In The Press
Plugging the Funding Gap Plaguing Hardware Businesses

Hardware has frequently been flagged as one of the top contributors to the decline in Stats SA’s retail trade sales over the past seven months. While the Retail Trade Sales statistics released in August show a decline of 0.9%, it is encouraging to note that hardware is experiencing a smaller decline despite navigating crippling power cuts, political uncertainty, muted consumer spending, and higher import costs.

Challenging economic conditions mean that building and hardware retail business owners need to be agile and adjust their offerings to react to customer buying trends. Readily available working capital can make a significant difference to these business owners, especially independent retailers.

Nicole Swart, Managing Director of Merchant Capital, emphasized that hardware business owners must remain responsive to customer needs and trends. During the COVID-19 pandemic, as new buying trends emerged, many hardware retailers struggled to pivot quickly enough to offer DIY and protective gear to customers as demand for building materials deteriorated. The hardware sector is considered a leading indicator of the overall health of the economy, and sales have declined from the peak experienced during COVID in 2020. Current buying trends have shifted towards electricity infrastructure, water pumps, and décor items. According to Stats SA’s retail trade sales figures for June 2023, retail sales dropped year-on-year for the period from April to June, which is not surprising given the economic uncertainty.

Measured in real terms (constant 2019 prices), retail trade sales decreased by 0.9% year-on-year in June 2023. The largest negative contributors to this decrease were general dealers, down 2.7%, and retailers in hardware, paint, and glass, whose sales declined by 4.4% for the period. Part of this decline can be attributed to a correction from the peak that some areas of hardware experienced during COVID, which Swart referred to as the “DIY factor.” Economic uncertainty and currency volatility have also played a role.

Swart noted that Merchant Capital’s working capital solutions can be a catalyst for business growth for retailers who see opportunities but face barriers when accessing the funding they need. “We are in the business of growing our clients,” she said. “We work with our clients to ensure affordability and analyze their cash flow so they are not taking on the wrong type of debt. We make it our business to understand our clients, working together to develop customized, technology-led lending solutions that support their business objectives.”

Merchant Capital’s Stock Advance offering allows hardware and general retailers to purchase either bulk stock or smaller, quick-turnover stock with fixed-cost, short-term financing. Retailers receive an upfront payment holiday, giving them time to receive and sell the stock without negatively impacting their cash flow. By being responsive to changing buying trends, they can adjust and remain versatile. Many clients return to Merchant Capital up to three times a year to fund stock purchases in this manner.

“At Merchant Capital, we’re entrepreneurs too,” Swart stated. “We understand the challenges facing business owners and recognize the importance of fast, efficient finance that meets their needs in both good times and bad. Tailored and flexible working capital solutions enable growth.”

Hardware Sector Outlook
Although the peak in DIY hardware sales experienced during COVID has tapered off, resulting in declining sales figures, Swart believes the worst of the decline is over. “Sales figures are stabilizing, and Merchant Capital’s hardware clients have remained steady and resilient.”

Independently owned hardware stores or those that are franchised but owner-operated have proven to be more agile and versatile. Current challenges facing the sector include rising import prices due to exchange rate volatility, electricity supply issues, and a decline in construction activity, which directly impacts the sector. However, “these stressors are now factored in, and the sector is adapting well,” Swart said. “Hardware has followed urbanization and housing trends for the past 20 years, and while construction has taken a hit, urbanization has been significant.”

With Merchant Capital, we can help you grow your building or hardware business.

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