Tile company anticipates lower sales growth but steady supply for 2008

JSE-listed tile retailer Italtile expects lower real growth in sales in 2008 than in last year, although the company is confident that the tile market will continue its supply of tiles in tough economic periods.

Factors such as increasing interest rates, inflation, increased fuel prices and the energy crisis have affected the country’s economic climate, which has, in turn, affected the tile industry, says Italtile CEO Gian Paolo Ravazzotti.

The company recorded a sudden drop in foot traffic in November last year, which it attributed to hikes in interest rates.

Despite a decline in foot traffic and sales in the middle-income market segment, entry-level buyers remained robust and continued purchasing in the same period. The entry-level market segment is not significantly affected by loans and interest rates, believes Ravazzotti, as purchases of small quantities are mainly made in cash.

He says that the entry-level market segment, which is a strong market force in the country, is focused on improving homes by buying small quantities of tiles to add value to properties in the long term by reno-vating and adding on, rather than reselling.

Ravazzotti says that the year ahead is unpredictable owing to the unknown impacts of the global economic downturn and local economic conditions. Hence, Italtile expects a lower growth rate in 2008, in comparison to last year’s figures of 6% real growth. Entry level tiles, however, made the largest contribution to sales volumes last year.

Load-shedding in January reflected a slowdown in sales although the decline was not substantial, says Ravazzotti.

He mentions that it is difficult to determine how the power crisis has affected consumer psyche and confidence, and whether spending on homes will be deferred or not.

The power crisis could affect purchasing decisions, causing consumers to invest in generators or solar-power geysers in the short term, rather than bathroom ware.

However, if the property market, demonstrates a decline in property sales, investments may be ploughed into improving existing homes.

“When there is a slowdown in construction, we find people opt to renovate their homes.

“We find that the homeowners’ renovation market begins purchasing tiles to improve new homes after the completion of a major residential development project,” he says.

From a market perspective, it is expected that, in the current economic cycle, homeowners will spend money to improve their properties and the motivation to buy tiles will be based on increasing the value of their homes.

Ravazzotti points out, however, that Italtile is positioned to benefit from difficult market conditions, including the power crisis and interest rate increases. He explains that, historically, the weakening rand forces a number of smaller retailers to exit the market as they are no longer able to supply entry-level products, bought from China at low prices.

Italtile has expanded its product range from tiles to bathroom accessories, such as toilets, basins, baths, cabinets, taps, off-the-shelf shower doors and wooden laminated flooring, made from chipboard, of which about 4 000 t has been imported from the start of the import programme about a year-and-a-half ago.

The company’s client base is predominantly do-it-yourself customers and Italtile does not sell to large commercial developments. Italtile buys stock locally from Ceramic Industries, and imports are mostly sourced from China.