Review of the year

Discom has continued to entrench its market leadership  position in ethnic hair care and beauty, while gaining market share in affordable decorative homeware.

Fabion Bennett
Acting managing director

Eight years’ service
Previously head of
operations for Discom
Appointed acting managing
director in 2006

Turnover passes R1 billion
for the first time

Continued innovation in ethnic hair care market

Strong increase in homewares private label range

    2006   2005
Turnover R’m 1 077.7   975.2  
Turnover growth % 10.5   11.0  
Comparable stores turnover growth % 5.7   9.2  
Operating profit R’m 33.9   24.6  
Inventory R’m 191.4   222.1  
Number of stores          
   Company owned   179   179  
   Franchised   1   1  
Full-time permanent employees   1 820   1 835  
Weighted trading area m2 52 931   50 957  
Increase in weighted trading area % 3.9   2.7  
Weighted annual sales per m2 R 20 360   19 138  

Sales of FMCG categories grew by 10.9%, led by hair care, beauty and health. Beauty sales were lifted by six new cosmetics brands introduced during the year, while health focuses mainly on vitamins and food supplements.

Lifestyle categories grew by 9.6%, with strong performances from decorative tableware in the homeware sub-category and electrical goods. Discom’s target market continues to benefit from electrification programmes in previously under-serviced areas as well as the delivery of an increasing number of houses for first-time owners.

Inventory management was one of the highlights of the period. A 14% year-on-year reduction in inventory levels contributed to an increase in inventory turn from 4.4 to 5.6 times. Management has specifically addressed slow-moving lines and focused on improved on-shelf availability. The new systems platform has proved highly beneficial in the inventory management process.

The product range continued to be refined to ensure a strong value offering and product functionality. Extensive product development has been undertaken in conjunction with suppliers to increase product exclusivity, particularly in tableware and electrical goods.

While the inland division performed strongly, the Western Cape business encountered several operational challenges as well as strong competition from independent retailers. The management team has been replaced and several stores have been closed or relocated.

Discom’s store portfolio is being constantly aligned with the shifting demographics of the customer base. During the period 19 new stores were opened and 19 closed.

The Discom-sponsored Beauty Africa Hair Extravaganza at Gallagher Estate once again received a favourable response from consumers and suppliers. This is the third year of the sponsorship in support of Discom’s positioning as an ethnic hair care specialist. The sponsorship was also extended to the Soweto Festival this year.

The structural shift in the economy and the continued growth of the emerging middle class is illustrated by the increase in LSM groups 4 to 6 –Discom’s target market – from 38.7% of the population in 2001 to 42.6% in 2005, adding a further 1.8 million consumers to these groups.

Strategic focus

Discom’s strategy is to dominate health, beauty and lifestyle products for the lower to middle income customers. This will be supported by a low cost, high inventory turn operating model.

Stores will be located in convenient locations in high density shopping nodes, where Discom’s target customers shop. These locations are generally close to public transport facilities.

Five new stores will be opened in 2007, with the emphasis on the inland region.

In the year ahead management will focus on turning around Discom’s remaining underperforming stores, particularly in the Western Cape, as well as continuing to improve inventory turn.

The value proposition to customers will also be strengthened with the introduction of more entry level priced products.