Rory Kutisker-Jacobson, Portfolio Manager at Allan Gray

South African consumers continue to feel the pinch, with weak economic conditions weighing on household spending and the fortunes of local retailers. Yet, while the challenging environment has punished retail shares, it may also be creating opportunities for investors willing to look beyond the immediate pressures and identify quality businesses trading at attractive valuations.

This is the view of Rory Kutisker-Jacobson, portfolio manager at Allan Gray, who says that the performance of local retailers is reflected in their share prices, with some businesses proving better positioned than others to weather the pressure on consumer spending.

“While the overall year-to-date performance of the local equity market has been weak, the performance of individual shares has diverged significantly,” he says.

Kutisker-Jacobson believes an economy under strain has kept pressure on consumers and, by extension, the retailers most exposed to them. He points out that this pressure is visible in how South Africans are shopping, not only in how much they are spending.

“Grocery volumes have held up reasonably well, but the composition of spending has shifted sharply towards value. Retailers such as Shoprite and Boxer have been the clear winners, while Pick n Pay’s core business and Spar have lost ground, squeezed by both market pressures and internal execution challenges.”

He adds that independent and informal retailers, such as spaza shops, traders and independent wholesalers, have continued to take market share, having benefited from questionable cost structures and from not facing the same regulatory and compliance burden as listed retailers.

“The relative performance of the winners versus the losers is reflected in their share prices: Shoprite and Boxer are both up over 10% year to date, while Pick n Pay is down more than 20% and Spar more than 50%.”

The picture is similarly challenging among clothing retailers, although here too, the extent of the declines varies considerably.

“None of the listed clothing retailers have seen their share prices rise this year, although the spread between them remains extreme. The ‘best’ performer has been Mr Price, down 7% year to date, while Foschini has fallen a staggering 43%. Pepkor and Truworths sit somewhere in between,” says Kutisker-Jacobson.

When it comes to pharmacy retailers, here too there has been pain with share prices down, although Kutisker-Jacobson believes this is for a different reason.

He explains that former market darling Clicks was down 38% as at 30 September 2026 and close to 50% from its peak in December 2024. The company’s reported results at the end of August 2026 show that turnover was still growing and headline earnings per share had risen, albeit lower than what the market expected. Yet the share fell more than 6% on the day the company announced its results, with the market unimpressed.

“There are some growing concerns around renewed competition from Dis-Chem and Shoprite, and some market missteps, but, in our view, this is less a story of a broken business than of a business being derated from an unusually rich multiple,” he says.

He explains that Clicks traded at more than 30 times earnings for a long period, a rating that only holds up if growth stays exceptional. Now trading at closer to 15 times earnings with a return on equity still comfortably above 30%, the stock screens far more interesting to Allan Gray than it did 12 months ago.

“We would rather own a good retailer after the market has taken the froth out of the price than pay up for the same business when everyone agrees it is wonderful,” he says.

Allan Gray has been buying Clicks and several other retailers. When asked why, Kutisker-Jacobson says the market has priced them as if the current squeeze on consumers is permanent rather than cyclical.

However, there is still room for caution.

“The market remains volatile and, in many instances, the gap between our estimate of intrinsic value and market prices continues to widen. Experience suggests that this gap eventually closes, but rarely on a timetable convenient to anyone. Our task is simply to continue buying quality businesses at a discount to what we believe they are worth and to let time do the rest,” concludes Kutisker-Jacobson.

ENDS