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 7 months. But while the Retail Trade Sales stats released in August show a decline of 0.9%, it is encouraging to note that hardware is tracking a smaller decline despite navigating crippling power cuts, political uncertainty, muted consumer spend, and higher import costs.

Challenging economic conditions mean that building and hardware retail business owners need to be agile and able to adjust their offerings to react to customer buying trends.
Readily available working capital can make all the difference to these business owners, especially independent retailers.
Nicole Swart, Managing Director of Merchant Capital, said hardware business owners must remain responsive to customer needs and trends.

During Covid, as new buying trends came online, many hardware retailers couldn’t pivot fast enough to offer DIY and protective gear to customers as demand for building materials deteriorated. The hardware sector is considered a leading indicator for the overall health of the economy, and sales have declined from the peak experienced during Covid in 2020. Current buying trends have moved 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 April to June, unsurprising in light of 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, which were down 2,7%, and retailers in hardware, paint and glass, sales of which declined 4,4% for the period. Part of this decline can be attributed to a correction off the peak that some areas of hardware experienced during Covid, which Swart termed the “DIY factor.” Economic uncertainty and currency volatility were also contributory factors.

Swart said Merchant Capital’s working capital solutions can be the catalyst to business growth for retailers who see the opportunity to grow, but face barriers when it comes to 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 analyse 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 customised, technology-led lending solutions that support their business objectives.”

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

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

Hardware Sector Outlook

Although the peak that 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 stabilising, and Merchant Capital’s hardware clients have remained steady and resilient.”

Independently owned hardware stores, or those that are franchised but are owner-run have proved more agile and versatile.
Current challenges facing the sector include the price of imports due to exchange rate volatility, electricity supply and the decline in construction activity, which has a direct knock-on effect for the sector. However, “these stressors are now factored in, and the sector is adapting well,” Swart said. “Hardware has followed urbanisation and housing trends for the past 20 years, and while construction has taken a knock, urbanisation has been astronomical.”

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