Operational Review


Clicks operating board (left to right): Bertie van Sittert – Finance, Johnie Tredoux – Logistics, Dan Zinner – Healthcare, David Hazell – Customer Marketing, Ralph Lorenz – Stores, Jeff Steenkamer – Human Resources, Amanda Graham – Merchandise and Supply Chain, David Redman – Advertising and Promotion.

Review of the year

Clicks increased sales by 9.2% as inflation averaged only 1.2% for the year, reporting real sales growth of 8.0%. In this low inflationary environment, the chain focused on promotional activity to drive volume growth, and this resulted in increased market shares in all key product categories.

The strongest area of growth in Clicks was front shop health which increased sales by 15.1%. Front shop ranges have been expanded over the past year and translated into growth of 9.9% in vitamins and supplements, and 37% in baby products. Baby merchandise is a major focus in the health category as Clicks expands its dispensary and clinic services offering. Clicks’ share of the baby market has grown from 6.9% to 8.5% at year-end.

Scheduled medicines increased by 8.4% as volume growth outpaced sales growth, despite the increase in the single exit price (SEP) of medicines in the second half of the year. This is due to the increasing shift towards lower-priced generic medicines, which grew by 16.1%, and increased self-medication, where sales were 14.1% higher. These trends towards genericisation and self-medication reflect the efforts being made by medical aid funds to contain medicine costs.

In response to these trends, Clicks is seeking to drive volume through self-medication products and front shop health. A partnership has been formed with Discovery Health where members qualify for cash back on self-medication products bought at Clicks.

Sales performance % change % contribution
Health    
Scheduled medicines 8.4 27.3
Front shop health 15.1 28.7
Beauty 7.9 23.4
General merchandise 4.0 20.6
Total turnover 9.2 100.0


Healthcare now accounts for 56% (2011: 54.5%) of sales in Clicks. Clicks has increased its share of the retail pharmacy market to 16.2% (2011: 15.4%), and its front shop healthcare market share to 38.7% (2011: 37.5%).

Beauty sales increased by 7.9%. In the key sub-categories, skincare grew by 10.1%, colour cosmetics 8.9%, fragrance 8.6% and haircare 6.7%. Clicks grew its share of the skincare market to 33.8% and haircare to 30.4%. Growth in beauty merchandise continues to be driven by strong promotions and product innovation, with over 4 300 new products being introduced in the past year.

General merchandise increased sales by 4.0%. This result was impacted by the underperformance in the homeware sub-category where sales declined by 2.0% owing to poor first half trading. Sales improved in the second half as ranges were refreshed, with over 300 new lines being launched. In other sub-categories, confectionery grew by 8.0% and electrical by 9.0%, with Clicks increasing its leading market share in small household appliances to 19.3%.

Private label and exclusive brands accounted for 18.4% (2011: 18.2%) of total sales in Clicks, and 24.2% of front shop sales. Private label products offer better value to customers while entrenching loyalty to the brand and enhancing profitability. The range of private label scheduled medicines was increased by 12 to 39 lines and these have been well received by customers and pharmacists.

Market share (%) 2012 2011
Health    
Retail pharmacy* 16.2 15.4
Front shop health** 38.7 37.5
Baby** 8.5 6.9
Beauty    
Skincare** 33.8 33.4
Haircare** 30.4 29.5
General merchandise    
Small household appliances*** 19.3 18.2
* IMS
** AC Nielsen (restated)
*** GfK (restated)

Growing customer loyalty

The Clicks ClubCard loyalty base has grown by 500 000 over the past year to 3.9 million active members. ClubCard members accounted for 77.1% of sales in Clicks, and R231 million was returned to customers in cash-back vouchers. The average basket value of ClubCard holders remains double that of non-ClubCard members.

The value of the ClubCard is being continually enhanced for customers. ClubCard members can also earn points and cash-back vouchers on their purchases from affinity partners, which are redeemable in Clicks. Avis, City Lodge and NetFlorist were introduced as affinity partners during the year, bringing the number of ClubCard partners to nine.

Clicks is also leveraging the ClubCard database to target offers at specific customer segments. The BabyClub, which was launched last year to assist mothers during pregnancy and in the early years of motherhood, has grown to 154 000 members. Members receive double ClubCard points on baby products and services, and triple points on Clicks-branded baby products.

Customers again independently rated Clicks as number one for price and value in health and beauty retailing in the country. In The Times/Sowetan Retail Awards, Clicks was voted as South Africa’s top health and beauty retailer, and was ranked third in the retail grand prix category among all retail chains in the country.

Clicks ClubCard 2012 2011
Active ClubCard members (m) 3.9 3.4
Contribution to sales (%) 77.1 76.7
Cash-back vouchers issued (R’m) 231 220

Store and pharmacy expansion

Clicks expanded its national store footprint to 420 following the opening of 27 stores and closure of seven during the year.

While the performance of the regular and convenience store formats has been good, the chain experienced slower growth in the large format destination stores. Although several large shopping centres have undergone renovation, and economic conditions have contributed to declining foot traffic, Clicks has identified the need to strengthen the depth of management in its large stores. A new training and development programme will be introduced for the managers of the top 40 stores, and additional management will be appointed to cover the long trading hours in these stores.

Product ranges in the destination stores are being broadened to increase basket value. This includes a bigger beauty department with wider skincare and fragrance ranges; an expanded healthcare department with a greater focus on sports nutrition, vitamins and supplements; an enlarged baby department; and a more interactive customer experience in the home and electrical departments.

Clicks has the largest retail pharmacy chain in the country and opened its 300th pharmacy in Franschhoek in May 2012. The network reached 306 at year-end following the opening of 23 pharmacies during the year.

Clinic services are an integral part of the healthcare offering to customers and a driver of pharmacy foot traffic. During the year Clicks serviced 288 000 customers through 116 clinics across the country.

Through the Helping Hand Trust, Clicks provides free access to clinic services for mothers whose babies were born at state hospitals and who do not have medical insurance. The services include baby immunisation, growth measurement, feeding and nutritional advice, baby weighing and family planning advice. Through this project 5% of every Clicks-branded baby product sold is donated to the trust.

Focus areas for 2013

Management will continue to focus on growing sales volumes through promotional campaigns and by leveraging customer loyalty in this low inflationary environment. Clicks plans to increase its ClubCard membership base to 4.5 million in the year ahead by introducing new affinity partners.

A key focus will be on improving customer service in pharmacies. A pharmacy efficiency project has been piloted for implementation in the new financial year, focusing on stock, dispensing and administrative activities.

Clicks plans to increase the sales contribution from private label front shop products to 25% and to expand the range of private label medicines.

Clicks is committed to expanding its store base to 500 in the medium-term. The chain has a strong pipeline of new stores and is targeting to open 20 to 30 new stores in the year ahead. A further 20 stores will be revamped, including space extensions in 11 stores.

Pharmacies will be opened in new and existing stores, with 30 to 40 planned. At year-end 27% of Clicks stores did not yet have a pharmacy, which highlights the growth opportunity in the business.