&nbsp; It also increasingly procures merchandise and point-of-sale materials in South Africa.



Only about 5% of consumers in South Africa has ever bought alcohol online, says SAB Marketing Director Vaughn Croeser.&nbsp; “Where we see acceleration is on the business-to-business side – helping our retailers optimise revenues through algorithmic selling and using artificial intelligence to determine the right order quantities.”



TFG sees a significant expansion of local manufacturing of its lines over the next five years.&nbsp; The rapid shift to online buying during the pandemic will continue, it expects, even as consumers trickle back into the malls.



<h2 class="wp-block-heading" id="h-investment-risks">Investment risks</h2>



A great risk to investments into the consumer goods sector remains South Africa’s deteriorating fiscal situation, says Walker.



“If the public sector wage bill doesn’t come down dramatically in the next three years, we’ll be looking at currency north of 13 to the dollar and a bond rate of 20%. It must be curtailed, or we won’t have a domestic economy. It’s as simple as that.”



Landlords have a tough five year ahead of them, reckons Walker. “Retailer are going to be brutal – and they should be!”



“I’m on the side and waiting,” says Walker.



“We’ve had a huge shock to the system with Covid,” says Isana Cordier, Head of Consumer Goods and Services at Absa Corporate and Investment Banking. “Hopefully, people wake up. We need to bring manufacturing back to South Africa. The economy will recover, but next year is going to be particularly tough.”



<h2 class="wp-block-heading" id="h-consumer-health">Consumer health</h2>



Before Covid-19, about 90% of TFG customers paid in-store, providing an opportunity to “on sell”. When the pandemic hit, the retailer worked with food retailers to service these clients, and also with Absa to enable digital payments.



TFG is not relying on credit to boost its sales.&nbsp; In fact, it has reduced its credit offerings to customers.&nbsp; “Cash growth in our stores have increased,” says Ntuli.&nbsp; Today, TFG encourages and rewards cash payments, lay-bys and timeous payments of accounts.



“The consumer is definitely under pressure, and I don’t think that’s going to change for a while.”



[46:35 to end]



Link to podcast



<a href="https://omny.fm/shows/life-podcasts/consumer-goods-sector-how-the-next-5-years-may-pla">https://omny.fm/shows/life-podcasts/consumer-goods-sector-how-the-next-5-years-may-pla</a>

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Consumer goods sector: How the next 5 years may play out

Absa’s working capital management solutions help businesses successfully manage their cashflows and working capital so they can navigate Covid-19’s financial challenges



A business cannot succeed without cash to meet current expenses. Paying bills when they are due is only possible when working capital is well managed.



<h2 class="wp-block-heading">Working capital is the life blood of the organisation</h2>



“Working capital is what you use on a daily basis to convert your assets into cash,” says Ovizikhungo Sicwetsha, pan-Africa head of short-term products at Absa Corporate and Investment Banking.



“It is the life blood of the organisation, the oil that keeps the business running,” says Bohani Hlungwane, group head of sales, Trade and Working Capital, Absa Transactional Banking.



“The trick is to manage the cash conversion cycle so that you convert assets to cash as quickly as possible and keep cash in the business for as long as possible,” Sicwetsha says.



One of the ways to achieve this is to lengthen the time to pay suppliers. Although this may give the business cash for longer, delaying payment can ruin relationships and reputations.



<a>Working capital finance products </a><a href="#_msocom_1">[PH1]</a>&nbsp;that reduce the number of days it takes to turn accounts receivables into cash and extend the number of days to pay are a better option. They also reduce risk because there is more certainty around cashflows, something businesses have struggled with in 2020.



<h2 class="wp-block-heading">Managing working capital in a crisis</h2>



“We are seeing businesses struggling to perfect the operating cycle and be efficient throughout their cash conversion cycle,” Sicwetsha says.&nbsp;



“This is because everyone is looking for efficiencies – debtors are looking to delay payments, creditors want to collect earlier and manage their stock levels as efficiently as possible.”



Sicwetsha says cash conversion cycles differ from sector to sector depending on the state of the economy. “Proper understanding and planning are key to surviving events such as recessions and other economic catastrophes like Covid-19. Building cash reserves, renegotiating supplier contracts and managing inventory much more tightly are just some of the techniques businesses have used to weather this storm.”



Sicwetsha has more advice to help clients manage their working capital efficiently in these difficult times:



<ul><li>Pay creditors when they are due &#8211; don’t pay late</li></ul>



Only take advantage of early settlement offers if there is an obvious benefit to you.&nbsp;



<ul><li>Collect trade receivables as early as possible by offering incentives such as early settlement discounts</li></ul>



Use cash in your own account to earn a better yield in money market accounts.



<ul><li>Improve inventory turn and optimise inventory management&nbsp;</li></ul>



Many solutions use data and technology to manage demand and supply, for example businesses order just what is needed to fulfil a specific order (just in time), or alternatively carry inventory on consignment.



<ul><li>Communicate and use data</li></ul>



Keep in touch with customers, debtors, creditors and your bank so you know where your business stands in relation to these stakeholders. Use data to identify trends, which debtors respond to early settlements for example, and use these in your working capital management.&nbsp;&nbsp;



Sicwetsha says Absa has solutions linked to each of these working capital elements that will help businesses to improve their cash conversion cycles by getting cash earlier while waiting for the invoice to be settled.&nbsp;



Working capital management solutions from Absa



“We analyse our clients’ <a>working capital </a><a href="#_msocom_2">[PH2]</a>&nbsp;to see where we can assist with solutions such as short-term overdrafts, money market overnight loans, trade loans and other short-term financing solutions linked to the entity’s business and their cycles.&nbsp; In some instances, our solutions are looking at the buyer – as means of assisting the sellers get their cash quicker.&nbsp; We also consider funding based on the inventory the client is keeping,” Hlungwane says.



Some of Absa’s solutions are bespoke to the client’s trade cycles and needs, others are designed to manage cashflows and mitigate risks associated with <a>cross border transactions. </a><a href="#_msocom_3">[PH3]</a>&nbsp;The group has a number of <a>award-winning solutions </a><a href="#_msocom_4">[PH4]</a>&nbsp;for businesses operating across borders and in multiple currencies including customer foreign currency (CFC) overdrafts, cross border trade loans and discounting/refinance of letters of credit.



Absa’s working capital solutions and products can be accessed digitally, and the group is using technology and data to help businesses identify working capital management trends.



“Clients using Absa’s digital platforms can see of who is using lots of cash in their business, who is generating more cash inflows, and when these cash flow movements are happening,” Sicwetsha says. “They can use this information in their forecasting activities and manage their working capital more efficiently.”



<hr class="wp-block-separator"/>



&nbsp;<a href="#_msoanchor_1">[PH1]</a>https://cib.absa.africa/corporate-banking/liquidity-management/



&nbsp;<a href="#_msoanchor_2">[PH2]</a>https://www.absa.co.za/corporate-and-investment-banking/products-and-services/working-capital/



&nbsp;<a href="#_msoanchor_3">[PH3]</a>https://cib.absa.africa/corporate-banking/working-capital-trade-finance/



&nbsp;<a href="#_msoanchor_4">[PH4]</a>https://www.businesslive.co.za/companies/financial-services/2020-09-10-native-absa-cib-proves-its-digital-credentials-on-a-global-stage/

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Take advantage of Absa’s bespoke working capital management solutions to optimise cash flow and reduce interest charges

It took a pandemic, but consumers in South Africa have adopted online shopping – a change that is likely to be permanent.



“At the beginning of our last financial year, ecommerce was 1% of our turnover,” says Anthony Thunstrӧm, CEO at The Foschini Group (TFG). “By the end of the year it was 2% &#8211; a 100% growth rate. We’re currently running at between 5% and 6%. It moved us forward about three years.”



“I don’t see online sales going back,” says Bongiwe Ntuli, Chief Financial Officer at TFG.&nbsp; “I see it escalating further.”



<h2 class="wp-block-heading">Stores are ending up as showrooms</h2>



Despite the shift online, and the likely permanence of the trend, TFG still intends to expand the number of physical stores from which it operates.



TFG has thousands of collection points for online shoppers across South Africa. “We’ve got more branches than the Post Office!” says Thunstrӧm, only partly in jest.&nbsp; “The store is still the easiest place to return a product.”



TFG has more than 500 of its South African stores connected to a central database – it doesn’t have to ship from a distribution centre.



Cash remains, for now



“We’ve seen a reduction in the use of cash,” says Isana Cordier, Head of Consumer Goods and Services at Absa Corporate and Investment Banking. “But it was predominantly due to trading conditions. I don’t think cash is going away.”



Nevertheless, says Cordier, banks are trying to introduce different payment mechanisms to displace cash to some extent.



<h2 class="wp-block-heading">Challenges remain, but some are getting it right</h2>



Amongst food retailers, Checkers has stolen the show.



“Sixty60 has been a successful project. They got their logistics right,” says Evan Walker, a portfolio manager at 36ONE Asset Management. “The feedback from consumers is positive. They’ve jumped ahead of their competitors.”



For retailer such as Foschini, complications will probably be store-related (i.e. ensuring hassle-free returns, dispatching the correct items, etc.).



“Getting people back into the stores [to buy clothes] is going to be a challenge,” says Walker. “They’re going to have to be innovative. They’re going to have to offer incentives, offer an experience and improved service, so their stores don’t become redundant to the consumer.”



Internationally, about 70% of online clothing sales take place on a smartphone app, and personalisation has become fundamentally important. “We’ve launched a couple over the last few months,” says Thunstrӧm. “You can take a photograph of how you’re dressed. The app catalogues that photo against every product across all our brands. It then comes up with five or six suggestions based on your photo and past purchase history.”







<a href="https://omny.fm/shows/life-podcasts/covid-19-is-shoving-retail-and-consumers-into-the">https://omny.fm/shows/life-podcasts/covid-19-is-shoving-retail-and-consumers-into-the</a> [34:34 to 46:35]

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Covid-19 is shoving retail – and consumers – into the future

Consumer goods, as a sector, came under extreme pressure during the Covid-19 lockdown. In an economy that has shed 2.2 million jobs in the second quarter of 2020, it remains under incredible duress, perhaps more so than at any time in the past century.



“It’s interesting times indeed,” says Isana Cordier, Head of Consumer Goods and Services at Absa Corporate and Investment Banking.&nbsp; “Looking at the data, people are still spending, they’re just spending differently.”



<h2 class="wp-block-heading">Consumer spending is holding up, but changing</h2>



Predictably, grocery “basket sizes” have grown while shop visits have fallen.



Major super regional shopping malls&nbsp;across South Africa, particularly those exposed to tourism such as the V&amp;A Waterfront and Canal Walk in Cape Town, are still well down on normal levels.&nbsp; Some smaller, less urban malls are up on pre-Covid levels, says Anthony Thunstrӧm, CEO at The Foschini Group (TFG).&nbsp; “You almost think there’s no coronavirus!”



“Our bottom line is under pressure. Our margins are under pressure. But South Africa has a resilient economy and we’ve seen an uptick in the past few months,” says Bongiwe Ntuli, Chief Financial Officer at TFG.



“Our product is built on the premise of sociability, so it was incredibly challenging,” says SAB Marketing Director Vaughn Croeser



Since the resumption of trading, SAB has seen good sales volumes, but also shifts in consumer behaviour, particularly towards the value sector, which remains robust, and in-home consumption. This trend is unlikely to continue beyond the short-term, says Croeser.



<h2 class="wp-block-heading">Dawn of digital adoption</h2>



Ecommerce made up about 1% of TFG’s turnover at the start of its last financial year.&nbsp; It’s currently at between 5% and 6%. “It moved us forward about three years,” says Thunstrom.



&nbsp;“I don’t see online sales going back,” says Ntuli.&nbsp; “I see it escalating further.”



Listen to the full podcast <a href="https://omny.fm/shows/life-podcasts/south-africans-are-still-spending-though-different">here</a>.

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Absa Insights

Africa driving the banking revolution

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The future of renewable energy is bright

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The race to win the battle of energy storage is on

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South Africans are still spending, though differently – and increasingly online

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