PIK’s first-ever interim loss in 1H24 suggests that the problems at the mainstay Pick n Pay (PnP) supermarkets and hypermarkets are becoming more pressing and weighing on the group. The results also confirm that the turnaround efforts since 2013 have not delivered sustainable benefits, and may have resulted in unintended consequences that are now hampering the business.
The appointment of the 70-year-old former CEO may reflect the Board’s frustration with the seemingly endless turnaround projects. It is reasonable to question whether PIK could follow the path of the old OK Bazaars. However, we think this seasoned retailer, who is clearly passionate about restoring the fortunes of PIK, could set PIK on a different trajectory and avoid the fate of OK Bazaars. To avoid repeating the outcome of previous turnaround efforts, though, management must take a different approach.
We think one of the major consequences of the cost cuts over the past decade was the loss of skills and competencies at PIK. We argue that PIK should redirect its capital allocation and fund a programme of “re-skilling” to re-establish its competencies in buying, merchandising and store operations.
PIK should retreat from unprofitable ventures, including online retailing, in our view. This retail channel is not profitable, and its fulfillment complicates store operations. We believe a strategic withdrawal from online sales in the short term could allow PIK to focus on more critical issues with higher payback.
We think it is imperative that the Board appoint a deputy to the CEO, as his tenure is likely to be less than five years and PIK cannot afford another new strategy by a future successor.