OPERATIONAL REVIEW

Michael Harvey Michael Harvey
Managing director
Clicks is a specialist health, beauty and lifestyle retailer appealing mainly to female consumers in the middle and upper income markets. The brand offers value for money in convenient and appealing stores. Clicks has the largest retail pharmacy network in the country with 157 in-store dispensaries.

Review of the year

The strong volume growth in Clicks over the past year highlighted the defensive qualities of the business in a tightening economy. The growth was driven by sales in the health (up 19.5%) and beauty (up 13.0%) merchandise categories which collectively accounted for 72.9% of sales, confirming that Clicks has become the first choice pharmacy, health and beauty retailer.

Health is now the largest contributor to sales in Clicks, with prescription and over-the-counter (OTC) medication, as well as baby merchandise, growing strongly. Pharmaceutical sales passed the R1 billion mark for the first time in a year.

General merchandise, which accounted for the remaining 27.1% of sales, was impacted by slower discretionary spending but continues to be an area of strategic focus for the business.

Clicks expanded its national pharmacy presence to 157 following the opening of 32 new in-store dispensaries. The introduction of dispensaries into Clicks stores continues to drive sales volumes, with a marked increase in front shop sales in the first three years. Clicks has grown its share of the retail pharmacy market from 9.3% to 10.7% over the past year despite the increasing market presence of other listed retail chains and a national independent pharmacy group.

The centralised patient registry, which enables customers to access prescription medication from any Clicks pharmacy in the country, now holds over 835 000 customer profiles.

Market research undertaken by AC Nielsen showed that 33% of South African consumers rated Clicks as the first choice for health and beauty products, double its next competitor. Consumer awareness of Clicks pharmacies increased to 42% and Clicks is the preferred destination for prescription and OTC medication for 19% of the population.

Clicks made a significant investment in stores during the year. After opening 15 new stores to increase the store base to 326, a further 79 stores were also converted to the new Blueprint design which emphasises Clicks’ health and beauty specialism. A programme was introduced to review store disciplines and compliance processes. This was completed in 103 stores, resulting in improved operating efficiencies. This programme will be continued into the new financial year.

Private label and exclusive brands offer competitive prices for customers and higher margins for Clicks. Private label merchandise also exceeded R1 billion in sales for the first time and comprised 16.3% (2007: 15.1%) of total turnover. Within each of the merchandise categories, private label made up 31.1% of general merchandise sales, 18.4% of beauty and 3.4% of health.

Customer loyalty is increasingly relevant in times of economic pressure. Membership of the ClubCard loyalty programme increased by over 300 000 to 2.5 million active members over the year, with more than half of the new members from the emerging market. ClubCard holders generated 69% of front shop sales and 64% of dispensary business.

Focus for 2009

Clicks plans to expand its presence in the retail market by growing the store base to 400 in the medium term. The positive response from customers to the Clicks pharmacy offering will see the introduction of a smaller format convenience store model for Clicks in the year ahead and this will allow the brand to expand by between 20 and 30 stores a year.

The long-term goal is to offer a pharmacy in every store and Clicks has an aggressive plan to open 40 to 50 pharmacies each year.

The acquisition of a majority stake in courier pharmacy business Direct Medicines will enable Clicks to broaden its coverage in the retail pharmacy market and accelerate a national pharmacy presence. Once all regulatory approvals for the acquisition have been received the business will be rebranded as Clicks Direct Medicines.

Clicks will continue to differentiate its offering in the market. Private label and exclusive brands provide a unique product differentiation and the business is targeting to grow sales to 17.5% for 2009 and to reach 20% within the next three years.

Market share (%) 2008 2007
Retail pharmacy market* 10.7 9.3
Front shop health products** 37 37
Beauty products** 25 25
* Size of retail pharmaceutical market supplied by IMS
** Per AC Nielsen

Clicks is committed to continuous improvement in the business and is striving for excellence in all areas of operation:

  • The Clicks customer proposition is a key point of difference and management will focus on improving service, systems and processes to develop skills in stores.
  • Supply chain and distribution will be enhanced through the implementation of the Blueprint process in the three distribution centres around the country. Product availability has been targeted to increase from the current 93% level to 95% in the new year.
  • Adopting the highest standards and achieving best practice in pharmacy patient care.

Great people make great retail brands. Clicks has performed well in recent years and management recognises the need for ongoing investment in training and development to ensure that this performance is sustained into the future.