OPERATIONAL REVIEW

R17.2 billion
prescriptions processed

Michael Harvey
Manging Director

Clicks is a specialist health, beauty and homeware retailer focusing mainly on female consumers in the middle to upper income markets. The brand offers value for money in convenient and appealing stores.

Review of the year

Clicks continued its strong sales and profit growth trend as the brand entrenched its leadership in the health and beauty retail markets. The performance reflects the benefit of the ongoing investment in people, processes and the brand in recent years.

Sales growth of 16.7% was boosted by a successful promotional programme throughout the year, while volumes grew by 7% for the year.

In the health category, sales of scheduled medicines grew by 35.0%, with front shop health sales up 19.6%. Dispensary sales passed the R2 billion mark for the first time and were boosted by the aggressive pharmacy opening programme. Over the past year Clicks processed over 17.2 million prescriptions. Baby merchandise is becoming increasingly important in the health category as Clicks extends its dispensary and clinic offer, and sales over the past year increased by 30%.

Beauty merchandise has proved to be resilient to the economic downturn of the past few years and sales growth of 12% was well ahead of inflation. The core sub-categories of personal care and colour cosmetics grew by 10.3% and 12.3% respectively, with fine fragrance increasing 53.4% and ethnic hair care by 20.2%.

Health and beauty merchandise now collectively account for 80% of Clicks’ sales.

The more discretionary general merchandise category showed slower growth at 4%. Sales growth of 20% in small electrical appliances saw Clicks increase its leading position in this market and now one out of every five kettles, toasters, irons or hair-dryers bought in South Africa is from Clicks. General merchandise remains core to the customer offer as it enhances margin, increases basket value and positions Clicks as a destination for gifting.

Private label and exclusive brands generated 17.8% of sales in the past year, with front shop private label sales growing to 23.0%. Private label products offer better value to customers while entrenching loyalty to the brand and enhancing profitability to the business.

The strong sales growth over the past year translated into market share gains across all core merchandise categories.

3.1 million
Clicks ClubCard active members
Private label (%) 2010 2009
Front shop sales 23.0 21.8
Total sales 17.8 17.6

The centralisation of the Clicks supply chain was completed in the second half of the year and 94% of stock is now channelled through the distribution centres. This has contributed to stock availability in stores reaching 96%.

In the past year a net 23 stores were opened to increase the store base to 369. A further net 44 dispensaries were opened and in August 2010 the 250th pharmacy was opened in the Gardens Centre in Cape Town, with Clicks closing the year on 251 dispensaries. The pharmacy business continues to provide strong organic growth opportunities; 32% of Clicks stores do not yet have dispensaries, while 97 of the Clicks dispensaries are less than two years old in an environment where pharmacies generally take three to four years to reach maturity.

Sustainability

Customer loyalty continues to be one of the main drivers of growth in Clicks. The Clicks ClubCard passed the 3 million customer mark, increasing by over 400 000 members in the past year to reach 3.1 million at year-end. ClubCard accounted for 74.8% of sales in Clicks and R197 million was returned to customers in cash-back vouchers. The average basket value of ClubCard holders is almost double that of non-ClubCard members.

The Clicks pharmacy network is being positioned to assist in the delivery of primary healthcare not only for medical aid members, but also for the majority of South Africans who are not covered by medical insurance and are currently reliant on state healthcare facilities.

Earlier in the year the Department of Health (DoH) launched a nationwide HIV counselling and testing campaign to encourage South Africans to know their HIV status. Through this campaign the government aims to test 15 million people and Clicks is partnering with the DoH to use its pharmacies and clinics for testing. Clicks also assisted the DoH with its annual winter influenza vaccination campaign.

Customers again voted Clicks as the country’s first choice specialist health and beauty retailer in the Sunday Times Top Brands survey for 2010, as well as the coolest health and beauty brand in South Africa in the Sunday Times Generation Next Awards.

Clicks ClubCard 2010 2009
Active ClubCard members (m) 3.1 2.7
Contribution to sales (%) 74.8 70.0
Cash-back vouchers issued (Rm) 197 162

The shortage of pharmacists is one of the biggest challenges facing Clicks and could constrain expansion and growth in the business.

The Clicks employer of choice programme assisted in attracting and retaining pharmacists. The pharmacist turnover rate improved from 53% to 34% over the past year, although the vacancy rate for pharmacists remains high as Clicks continues with its aggressive dispensary roll-out programme.

74.8%
of sales from
Clicks ClubCard

The in-house Pharmacy Healthcare Academy has continued to develop pharmacy skills and in the past year trained over 550 pharmacy assistants. The pharmacy internship programme attracted 39 participants and a further 50 will be enrolled in January 2011.

Clicks is actively engaged with universities and pharmacy schools to attract interns and candidates for study bursaries for future employment. Forty bursaries will be granted over the next year to increase the pipeline of pharmacists.

Clicks opened its first “green” store in Durbanville in the Western Cape. Design elements included energy efficient lighting, air-conditioning, roof insulation and geysers, as well as water-saving measures. Shopfitting boards and paint comply with sustainable manufacturing principles. The Clicks distribution centres have implemented a weekly carbon footprint scorecard to measure resource consumption, travel and recycling.

Clicks is in the process of developing environmentally friendly private label products that are both price competitive and offer innovative product, packaging and sourcing alternatives. Clicks will launch product ranges that are used in everyday life and can have an immediate impact on the environment. Clicks will also create a more sustainable supply chain by identifying enterprise development opportunities in the sourcing of private label merchandise.

Market share (%) 2010 2009
Health    
  Retail pharmacy* 13.6 11.1
  Front shop health** 38.7 37.2
Beauty    
  Personal care** 24.9 24.4
  Colour cosmetics*** 30.1 29.6
General merchandise    
  Small household appliances**** 20.0 18.0
     

30 - 40
dispensaries planned for 2011

Clicks plans to expand its store base
to 500
in the medium term

Strategy and focus for 2011

Clicks plans to open 20 to 30 new stores and between 30 and 40 dispensaries, and remains committed to achieving its medium-term target of 500 stores.

The customer offer will be enhanced by extending the front shop health and baby merchandise ranges in the larger format destination stores. The current clinic services model is being refocused to address three areas: mother and baby, family planning and adult immunisation.

Growth in beauty and electrical merchandise will be driven through continued product innovation and differentiation, while the homewares offer is being repositioned to provide functional, core value merchandise which should benefit the brand as consumer spending increases.

Clicks has a culture of continuous improvement and has embarked on several projects to enhance operating efficiency. A customer service excellence programme has been introduced in 90 stores and will be extended to all stores over the next three years. The Blueprint programme, which has been successfully completed in all stores and distribution centres, has been introduced in the merchandising areas to focus on planning and product development.

Private label is a strategic growth area and management is targeting to achieve 20% to 25% sales contribution in the medium term. Dedicated teams have been established for the sourcing of private label front shop products and for scheduled medicines.

Management is confident that the growth strategies will continue to improve operating margins in the medium term and the margin target guidance has been increased to a range of 6.5% to 7.5%.

operational review