Fieldbars and fintech — Mr Price and Pepkor battle it out in retail rivalry

Competition is red-hot in apparel and homeware, with names like Mr Price and Pepkor battling it out. Despite both being value-focused retailers, there are core differences in their strategies that became apparent this week.

I own both names for very different reasons. I’m itching to add to my Pepkor position based on current share price weakness. As for Mr Price, I’m still less than impressed with management’s capital allocation strategy in Europe. The market feels the same, with the share price trading way off the pre-NKD deal levels.

Let’s begin with Pepkor, where we saw a significant fintech deal this week that speaks to the heart of the group’s strategy.

Clothing — and payments?

If you look at other emerging markets, like Latin America, you’ll find marketplaces that combine payment and merchandise infrastructure. If you want to get your hands on new clothes or cellphone airtime, you need to pay for it. The retailer is there at the point of sale, so why shouldn’t they get a slice of the payment economics as well?

This is certainly Pepkor’s philosophy, with the group having spent years embedding its credit model and fintech business as a centralised business that takes advantage of the distribution channels within the group. This gives them economies of scale – and more scale is coming, with the group announcing the planned combination of Flash and Shop2Shop.

Pepkor will hold 57.1% in the combined entity (FintechCo), achieved through the contribution of Flash (valued at R10.6-billion) and a R1.57-billion cash injection. This values FintechCo at R21.3-billion. For context, that’s larger than the market cap of Truworths (R20.2-billion) and The Foschini Group (under R17-billion).

Comparing a private company valuation to listed peers requires a caveat. Truworths and The Foschini Group benefit from price discovery (ie buyers and sellers fighting it out every day in the market). Those market caps reflect market sentiment, whereas the valuation of FintechCo is based on what the directors of Flash and Shop2Shop think the combined business is worth.

Pepkor plans to eventually list FintechCo separately, so a price discovery process should come. Even if they do list it, Pepkor has committed to hold 15% in FintechCo for at least five years from the effective date of this transaction.

But do these fintechs actually make any money? The short answer is yes, they do.

Flash has grown revenue and Ebitda at a three-year compound annual growth rate of 9% and 28%, respectively. A much higher growth rate in profit than revenue is what you would expect from a platform business that is achieving scale.

There’s a similar shape at Shop2Shop, but with much higher growth rates. Revenue’s three-year compound annual growth rate of an impressive 28% was enough to drive an 85% compound annual growth rate in Ebitda.

Shop2Shop is smaller than Flash, which makes it easier to grow faster, but not by much. Shop2Shop’s revenue for the 12 months to June 2025 was R9.3-billion. Flash achieved R11.2-billion for the 12 months to September 2025. These are now very outdated numbers. If the relative growth rates continued over the past year, then the gap has closed even more.

The sting in the tail in this transaction is that Pepkor CEO Pieter Erasmus sits on both sides of the deal. He has a minority interest in Shop2Shop that predates his appointment as Pepkor CEO. Due to the exact percentages held, this isn’t classified as a related party transaction. Nonetheless, Pepkor says that they excluded Erasmus from all deliberations at board level.

A conflict of interest is always worth thinking about, but the issue is sometimes overblown as well. To me, this seems like a strategically sensible transaction, rather than something odd. And although the valuation will be debated for years to come, what will really count is how Pepkor delivers on the opportunity.

Clothing — and Fieldbars?

At Mr Price, we find a completely different strategy. There are no fancy payment ecosystems, as the group is focused on cash sales. They are mostly unbothered by the online sales trend, preferring to drive brick-and-mortar sales as far as possible.

Unlike Pepkor, Mr Price isn’t shy to operate across the full LSM spectrum. They are a value-focused group, but they also have premium brands like Yuppiechef. The company that wants to sell you a pink Fieldbar will also happily sell you a basic white T-shirt just a few stores away.

Another difference is that Mr Price has been willing to take a large bet on offshore exposure. Pepkor has dabbled in faraway lands with the Avenida deal in Brazil, but not to the point where it has defined that group’s story. Over at Mr Price, the NKD transaction in Europe is all that anyone can talk about.

In a voluntary trading update for the 13 weeks (iE quarter) ended 27 June 2026, Mr Price shows us that things aren’t easy in South Africa. This is no doubt part of its rationale for chasing growth in Europe, although that market isn’t famous for being lucrative either.

If you exclude NKD, Mr Price’s retail sales grew 3.2% for the quarter. This was all from new stores, as comparable store sales were flat. That’s disappointing, but it speaks to the broader environment in South Africa.

The highlight is that Mr Price took a disciplined approach to margin. By foregoing some sales in a highly promotional environment, they expanded gross margin by 40 basis points.

As for NKD, Mr Price is playing its cards closer to its chest. NKD gained market share despite opening just two net new stores (taking the base to 2,156 stores). Mr Price is “confident” of achieving the annual store growth targets. But until we see actual numbers, we don’t have a clear view of performance.

A sector under pressure

Pepkor and Mr Price are taking vastly different approaches to their strategies, yet both have been punished. Mr Price has lost 23% over 12 months, or 8.7% year to date. Pepkor is very similar over 12 months (down 24%), but this has all happened on a year-to-date basis (down 23%). In other words, the pressure on Pepkor has been more recent.

I have more conviction around Pepkor’s strategy than Mr Price, particularly as Pepkor has the upside optionality of the push into banking.

I invested in Mr Price just before the NKD deal, so I was one of the shareholders caught out by this sudden strategic shift. And if there’s one thing the market doesn’t appreciate, it’s a nasty surprise.

Yes, Pepkor might be taking risk, but it is at least doing so in a coherent broader strategy. That’s why this is the dip that I’m more likely to buy right now. DM