Cash is king

More and more South Africans are shopping at pre-owned stores.access takes a look at how Cash Crusaders is taking advantage of this growing market.

What started out as a small second-hand goods store in Plumstead, Cape Town in 1997, has grown into a successful franchising operation with about 138 Cash Crusaders stores now operating nationwide.  

“The huge growth in the second-hand goods market has been driven by technology and demand for electronic goods,” says IDC franchising unit senior account manager, Lucky Tetsa. “Cash Crusaders has helped put goods such as television sets, refrigerators, computers and cell phones within the reach of those who could probably not afford to buy them brand new.”

The IDC’s relationship with Cash Crusaders dates back to 2003, when the organisation funded the opening of 10 additional Cash Crusader stores. Since then the IDC has gone on to fund a second wholesale facility of R6m and more recently R8m, as the company continued to grow.  In total, the IDC has helped to finance close to 30 new stores, 70% of these being BEE franchisees.

“The company’s low barriers to entry, franchisee support and strong financial track-record were taken into consideration when the funding was granted,” says Tetsa.

Cash Crusaders has helped put goods such as television sets, refrigerators, computers and cell phones within the reach of those who could probably not afford to buy them brand new.

Cash Crusaders’ business model centres on a mixed retail concept where second hand goods bought from the public are supplemented with imported and graded stock.  The bulk buying and warehousing division sources goods mainly from Asia which are in short supply locally.  The stores also stock graded goods, which are typically pre-owned display models from large retailers such as Game or Makro.

“We’re fanatical about the quality of goods that we sell,” says franchisee David Chelia.  “All goods are inspected, serviced and valued, and carry a 90-day guarantee.”

Chelia operates a Cash Crusaders store in Phoenix, Durban and says that it is these assurances of product quality and improved service that have raised the profile of second-hand retailers. There is also growing awareness among consumers about the difference between legitimate second-hand retail stores and other, less established operators, such as pawnshops.

“Cash Crusaders applies a new approach to an old industry, and in so doing has attracted a customer base that have never set foot inside a traditional second hand store,” says Chelia. “The shops attract consumers who are brand conscious, technologically aware and aspirant.”

Cash Crusaders has a mixed retail concept where second hand goods bought from the public are supplemented with imported and graded stock.

The business is also counter-cyclical. Chelia says consumers who would usually buy high-end branded products, such as televisions and DVDs during good times, tend to downgrade and either buy second-hand or cheaper house brands when money is tight. Meanwhile, higher income consumers also get rid of unwanted goods and convert them into cash – with Cash Crusaders buying up the stock.

Marcia Makhukhule from the IDC’s Post Investment Monitoring Department says the Phoenix store did particularly well during the recent downturn.  The store is one of the best performing stores in the Cash Crusaders franchise, growing revenues by 38% and increasing profits by 121% between 2008 and 2009. 

“Much of the success of the Cash Crusaders concept can be attributed to the support new franchisees are given,” says Makhukhule.  From site selection to after-sales care and support, franchisees are offered intensive support and assistance by the operations team before, during and after the opening of their store.

“The major advantage of being part of a franchise is that you’re never alone and there is always someone who can offer advice,” says Chelia.

Franchisees are required to manage a company owned store for the last week of the training period and prior to the store opening the operations team assists in the layout, merchandising and pricing of the merchandise in the store. A member of the team also works closely with the franchisee for the first few weeks of trade, ensuring that everything goes according to plan.

With the entry level for a Cash Crusaders franchise considered relatively small, the concept is ideal for expanding to previously disadvantaged BEE operators.

“These operators have also tended to source their staff from the communities in which they operate, creating employment and deepening empowerment” says Tetsa.

The IDC hopes to continue supporting the group as it expands its footprint.