e-spaces

January 15, 2008

By Tom Robbins

Cape Town – Sales growth at Massmart’s home improvement division had outperformed its other retail units, despite signs that high interest rates were starting to bite into the home renovation market, the firm said yesterday.

Massmart’s chief executive, Grant Pattison, said the division, which include Builders Warehouse, was continuing to take market share from rivals, giving it, for now, a “defensive” counter cyclical element.

In the 26 weeks to December 23, sales at the Massbuild unit grew 16.2 percent compared with a year ago, higher than an overall 11.6 percent rise in sales at chains which include Game.

Massmart said last month growth in its smaller building materials category, which include bricks, had slowed, while the bigger do-it-yourself category, which include power tools, had seen strong growth.

But it is not just new home building that has declined.

Statistics SA said late last year that approved city residential renovations had moved firmly into negative territory.

But Pattison argued that the time taken to get permission for renovations from authorities, as well as hiring contractors, probably resulted in this sector lagging the slowdown in discretionary spend.

He also said that despite a slowdown in the rise of house selling prices, there continued to be low double-digit growth in house prices. This meant house values were still growing faster than inflation, contributing to positive sentiment regarding upgrading homes.

Pattison said heavy summer rains meant many delayed jobs would still have to be completed when builders returned to work from holidays this week.

Evan Walker, a retail analyst at RMB Asset Management, said despite the difficult climate, it was likely that marketing a now consolidated Builders brand had seen the division take market share from independent rivals.

Massbuild now trades under the Builders Warehouse chain, as well as the Builders Express and Builders Trade Depot brands, after acquiring various chains, such as De La Rey and Federated Timbers.

Walker said apart from Massmart’s skill at marketing, which had previously helped boost performance at Game, the company had also brought a new level of retail expertise to the urban building materials retail sector.

But he said Massbuild “was not totally running ahead of the market”, as Spar’s Build It chain had also reported strong sales growth last year.

While sales growth in the building materials sector had slowed, there was no evidence of a collapse in sales.

But poor festive season clothing sales gave indication that the consumer was under significant pressure, casting doubt over the continued strong performance of building materials sales.