Stalcor, holding it's own in tough conditions
Stalcor, a division of Consolidated Steel Industries, continues to hold its own in an embattled marketplace. Part of their survival strategy has involved moving in with related divisions within the group to share costs, and internalising some processes which used to be outsourced.
Stalcor moved its Gauteng operation into a mammoth new 50 000m2 Isando facility during December 2015. “We planned the move for year end because traditionally that’s been our quietest period,” says Gillian Potgieter, Branch Manager of Stalcor Isando. “From a business perspective, it wasn’t ideal to shut down ops, but we had between R80 million and R90 million worth of stock to move, which you can’t do overnight. “We deliver daily as far afield as Sasolburg and Potchefstroom. The new warehouse works well because it’s more central, close to all the major highways, so that helps us get our product delivered quicker.”
Stalcor Cape Town also consolidated premises with Global Roofing Solutions last year, moving from a 1 600m2 facility to an 8 000m2 warehouse in Epping.
Currently under development is a small but growing line of Stalcor Express stores, utilising a footprint that Stalcor gained access to during the CSI consolidation. “The Express store concept allows us to take parts of our core product and make them work in new segments,” says Craig du Plessis, Stalcor ’s Managing Director. “Each Express store has a completely different matrix of stock which complements the local debtors book.”
“Stalcor Express is a great concept for getting product to market,” says Tyrone Roothman, General Manager for Stalcor KZN. “It’s a place where you can go for anything steel related, and we’ll help you. It’s proving extremely successful, largely because of the knowledge and skill of the people we put into these stores.”
In Gauteng, the Express store is set up right in the middle of the new warehouse. There’s another in Port Elizabeth, overseen by Stalcor Cape Town, but Stalcor is also looking further into Africa. “We’ve just signed a lease in Zambia,” says du Plessis, “and we should be open in Zimbabwe and Namibia by the end of the year.
“We’re happy with our market share in South Africa. There are plans to grow it, but our strategy is to grow our debtors book into other geographical segments. It’s a costly exercise, but it’s easier for us to do because of our association with Global Roofing Solutions. It’s seamless, but we have to ensure that we get our product offering right – and that comes down to having the right people.”
VALUE IN SERVICE
“We’ve been looking inward to see how we can take spends that are outside our books and move them within the company, where you can benefit from economies of scale,” says du Plessis. “It doesn’t necessarily enrich our margin in terms of sales, but it does through being able to do more for ourselves. We’re also able to offer more to the same market.”
“Steel is a generic product,” says Pam Bradford, Branch Manager of Stalcor Cape Town. “What sets us apart, then, is the service we deliver.”
“One of the ways we do that is by offering extra value to our customers. For example, we recently put in a cutting saw that allows us to stock and cut solid round bar in up to 300 mm diameters. We’re also in the process of installing a new cut-to-length line, which is new for Cape Town branch.
“It’ll allow us to slit mother-coils into whatever width our customers need, and re-coil the steel on the other side of the machine. We can also blank coils to a required size. That represents a big cost saving for our clients, because it eliminates offcut wastage.”
An innovative aspect of Stalcor ’s service strategy has been through supporting its clients, not only by providing quality product with just-in-time delivery, but by incentivising them with the Customer Loyalty Trust. Through this programme, the traditional transactional customer relationship is transformed into something more inclusive, where clients benefit directly from Stalcor ’s success.
The Customer Loyalty Trust has two main elements.
The first is similar to a rebate. In every financial year, Stalcor sets aside 14% of its profit, and pays that money back to its client base. The value of the payout that each client receives is calculated based on what percentage of Stalcor ’s turnover their business represented in that year. Stalcor calls this Profit Participation, and it’s a very effective strategy, because the numbers involved can be significant.
CUSTOMERS AS PARTNERS
The second element of the Customer Loyalty Trust is called Value Participation. It’s less tangible, but perhaps more meaningful, because it has the effect of making Stalcor ’s customers into equity partners.
“Our shareholders placed a value on the business in 2012,” says Chris Ransome, CSI Executive Chair, “which is annually adjusted for the cost of money. If Stalcor is ever sold, and the price received exceeds that adjusted carrying value, then 14% of the profit from the sale will be paid out as a Capital Gain to our debtors book.”
As with Profit Participation, Stalcor ’s clients would receive a portion relative to the amount of business their support represented in that financial year. Through this mechanism, Stalcor ’s customers have a vested interest in helping the company grow and gain value, because they share in its success.
LOOKING TO THE FUTURE
“The steel market is always going to be topsy turvy, and you go through cycles,” says Roothman. “But I don’t think we’re currently in any space that we haven’t seen before. There are tough challenges in our market, but there are also opportunities.”
“What we try and do is stay on top of our inventory and strategise accordingly, so that every day we know which direction we can go out and sell to, which has a positive effect throughout the whole supply chain. I think if we keep doing what we’re doing, we’ll keep having positive results, and then we’ll deal with the macro factors as they come.”