Shareholder activist Theo Botha will feel vindicated at the sight of the retail sector performance in the 2009 Top Empowerment Companies (TEC) survey.
Towards the end of last year, Botha took a shot at prominent retail sector players for dragging their feet in the implementation of black economic empowerment (BEE). In a stinging presentation to the Black Management Forum (BMF) he said: "JD Group relies on black spending power and yet after 14 years of independence, the group is still trying to cobble together a BEE deal." On Pick n Pay, he said: "I find it quite strange that this company, which is extensively supported by black consumers, has no broad-based BEE in place."
The retail sector has trailed the general economy when it comes to BEE implementation and the TEC data confirms that. Only one listed retailer, Cashbuild, achieved coveted level 4 status - a BEE score ranging between 65% and 75% and yielding 100% recognition on the preferential procurement scale. Cashbuild achieved a total BEE score of 68,3% in the 2009 TEC survey.
Cashbuild is trailed by fashion retailer Foschini, which produced a total BEE score of 57,8%. In third place is Massmart with 56%, New Clicks (53,8%), AdvTech (47,4%) and Woolworths (45,1%). According to the TEC data, The Spar Group, Truworths, Pick n Pay and Lewis Group fall below the 45% mark.
The retail sector is thought to have been slow on the BEE front because it is under no direct regulatory pressure to speed up the process. The sector has little interaction with the state in its trading activities. It deals directly with consumers, who do not check BEE status before spending their money. As a result, some retailers could not be bothered with BEE.
Morally speaking, the retail sector should be an enthusiastic participant in the BEE process. The opening up of the economy to previously disadvantaged communities resulted in the blossoming of the black middle class, which then drove the retail boom of the past decade.
The business model adopted by Cashbuild is worth noting. Its revenue has increased from levels below R1bn in 2001 to R4bn in the year ended June 2008. Operating profit and dividend flow have more or less followed the same trend as revenue growth. Cashbuild outlets have increased from less than 100 in the early 2000s to 172 in September last year. A significant portion of this expansion took place in previously disadvantaged areas, black townships.
Says CEO Pat Goldrick in the latest annual report: "Our social investments and the development of people, with particular emphasis on the distribution of wealth, are visible but modestly spoken about." He refers to a number of BEE initiatives where Cashbuild stores give preference to the use of local suppliers.
In the 2009 TEC data, Cashbuild achieved 100% in enterprise development and claimed 15 out of 20 in preferential procurement. The group scored 7,3 out of 10 in the management element, which is largely drawn from recruiting local people into its stores and employing all divisional managers from the regions in which it operates.
In 2005, the group distributed 10% of its shares to its employees, the majority of whom are black. It pioneered the usage of an employee share ownership scheme as a favoured form of BEE in the retail sector.
