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JD Group in First Year of Retail Slump, Steinhoff Chief Says

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March 5 (Bloomberg) -- JD Group Ltd., a South African furniture retailer and provider of unsecured loans, is going through a bad patch in trading that may last as long as four years, according to Steinhoff International Holdings Ltd., its majority shareholder.

“In my experience and what I have seen before, is that the cycle takes three, four years to work itself out,” Markus Jooste, chief executive officer of Johannesburg-based Steinhoff, said in a phone interview yesterday. The cycle is “just in its first year.”

South African retailers are struggling amid high unemployment and as inflation hurts spending, with those that sell on credit particularly vulnerable. Retail sales growth declined to 3.5 percent in December, compared with 4.4 percent the previous month, while South Africa’s Reserve Bank raised borrowing costs in January for the first time since 2008.

JD Group is the worst performer of the 165-member FTSE/JSE Africa All Share Index this year, having declined 25 percent. This compares with a 14 percent increase for Steinhoff, which owns about 56 percent of the retailer, according to data compiled by Bloomberg. JD Group shares fell as much as 3 percent to 21.50 rand, the lowest on an intraday basis since July 2008, and traded 1.3 percent lower as of 11:44 a.m. in Johannesburg.

Long Turnaround

“We are long-term investors. So for us, it’s not a problem,” Jooste said, adding he’s sure that JD Group will rebound. “For short-term people, and to make a quick buck, that’s not the place to be. It’s not going to be a short turnaround.”

JD Group on Feb. 20 reported a net loss of 138 million rand ($12.8 million) for the six months through December, compared with a profit of 502 million rand a year earlier. It increased its provisions for bad loans by 66 percent to 1.6 billion rand. That represents 15 percent of the loan book, up from 9.9 percent a year earlier.

“We’ve seen a deterioration in the collection rates of non-performing loans throughout the whole industry, not only at JD,” Jooste said.

Steinhoff, which generates more than half its sales from Europe, said yesterday net income increased 44 percent in the six months through December as consumer spending picked up and the South African rand weakened against the euro.

To contact the reporter on this story: Kamlesh Bhuckory in Johannesburg at kbhuckory@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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