UBS Investment Bank picks Mr Price as its top retailing stock

UBS Investment Bank has picked Mr Price as its top retail stock, saying its analysis of SA’s apparel chains shows that clothing retailers offering value will attract more customers in 2021 than more expensive rivals.

The bank favoured the clothing store among listed apparel retailers as Mr Price earned the highest percentage of share of wallet — the amount an existing customer spends regularly on a particular brand rather than buying from competing brands — among consumers younger than 35, outperforming rivals in online sales. Shoppers voted its clothes among the most trendy and affordable.

UBS research surveyed 1,000 middle class SA consumers’ perceptions of retailers’ clothing styles, ease of use of their websites, apparel affordability, quality and chain brand value. The research formed part of the UBS Global Fast Fashion Consumer Survey.

Consumers viewed international brands such as H&M and Zara as trend setters but they earned fewer sales due to lower penetration and fewer shops.

Mr Price was also the local clothing brand that was top of consumers’ minds, with Woolworths coming in a close second. UBS says there has been an increase in spending this year on clothing by SA consumers compared with 2020, but primarily within the value segment.

Consumers planned to spend more at shops selling cheaper clothing such as Pep, The Fix, Cotton On, Ackermans, Pick n Pay Clothing and Mr Price.

UBS said the trend of cashstrapped consumers buying cheaper clothes and looking for value was likely to continue in 2021. “We note that despite some improvement in disposable incomes, the overall financial situation of consumers, particularly in the lower income market, remains relatively weak,” it said. The study says that this suggests potential market share gains for Mr Price, Pick n Pay clothing and TFG, the owner of Jet and The Fix.

The survey also suggests consumers like Woolworths clothing including its online shopping experience, but spend less due to perceived high prices. Woolworths could regain consumer spend and market share if it drops prices.

New Woolworths CEO Roy Bagattini admitted earlier this year that the retailer’s clothes were expensive. Woolworths clothing revenue dropped 11.2% in its 2021 first half. It is undergoing a restructuring under Bagattini and a new head of the clothing division, Mannie Marx. Locally, Woolworths clothing and beauty sales in 2020 were 59% lower than the year before. Woolworths has enacted retrenchments among designers in its clothing division, closed two fashion lines and wants to reduce its reliance on formal wear and increase stock of casual wear. Bagattini is also pushing increased investment in online retail.

UBS says Woolworths and Pick n Pay could benefit with increased digital sales as they also have customers who shop online for food.

Privately owned Edgars, which is undergoing a turnaround after its owner Edcon went into business rescue, did poorly on many parts of the survey. It was seen as expensive and less trendy. It scored poorly for website ease of use and customer service. Expensive clothing retailers were, however, perceived to be of better quality.

UBS concludes that Truworths and Foschini brands resonated the least with consumers though TFG’s overall performance was supported by other key brands (such as Markham) a men’s wear retailer.

Queenspark, owned by BEEconsortium Rex Trueform, lost just more than R6m in its most recent financial year. While this was not included in the survey, the findings suggest it could continue to struggle as consumers shun pricier clothing.

Mr Price’s share price is up 11% this year in contrast to the general retailers index which rose 2.2%. Mr Price rose 93% from its March 2020 low of R98.20.