Growing PEP

By 1970 Pep’s rapid growth and impressive results led to Pep being named by Business South Africa as South Africa’s largest and fastest-growing clothing retailing organization, while South Africa’s largest newspaper, Sunday Times, described the matric-educated 38-year old Renier as ‘having that Harvard look’. There was also growing corporate and investor interest in the company. In 1969 the giant Edgars Stores entered into negotiations with Renier to buy Pep for a R4 million, an attractive offer at the time. After proper consideration and consultation, he rejected the offer on the grounds that Pep’s shareholder/employees - who, together with the directors owned 90 per cent of the company’s 3.4 million issued shares - clearly indicated that they preferred to be working as an independent entity rather than as part of a bigger organization.

By 1970 Pep’s rapid pace of growth required Renier to install computers (still a newish concept at the time) in its headquarters in Kuilsrivier to help ease the administrative burden of keeping record of six million sales transactions per year. These computers were huge and took up several large offices and many staff, but quickly paid off in increased efficiency. During that year the number of stores increased to 114, but now the expansion focused more outside of Pep’s original geographical base in the Cape, to the provinces of Transvaal, Free State and Natal (as these were known up to 1994). The enthusiasm with which Pep was received wherever it opened a new store was repeated in the northern provinces, as was evident from the fact that in many instances, the police had to help control the thousands of shoppers who were jostling to pick up bargains on opening days - men’s trousers for 99c, ladies shoes for 99c, baby shoes at 5c and handkerchiefs at 1c a piece. In Bloemfontein 4,000 people broke the glass door of the new Pep shop and had to restrained by 15 policemen – broken shop windows due to overenthusiastic shoppers was a frequent occurrence and almost viewed as part of marketing costs.

Rapid expansion, however, was a costly business and necessitated more capital. To address this ongoing problem Pep announced in August 1971 that it was issuing 350,000 shares in a private placement. Encouraged by the huge interest shown in this private placement and buoyed by a 100% increase in turnover during the first five months of the 1971 financial year, Pep Stores applied for a listing on the Johannesburg Stock Exchange by 1972.

In 1971 a huge fire caused by suspected electrical short circuit swept through the main warehouse and headquarters of Pep Stores in Kuilsrivier, destroying goods estimated at about R1 million (in 2010 terms, approximately R100m). Although the immediate psychological impact of the fire on Pep’ staff was considerable, it was buffered by Renier’s calm demeanor and him posture of being in total command of the crisis even when the flames were towering up to 100 meters above ground level.  One of the Pep employees, Pietro Tito, a manager of the Stiletto factory, recalled seeing Renier late at night, with his eyes red from the smoke, standing in the ruins but already busy planning the reconstruction of the warehouse. In spite of the damage and destruction, it soon was business as usual and the financial impact on Pep as a whole was not too serious. Fortunately, the building and the stock were fully insured and Pep’s insurance claim was deftly handled by the newly-appointed appointed financial director, Whitey Basson. The relatively minor effect of the fire on Pep’s business activities and the ease with which Pep recovered from this temporary setback were evident from the results for the year ending February 1972 - in spite of the disruption the company managed to double its turnover to R22 million, increase its pretax profit to R1,4 million and earnings per share by 52 percent.

With Pep’s market segmented at the time into 30 per cent white, 40 per cent coloured and only 27 per cent black, and with more than half its stores located in the Cape, it became obvious that the company had hardly scratched the surface of the much greater populated and economically stronger northern provinces where the vast majority of South Africa’s black population resided. With a sound management team (newly appointed to the board of directors were Tom Ball, Basil Basil Wyers, and alternately, Whitey Basson and Frank Weetman) and supported by 3,500 loyal and enthusiastic employees (many with shares in the firm, except coloured and blacks who were not allowed by law to hold shares), Pep Stores was exceptionally well- placed for further expansion and for its listing on the Johannesburg Stock Exchange on 7 June 1972.   

In the brochure which accompanied the 1972 annual report entitled ‘Pep Stores, A Successful Marketing Concept’, Renier explained to the financial world what Pep was all about: he defined Pep’s target market as the working lower income people of South Africa, who, as individuals, had little money to spend, but collectively possessed an enormous purchasing power’; he described Pep’s sales philosophy as ‘We do not sell cheap goods - we sell goods cheaply’, and made reference to the company’s plans to continue with its program for vertical diversification: ‘We intend to manufacture many of the mass-produced items sold in our stores, ourselves, in this way we can exert even greater control over our stock, quality and price’.  He portrayed the ‘typical’ Pep store as follows: ‘coming into a store the customer enters a different world in which luxurious interior fittings is viewed with suspicion’ and one in which the impression is ‘purposefully created that overnight all the stock was thrown together without plan or pattern - while in fact, the layout has been planned in detail and has been the result of many years of experimentation’. The brochure also dealt with Pep’s proud reputation of honesty: ‘We don’t sell rubbish - at a given price our wares are of a good quality, a fact realized by our customers -  poor people are not stupid - they cannot afford to be’. 

The results of the financial year in 1973 confirmed what most investors already expected, namely that Pep’s astounding growth rate had only just begun. The company managed to double its taxed profits from R883,000 to R1,6 million while sales increased from R22 million to R34 million and earnings per share up from 20c to 33c. The number of retail outlets increased from 163 to 222. For the investors in Pep’s shares this growth rate was a boon - the price of Pep’s shares had climbed from its opening price of R2.75 nine months earlier, to over R5 in April 1973, bringing the total equity market capitalization to almost R25 million.    

Pep had a problem of interrupted supplies and inflated manufacturing prices. The solution was for Pep to manufacture certain lines itself, in other words the kind of expansion which is known as vertical integration. To this end Renier bought the Budget Footwear factory in Durban from Feltex for just over R200,000. With 500 employees it was the largest shoe factory of its kind in the country and it soon produced 60 percent of Pep’s total footwear requirements. In 1973 Pep acquiring a dress factory in Parow in the Cape, the Redlef Woolen Company, which specialized in children’s’ dresses and school shirts. Apart from Redlef Woolen, by 1973 there were another five manufacturing units: Budget Footwear by now was the second-largest single footwear manufacturer in South Africa, producing close to two-and-half million pairs of shoes a year; Pepfin CMT in Durban indirectly employed 3,000 people and the other units consisted of Student Prince Manufacturers in Jacobs in Kwazulu-Natal, the Pep Homeland Industries in the Transkei and Pep Underwear Manufacturers. 

If there were any minor concerns about rising inventory levels and slower turnover, these were overshadowed by Pep’s past record and the fact that the firm by early 1975 had assembled a sound management team capable of ensuring future growth. Apart from Renier, now both chairman and managing director (director Christo Wiese left in 1973 as a full-time director to resume his legal career), the senior management consisted of Basil Weyers (director in charge of marketing and buying), Frank Weetman (national sales manager); Tom Ball (director in charge of manufacturing), Wellwood (Whitey) Basson (group financial manager), Willem Delport (company secretary), Ben Combrinck (manager of CMT), Klaus Kuhn (technical manager in charge of factory planning) and Danie Theart (personnel manager). Renier’s brother Gert, and sister, Baba, were in charge respectively of men’s and women’s buying, supported by a team of 14 buyers who were responsible for control and standardization of quality.