Review of the year

Clicks has further entrenched its position as a health and beauty specialist over the past year while continuing to build its authority in retail pharmacy. A further 45 dispensaries were opened and Clicks now has 110 in-store dispensaries.

Michael Harvey
Managing director

18 years’ service
Previously marketing
director of Clicks,
managing director of Discom
Appointed managing director
of Clicks in February 2005

61.7 million
customer transactions in the year

Product availability increases from around
80% to 92%

ClubCard customers receive over
R100 million
in cash-back vouchers

    2006   2005  
Turnover R’m 4 864.5   4 469.1  
Turnover growth % 8.8   17.9  
Comparable stores turnover growth % 10.8   6.9  
Operating profit R’m 206.9   182.6  
Inventory R’m 816.9   802.2  
Number of stores          
   Company owned   308   315  
   Franchised   14   14  
Full-time permanent employees   5 230   5 179  
Weighted trading area m2 164 180   179 330  
(Decrease)/increase in weighted trading area % (8.4)   10.1  
Weighted annual sales per m2 R 29 629   24 921  

The drugstore model adopted by the business highlights that a dispensary within a store drives foot traffic and builds front shop volumes. This is reflected in turnover from stores with dispensaries increasing by 19% compared to the 4.1% growth in stores without dispensaries.

Clicks has extended its ClubCard loyalty programme to enable customers to earn ClubCard Plus Points on dispensary sales at all Clicks pharmacies. By year-end ClubCard holders already accounted for 40% of dispensary sales.

An extensive research survey showed that pharmacy in Clicks has a 34% level of awareness among consumers nationally. This is most encouraging as the first dispensaries were only introduced into Clicks two years ago.

During the year Clicks serviced 61.7 million customer transactions, an increase of 6% over 2005. These increased volumes can be attributed to the consistent value offer, strong promotional programme and the increasing number of dispensaries within Clicks stores.

Operational challenges relating to inventory levels, product availability and shrinkage have received high priority and shown pleasing improvements. Inventory levels have been well contained and on-shelf availability has increased from around 80% to 92% at year-end.

Clicks opened 27 new stores during the year, while most of the remaining PM&A stores were either closed or incorporated into Clicks.

Strategic focus

Clicks will continue to build its pharmacy profitability and authority. The new pharmacy dispensing fee regulations will bring much needed stability to the pharmacy profession and clarity to consumers. The four-tier pricing structure should generally enhance margins, while the prescribed maximum dispensing fees will enable Clicks to be even more price competitive. In addition, Clicks will continue to offer value-added ClubCard benefits.

The prolonged uncertainty over the dispensing fees has been one of the reasons for moderating the rollout pace of new dispensaries over the past year. A second reason has been the lack of availability of pharmacists. Clicks has developed a staffing model to make increased use of qualified pharmacy assistants to enable pharmacists to focus on customers and patients. Clicks also runs an accredited training academy for pharmacy assistants and provides for continued professional development of pharmacists.

A blueprint for a new store layout has been developed to reflect the health and beauty specialisation of Clicks. The new layout and design will enhance the presence of healthcare and fully integrate the pharmacy offering into stores. The first new-format store will be piloted in the second quarter of 2007. Clicks plans to open 17 new stores and a further 25 dispensaries in 2007.

A key focus will be on increasing differentiation and gross margins. Clicks has introduced a credit card as an extension of the ClubCard loyalty programme. Credit card users accumulate ClubCard points on purchases at Visa merchants throughout the world and earn double points on all purchases within Clicks. These points then translate into cashback vouchers which can be redeemed at Clicks stores. This is a joint venture with FirstRand Bank and Clicks carries no credit risk.

Private label and exclusive brands also allow Clicks to enhance margin and offer our customers better value. These ranges accounted for 12.2% of sales in the past year and more than 200 new lines were introduced.

In order to broaden its customer base, Clicks has identified a growth opportunity in the ethnic hair care market. This creates scope for Clicks to open stores in areas which are relevant to its broadening customer base, for example its first store in Soweto was recently opened.

In striving for operational efficiency, Clicks will focus on continued tight expense management, further reducing shrinkage and wastage, lowering inventory levels while improving product availability and increasing merchandise volumes through the group’s centralised distribution system. The resultant efficiencies should enable Clicks to be more focused on delivery to its customers.

Clear plans have been developed to enable Clicks to deliver sustainable performance. The improved performance and early signs of a turnaround are having a positive impact on staff morale.