Shirley Kemp
News that Wetherlys has signed up with BOE subsidiary NBS comes as no surprise after months of its alluding to a tie-up of this nature. The question is whether the change in strategy will spur investors to buy the share back up past the R2 level.
Two elements of the deal make it immediately appealing the agreement involves no credit risk for Wetherlys, and the company will significantly increase its customer base, while maintaining its target market. The company will be very selective about who is given finance, having already set minimum criteria for what it considers suitable individuals. The deal bears no resemblance to the credit facilities offered by competitors such as Profurn, and is expected to bear substantially more fruit.
In order to facilitate the deal, NBS has formed a joint venture with Foschini’s 50% subsidiary, Retail Credit Solutions Personal Finance (RCSPF). RCSPF will mine the NBS and eventually the Foschini databases in order to extract the specific customers who fit the right “Wetherlys” criteria. NBS will write pre-approval letters to those customers, giving them access to a loan of between R5 000 and R25 000, exclusive to the Wetherlys Group. The system will give Wetherlys access to almost 1-million people in total (through both the Foschini and NBS databases), who previously could not afford to buy at Wetherlys. Initially, though, only the NBS database will be used in order to avoid excess demand on the stores creating service and delivery problems.
Wetherlys financial director David Jacobson says that NBS will bear the full quantity of credit risk, and that the only impact on Wetherlys will be a small fee paid to NBS on each transaction. While NBS picks up all the risk, it will also receive the finance charges on the loans plus a small percentage kick-up from Wetherlys. The bank will be seen to be offering a value-add service to its customers at interest rates slightly better than current usury rates, ranging between 22% and 25%.
Credit will also be available for those not already a customer of NBS. Wetherlys will refer potential credit customers to RCSPF, who will perform a credit check on each customer. The first campaign is planned to take place in Gauteng, where NBS will begin to send out pre-approved loan letters in August this year.
The increase in turnover is expected to be in the range of R20-million to R40-million most of which should go directly to the company’s bottom line, after the NBS discount has been paid and a few other minimal costs taken into consideration. Not only is this equivalent to the opening of a further two to three stores from a turnover perspective, but from an earnings point of view it indicates substantial growth potential.
Wetherlys currently generates an average of 6 000 to 7 000 new customers a year. Therefore, even if only 5% of the estimated 30 000 new NBS customers take up the loans, the implications are extremely positive.
With the share price languishing below 200c, perhaps this is the kick-start the company needs.
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