The deal is done and the pressure is on.
Mr Price wants to see NKD achieving annual sales of close to R20bn by 2030 – about R6bn up from its 2024 figures. Picture: Gallo Images/Luba Lesolle
Investors remain disenchanted – unhappy, even – about the acquisition by Mr Price Group of German retailer NKD for approximately R9.6 billion (€478 million).
Shares remain well below the R160 level and are down 27% since the deal was announced in December.
The group has seen R16.2 billion of market value evaporate between that announcement and the transaction’s closing on 31 March.
Heat on Mr Price to deliver
Still, the deal is done and the pressure is now on Mr Price executives (and the board) to deliver results.
CEO Mark Blair has sketched an ambitious target for 2030, by which time NKD aims to be a €1 billion sales business (close to R20 billion at the current rate of exchange).
This is not a million miles away from its current position.
Numbers
In 2024, the last publicly available financial data, NKD reported €712 million in sales (around R14.1 billion at the time). It has an earnings before interest and taxes (Ebit) margin of 4%.
In FY25 (to end March 2025), Mr Price reported revenue of R40.9 billion, with an operating margin of 14.2%.
Mr Price Group says it will share additional financial metrics for NKD, including its performance for 2025, in its annual report (which will be published in June).
To achieve the 2030 ‘vision’, NKD will need to grow net sales by an average of 6.5% a year over the five years.
It wants to expand its gross margin from 61.6% to between 62% and 64%, and more than double the Ebit margin to between 8% and 10%.
Strategy
Importantly, the business will be run separately by current CEO Alexander Schmökel, who joined the group in 2022, and CFO Nils Bolender.
Schmökel will report directly to Blair, which Mr Price hopes will help it avoid repeating the mistakes made in other markets where it tried to ‘run’ these from South Africa.
The group admits that it needs to lock in the current NKD management team (around nine strong) with share and incentive schemes. These will be linked to clear targets for that retailer.
The business is not dissimilar to Mr Price – both are value retailers at their core, although Mr Price’s apparel tends to be more fashionable than its European subsidiary.
About 75% of NKD’s product range is apparel, 20% is homeware, with the remainder ‘other’ items such as basic electronics (think charging cables and the like) and toys, says Schmökel.
He says NKD’s main customer is between 30 and 65 years, but this skews to those between 45 and 60. Around two thirds of its apparel is for ladies, with “about 20% for men and about 15% for kids”.
Competitors
NKD has three main competitors in Germany: Kik, Takko, and Ernsting’s Family.
Each of these players has a niche, says Schmökel:
- “Kik is the price leader. He’s the cheapest one, but he’s really cheap. We don’t talk about quality. We talk about price.”
- Takko is a fashion leader in the value/discount segment. “He makes fast fashion. It’s a little bit like Mr Price from [a] product range [perspective].” Its typical customer skews younger.
- Finally, Ersting’s Family is specialised in kidswear. “It’s very strong in kids where we are not so strong.”
Pepco is another competitor in most of its markets, although NKD did not directly compare its average price points against the Polish giant (64 of Pepco’s total 4 000 stores are in Germany).
Schmökel admits that the European retail market is under pressure but that most of this is being felt in the mid-market. He says these shoppers are trading down to discount retailers, particularly given current economic conditions.
Because it skews older, NKD is relatively insulated from the threat from Chinese e-commerce players like Shein. Among its key competitors (including majors such as H&M and Zara), NKD has the lowest percentage of customers (35%) who also shop on Shein.
Stores
The business has more than 2 200 stores in seven countries, with the bulk of these (over 1 300) in Germany. Austria and Italy have around 300 each, followed by Slovenia, Croatia, Czech Republic and Poland.
Over the next five years, it plans average space growth of 3% to 4% a year (equal to about 100 stores).
Most new stores are planned for Germany and Poland (more than a third of the total, each).
NKD uses a geo-tool to identify so-called ‘white space’ opportunities, although this algorithm has only really matured in Germany and Austria. As it has entered other markets, the tool learns from those local dynamics.
Schmökel says the retailer’s standard store is about 300m2 in size. “This is typical, though it’s not really big. It’s a small format location with very strong store economics.”
Timeline for store to mature
He says it needs a maximum of three years for a store to mature and that its capex payback is “normally below 2.4 years”.
Its stores can be rolled out in multiple formats, even where there is “low footfall” such as on the outskirts of towns. Here, it operates smaller stores with “very low costs” which means the turnover hurdle for profitability is lower.
NKD, says Schmökel, “can go to locations where competitors can’t go” because of their higher cost structures.
The bulk of its stores (around 1 100) are on main shopping streets or in specialist retail parks. The margin for these stores is around 20%, while those in pedestrian zones (city centres) and shopping malls have lower margins of around 16% to 17% because of the higher rents.
Because it doesn’t play in the fast fashion space, it is more than happy for its goods to arrive via container ship (98% is shipped this way).
It sources over 40% of its apparel from Bangladesh, followed by China and Myanmar. More than 35 million items are transported annually.
Slow and steady
For now, Mr Price Group’s investment case for NKD does not factor in any synergies or benefits from working together with its European unit. However, Blair says these will be explored over time.
There are some obvious examples such as combined buying power, leveraging the group’s existing strategic logistics relationships and an exchange of data science knowledge between the businesses.
Executives are bullish about the prospects for NKD (one may argue they have to be).
Blair maintains that in five years’ time (2030, when the merits of the transaction ought to be judged), the prospects for the following five years “are going to be so much better as a consequence of this transaction than they would have been without it”.
This article was republished from Moneyweb. Read the original here.
Support Local Journalism
Add The Citizen as a Preferred Source on Google and follow us on Google News to see more of our trusted reporting in Google News and Top Stories.
