Q&A with Steven Heilbron: Fintech financing catalyses growth for South African retailers

Capital Connect is an alternative financing option to traditional bank loans, that is tailored to the needs of the retail market, enabling retailers to thrive. We spoke to CEO, Steve Heilbron, about today’s retail challenges and the role of fintech lending solutions in enabling retailers to grow.

What are the major challenges retailers in South Africa are facing today? 

SH: Our research shows that power outages have been the single biggest challenge for the retail sector. Significant numbers of retailers see high price inflation, a slowdown in consumer spending and rand-dollar volatility as major challenges for their businesses. 

With the International Monetary Fund forecasting that South African GDP will grow only 1% this year against a backdrop of load shedding and logistics disruptions, retailers will need to focus on diversification into new sectors as well as expanding market share at the expense of their competitors, if they are to grow and thrive.  

There is a lot of discussion about how tough conditions are, but what are the opportunities out there for retailers? 

SH: Even against the backdrop of challenging economic conditions, we have seen some retailers take the gap and grow their businesses. These retailers are living, eating, sleeping business, thriving by solving pain points for consumers. They see these economically volatile times as an opportunity to build a stronger business by diversifying into new markets and growing market share. 

How much of an obstacle is access to funding for retailers’ growth strategies? 

SH: South African business owners often cite a lack of accessible and affordable finance as one of the major barriers to growing their businesses. The 2023 State of Entrepreneurship in South Africa Survey shows that half of entrepreneurs need more funding to grow their businesses and a quarter say that a lack of funding is their biggest constraint.

This suggests that retailers in many sectors are making sub-optimal use of credit to drive higher levels of growth through gearing. Credit is available, but many retailers are not putting it to work in the most efficient manner. Leading savvy retailers should be using financing (opportunity capital) to innovate, expand revenues and outsmart their competitors—not just to survive or keep their doors open.

What is the role of fintech financing in this landscape?

SH: Quick access to affordable and flexible opportunity capital is vital in every stage of a retailer’s lifecycle, enabling them to never miss an opportunity. But many merchants find that traditional lenders are reluctant to approve loans for business growth and that their underwriting processes take so long that the opportunity is often gone by the time a retail loan is approved.

Fintech lenders are addressing this gap by offering lightning-fast access to capital. Our fintech platform enables retail merchants to access opportunity capital without audited financials or collateral. They can expect funds in their bank accounts within 24 hours if their application succeeds.

The data-driven nature of the business means there’s less paperwork. And a leading digital platform allows merchants to apply from the Connected app.

Learn how retailers have been supported by funding.

How are Survival Capital and Opportunity Capital different?

SH: Survival capital is when retailers need to borrow more money on high-interest instruments such as credit cards or secured bank loans to keep their doors open—but with the risk that the loan repayments compound their financial pain. Opportunity Capital is where ‘entrepreneurial’ retailers are constantly on the hunt for new opportunities to grow their business, to outsmart their competitors.

How can fintech financing help retailers optimise cashflow?

SH: Fintech financing offers more flexibility, for example, the ability to repay the loan in affordable daily instalments rather than in one large monthly deduction, as is the case with traditional loans. The funds could be deducted from your bank account.

Or some fintech providers offer an automated cash vault solution, that enables retailers to deduct the daily instalments straight from the cash in their vault. At Capital Connect and Cash Connect, we are working hard to making business financing more accessible and affordable to retailers.

LIMITED OFFER: We recently launched a limited offer of a one-month payment holiday. Retailers that take R1 million with Capital Connect have the option of skipping 30 daily payments. This is valid until 31 May 2024.

Read more: connected.co.za/offer.

What are some examples you’ve seen of how retailers are using fast funding to get a competitive edge?

Some examples of the winning strategies we have seen include: 

• Focus on growth markets: While data shows downward trends in most retail sectors, there are exceptions such as clothing and textiles sectors. Retailers are moving into growth markets, whether that’s by acquiring or partnering with a complementary business or adding new product lines to their offering. 

• Expanding the customer base: Leading retailers are offering different propositions to different segments to gain share and cover the market. For example, retailers can target great deals on essential goods at mass market customers, and one-hour delivery or premium products at higher LSMs. 

• Make strategic bulk buys:  A well-timed bulk buy can enable a retailer to purchase inventory at a lower cost than usual, to sell it for a higher profit margin. In addition, a retailer could buy products at a discounted rate to offer deals that entice more customers through the door. We have clients who have profited by stocking up on fuel (wet stock) before an announced fuel price increase or by buying liquor inventory before sin tax increases.

• Find new points of presence: Retailers are growing by finding new points of presence, such as containerised coffee shops, pop-up stalls at events, or e-commerce websites. 

• Consider high-margin convenience offerings: Retailers are growing revenues by offering grab-and-go meals or coffee to busy consumers. Using some floor space in this way can be a highly efficient way to attract customers and add a new revenue stream.

• Invest in omnichannel: Offering customers a choice of online and in-store shopping options is a major driver of growth. Let customers choose whether they want to get products delivered or pick them up in-store; offer the same choice for returns. Make sure that you work with reliable fulfilment partners that allow customers to track deliveries. You can use incentives such as free delivery or discounts to nudge them towards the choice that makes most sense for your business.

Are there tools or calculators available, enabling retailers to calculate their profits if they take up a business loan?

SH: Yes, we have two nifty calculators that retailers may use, free of charge:

• Stock calculator, for stocking up or bulk buy opportunities: https://connected.co.za/stockconsult

• Fuel calculator, for fuel retailers that capitalise on pre-stocking up at current rates and selling at the increased rate: https://connected.co.za/fuel

For more information, visit getcapital.co.za, or download the Connected App, available on iOS and Android.