The Journal of Accounting and Management, Vol 5, No 2 (2015)

Profiling Small and Medium Family

Retailers in the Tshwane Area of Gauteng, South Africa

Louise VAN SCHEERS¹

Abstract: The aim of this article was to profile the small and medium family retailers (SMEs) in the Tshwane area of Gauteng. The questionnaire targeting small business entities was designed to capture detailed profiles of small and medium family retailers. The final draft questionnaire (developed by BMR) was pilot tested amongst a five small businesses by a senior staff member colleague in the marketing department, which process resulted in a few adjustments. The final questionnaire focused on business location and profile.

The conducted research revealed the following concerning the small and medium family retailers (SMEs) in the Tshwane area of Gauteng:

• 35.1% of them have matric as their highest qualification.

• The majority (68.6%) of these businesses are located within residential areas and operate from home, either from the house or garage.

• More than two thirds (68.6%) of respondents indicated that they own the property. Overall, over 60.0% indicated that they rent their business premises, compared to 39.6% who owned the premises.

• There is an enormous need for conceptual skills, especially in the area of marketing and sales (36.2%), financial management (23.4%) and business management (21.3%).

• 21.5% of the respondents indicated that they had received financial support in the past.

• Lack of financial support was rated as the most serious constraint facing respondents. This item received an average rating score of 4.94, compared to an average rating of only 2.22 accruing to lack of water. With an average of 4.64, the problem of high transport costs, occupies second position on the rankings with high input costs (ranking of 4.51) in third position.

In conclusion the article revealed that owners and managers of small businesses are predominantly technically skilled and less skilled in the area of business management, and have limited academic qualifications.

Keywords: Small and medium family retailers; Tshwane area of Gauteng; Profiling small and medium family retailers; Managerial skills; Informal and survivalist enterprise activities; Access to capital

Background

Tshwane is the third-largest city in the world after New York and Tokyo and is largest metropolitan municipality in South Africa (www.tshwane2055). The businesses in this area contributes a total of 34 per cent to the South African economy and 22 per cent of South Africans call it their home. It is an important economical hub which has motivated the researcher to conduct the research in the Tshwane area. The aim of this article is to profile the small and medium family retailers (SMEs) in the Tshwane area of Gauteng. In this article segmentation will be used to classify the small and medium family retailers. Classification and targeting of small businesses in accordance with their specific characteristics (size, location, sector, etc) form the basis of the concept of segmentation (Kornish and Ulrich, 2014. Segmentation according to Goyat (2011) is viewed as the art of discerning and defining meaningful similarities between groups of potential clients to form the foundation of a more focused marketing effort. Often, as indicated by Singh (2011) each segment has its own distinct profile and there are discernible differences between businesses operating in various industrial sectors. For example, small business needs of small-scale farmers are different from those in manufacturing, wholesale, retailing, and so forth. Higgs; Bronwyn, Ringer and Allison. (2007) explain that the intention is to circumvent these differences by categorising clients (based on their characteristics and specific products/service needs) into homogeneous groups and distinctively targeting each segment in accordance with its needs. The main benefits of this approach according to Singh (2010) are that it compels service providers to focus more accurately on client needs. It also leads to the identification of excellent new business opportunities if research reveals an unexplored segment. Furthermore, it provides guidelines for the development of separate product/service offerings and guides proper resource allocation. This study applies the two-stage market segmentation model to identify and characterise key segments targeted by various universities. This industrial market segmentation is based on broad two-step classifications of macro-segmentation and micro-segmentation. Macro-segmentation centres on the characteristics of the whole companies or institutions and thus dividing the market by company/organization size, geographic location and the SIC code (standard industry classification). On the other hand micro-segments are homogenous groups of businesses within the macro-segments. This stage of the model looks into the characteristics of specific businesses within the broader macro segments. For example, the extent to which small businesses utilise services offered at various institutions of higher learning. Micro segmentation stage centres around the selection of the target segments from within the macro segments based on differences in specific characteristics of interest. The two stages are discussed in the sections that follow.

Macro Segmentation Basis

Organisations and the broader context within which they operate. Defining macro segments assumes that the organisations within such segments will exhibit similar patterns and needs. The basis used for macro segmentation tends to be observable or readily obtainable from secondary information (ie published or existing sources) and key variables include size, location and product/service application.

Size

Differences in the size of a commercial or industrial business with respect to both employees and sales are likely to contribute to differences in their needs. As seen in exhibit 3.1, those lying at the bottom of the pyramid are predominantly at the start-up phase, are predominantly smaller in size, financially unstable, vulnerable, and lack resources and expertise.

Exhibit 3.1: Characteristics OF SMEs

High growth enterprises Survivalists & start-ups

CHARACTERISTICS Less than 200 employees Developed technical & business skills Medium enterprises Less than 50 employees Developed technical/limited business skills Small enterprises Less than 5 employees Limited technical & business skills Micro enterprises Individual self-employment Very limited technical & business skills Survivalist enterprises

Source: Own source

According to Qua-Enoo, in Nieman (2006:8), to fully understand the informal and survivalist enterprises, it is expedient to know the characteristics of the environment from which they come and in which they operate:

• Informal and survivalist entrepreneurs are mostly migrants from the rural areas, and foreigners. Lack of an adequate, reliable transportation network is a big impediment to their enterprises as usually the only vehicle in the area leaves at dawn for the big towns and returns late in the evening.

• There is no tap water or electricity. People have to rely on pools and running water for daily use, and on paraffin for lighting.

• The level of formal education is very low; most reach Grade 9 and then drop out. As a result most people cannot understand, let alone comprehend, the legalistic complex legislation placed before them. Every written document has to be interpreted for them.

• The standard of economic activities is very low. They are among the most economically deprived in society.

• Demographically, it is the most impoverished environment. The majority of the most economically active labour force has left, leaving the young and the old to take care of each other. Most of the elderly who are left behind are women, who support the ‘family’, the size of which is fairly large.

• Most informal and survivalist entrepreneurs live in shacks or basic housing.

Objectives of the Research

Emanating from the research problem, the aim of this article is to profile the small and medium family retailers in the Tshwane area of Gauteng.

Literature Review

Profiling small and medium family retailers in the Tshwane area of Gauteng

According to Vosloo (1994:171) the informal and survivalists enterprises can be classified into those that are legally/socially acceptable and those that are illegal/socially unacceptable (see exhibit 3.2).

Exhibit 3.2: Informal and survivalist enterprise activities

Source: Vosloo (2004:171)

These entities need an abundance of sympathetic local support. That is why the University of Johannesburg, in partnership with various partners in the private sector, government, civil society organisations, launched the Centre for Small Business Development (CSBD) in 2006. Based at their Soweto campus, the Centre offers mentorship and incubation programmes to the small businesses across the entire Johannesburg region, including Soweto, Mogale City, Orange Farm, Ekurhuleni, Diepsloot, etc. Since its inception, the CSBD has focused on providing business skills training to business start-ups and existing entrepreneurs, conducts annual conferences as well as quarterly business conventions.

Capitalising on business knowledge embedded in the business schools, the University of Stellenbosch Business School partnered with ABSA and the Distell Foundation to establish the Small Business Academy in 2012. The Academy offers training, mentoring, coaching and workshops to small businesses around Khayelitsha Township. Internationally, the Small Business Development Centre (SBDC) program of the U.S. Small Business Administration provides small business incubation services to small businesses across the country. The programme provides a wide array of technical assistance to small businesses and aspiring entrepreneurs supporting business performance and sustainability and enhancing the creation of new businesses entities (U.S. Small Business Administration 2013). The SBDC hosts include 48 universities of which 16 are located at historically Black universities (two such Lead Centres are Howard University in Washington, DC, and the University of the Virgin Islands, USVI). Other hosts include eight community colleges throughout the United States. These institutions provide services such as development of business plans, manufacturing assistance, financial packages and procurement contracts. Special emphasis areas include international trade and export assistance; e-commerce; technology transfer; assistance for veterans, including reservists, active duty, and disabled personnel returning from deployment; disaster recovery assistance; regulatory compliance; research and development as well as market research (U.S Small Business Administration, 2013).

Geographical location

Organisations may focus their selling efforts according to the geographic concentration of the industries they serve, for example, ship building, mining and chemical production, agricultural production, business services, etc. There is also a strong emergence of technology parks, industrial estates, enterprise zones. In the case of small business development within universities, the majority are restricted to a specific geographical region. The University of Stellenbosch Business School small business development programme focuses on small businesses located in Khayelitsha while the University of Johannesburg’s focus is specifically on some parts of Gauteng province. The University of Limpopo’s Agro-Food Technology Station (LATS) is primarily targeting businesses in Limpopo province while Innovation Technology Business Incubator (Invotec) is predominantly targeting businesses in KwaZulu-Natal.

Product/service usage

The product usage approach looks for business groupings, either within specific industries as defined by standard industrial classification (SIC) codes, each with its own requirements, or by defining a specific application and grouping customers around that. The SIC code may help to identify sectors with a greater propensity to using particular products/services. The SIC provides the basic framework for classifying industrial activities in homogeneous groups worldwide. The main assertion of such groupings is that entities within each subsector are to a large extent homogeneous and are subjected to more or less similar environmental influences and challenges. For example, there are similarities between businesses operating in the agricultural sector, between those in the mining sector, and so on. With the aid of the SIC, the next section explores the profile of businesses operating in nine identified industries and their propensity to use small business development services offered by service centres within universities. This article will focus on small and medium family retailers in the retail industry.

Retail industry

The retail trade industry can be defined by using the classifications from the Standard Industrial Classification (SIC) from Statistics South Africa (Stats SA). It falls under division 62 of the SIC. This industry is said to include the reselling (sale without transformation) of new and used goods to the general public for personal or household consumption or use by shops, department stores, stalls, mail-order houses, hawkers and peddlers, consumer cooperatives, etc. ( ) Data taken from Urban Studies3 (2010) quantifies the size of the retail area and the number of centers for both the country and Gauteng. In 2002, about 5,722,846m2 of land in the country was occupied by the retail trade industry. This area included 239 shopping centers. The industry grew to occupy 18,418,073m2 of land by 2010, accompanied by an increase in the number of shopping centers (1,443). The Gauteng province also saw retail space increasing from 3,062,929m2 in 2002 to 8,545,522m2 in 2010, which was greater than the retail area of the entire country in 2002. The number of retail centers increased from 111 to 634 during this period. Gauteng constitutes 45 percent of the country’s shopping centers.

This sector includes entities engaged in trade in agricultural raw material, livestock, food, beverages and tobacco, household goods, waste and scrap, machinery and equipment, motor vehicles, automobile fuel, hotels and restaurants. Given its extremely low entry barriers, the retail trade has the highest concentration of small businesses. The sector is recognised by many people as a safety net, due to shrinking formal job opportunities, lack of skills, demographic pressures and retrenchments. It also serves as an incubator for entrepreneurship, poverty alleviation and job creation. Small and medium family retailers in this sector typically have a key person who takes control of the entire value chain activities.

However, recent years has seen South Africa moving increasingly towards mall-based retailing (http://www.urbanlandmark.org.za). There is an increasing level of competition with a number of giant retail groups and mushrooming shopping centres in remote areas of the country. There is also a decline in the role of wholesalers who traditionally acted as intermediaries between manufacturers and retailers. Today retailers source goods directly from manufacturers, thus reducing the function of wholesalers in the value chain (http://mg.co.za/article/2014-10-02-the-magnificent-march-of-sas-malls). These bring goods from other areas at reduced prices thereby making it difficult for small businesses.

The researchers critically reviewed previous literature on the phenomenon and seek some tentative guidelines and possible solutions to the research problem. According to Qua-Enoo, in Nieman (2006:8), to fully understand the informal and survivalist enterprises, it is expedient to know the characteristics of the environment from which they come and in which they operate:

• Informal and survivalist entrepreneurs are mostly migrants from the rural areas, and foreigners. Lack of an adequate, reliable transportation network is a big impediment to their enterprises as usually the only vehicle in the area leaves at dawn for the big towns and returns late in the evening.

• The level of formal education is very low; most reach Grade 9 and then drop out. As a result most people cannot understand, let alone comprehend, the legalistic complex legislation placed before them. Every written document has to be interpreted for them.

• The standard of economic activities is very low. They are among the most economically deprived in society

This study focuses on profiling small and medium family retailers in the Tshwane area of Gauteng.

Methodology

The questionnaire targeting small business entities was designed to capture detailed profiles of the selected businesses. A draft questionnaire developed by the BMR was distributed to members of the community engagement committee for perusal and comment. Furthermore, a full-day workshop was arranged during which the questionnaire was discussed in detail. The final draft questionnaire was pilot tested amongst a five small businesses by a senior staff member colleague in the marketing department, which process resulted in a few adjustments.

The small business study was limited to the City of Tshwane (CoT), which consists of seven regions where each region was used as a cluster or stratum from which a convenient sample of small businesses (survivalists, medium and micro enterprises) was selected. In addition to the region of business location, businesses were further classified and selected in accordance with the Standard Industrial Classification (SIC) codes. There are nine broader economic activities according to SIC, namely:

• agriculture, hunting and fishing;

• mining and quarrying;

• manufacturing;

• electricity, gas and water supply;

• construction;

• wholesale and retail trade;

• transport, storage and communication;

• financial intermediation, insurance, real estate and business services; and

• community, social and personal services.

In this study only the retail trade will be research because it seems to be the largest sector.

Given the number of small businesses in the survey area, it would have taken longer to include all of them (census) in the study. This exercise would also have been costly to implement, hence the need to select a representative sample for interviewing purposes. A statistical equation is often used to calculate a representative sample size. However, the application of such an equation is limited to cases where a comprehensive database exists. In South Africa there is no single comprehensive small business database and this makes it almost impossible to statistically calculate a representative sample size.

Given the absence of this list, the alternative was to employ a non-probability quota sampling approach, where at least 30 small business respondents per sector were deemed sufficient. This decision was guided by the principle of homogeneity vs heterogeneity of the population group – how alike or different its members are with respect to the characteristics of research interest. If the population is markedly heterogeneous, a larger sample will be necessary than if the population is fairly homogeneous. With this assumed level of homogeneity, it was concluded that at least 30 businesses per sector would provide sufficient information regarding the specific variables under study. It was therefore concluded that at least 270 businesses would participate in the study.

Given the lack of contact details of the targeted small businesses, it was decided that a personal face-to-face method be used to administer a paper-based questionnaire to the selected sample units. The businesses were visited at their respective premises for such interviews. A purposive quota sampling procedure was followed in selecting specific target businesses. Businesses were selected in accordance with the predetermined sample size per sector.

The questionnaire targeting small business entities was designed to capture detailed profiles of the selected businesses. A draft questionnaire developed by the BMR was distributed to members of the community engagement committee for perusal and comment. Furthermore, a full-day workshop was arranged during which the questionnaire was discussed in detail. The final draft questionnaire was pilot tested amongst a five small businesses by a senior staff member colleague in the marketing department, which process resulted in a few adjustments. The final questionnaire focused on business location and profile.

Empirical Findings

This section presents the results of the incubation needs survey carried out amongst small businesses located within the broader CoT boundaries. It begins by presenting a regional distribution of small businesses that participated in the project. This is followed by a comprehensive presentation of the survey results by looking at the general profile of the small businesses, challenges and constrains.

BUSINESS LOCATION AND PROFILE

Figure 1 presents the distribution of small businesses that participated in the study by region.

Figure 1. Percentage distribution of respondents by region

Figure 1 presents the distribution of small businesses that participated in the study by region. This figure shows that 28.1% of these businesses are located in region 3 (the largest region when measured in number of suburbs). This is followed by region 1 that is home to 23.0% of the survey participants. The lowest number of respondents is located in regions 5 and 7. These regions have only 3.3% and 4.4% of the participating businesses respectively located in them.

Figure 2 presents the distribution of respondents by position held in businesses. It is evident from this figure that only the owners and managers of selected businesses provided information about their businesses during the interviews.

Figure 2. Percentage distribution of respondents by owner/manager

The number of owners is slightly higher (50.4%) than that of managers. This is not surprising as the majority of small business owners are involved in the day-to-day management of their businesses. Table 1 presents respondents’ qualifications within the retail sector.

Table 1. Respondent qualifications: wholesale & retail trade

As can be seen, the table shows that the overwhelming majority (35.1%) of them have matric as their highest qualification. There is also a high prevalence of those who have obtained BCom degrees. These account for just over 12% of qualifications possessed in this sector. Table 2 presents businesses by type of the premises they occupy.

Table 2. Distribution of respondents by premises occupied

The overwhelming majority (68.6%) of these businesses are located within residential areas and operate from home, either from the house or garage. When asked whether they own or rent the business structure they operate from, more than two thirds (68.6%) of respondents indicated that they own the property. Overall, over 60.0% indicated that they rent their business premises, compared to 39.6% who owned the premises.

Owners’ and Managers’ Skills Profile

Respondents were requested to indicate the type of skills they have. These skills were later categorised as either technical or conceptual.

Figure 3. Percentage Distribution Of Industries By Type Of Skill

Following this classification, 33 it is evident from figure 4 that the majority of small business owners/managers have technical rather than conceptual skills. This is even higher in construction and agricultural industries where nearly 95% and 91% of respondents respectively have technical skills. However, a similar pattern is not discernible in the financial and intermediation industry where there is a 50/50 split between technical and conceptual skills.

Table 3. Respondent skills: retail sector

Table 4 presents respondents’ skills in the wholesale and retail sector. As illustrated in this table, almost 26% of the respondents in this industry are skilled in marketing. Another 13% are skilled in business management. The rest of the skills in this industry are mainly technical in nature. These include amongst others, secretarial and administration, cashier, etc.

Table 5 presents respondents’ qualifications within the wholesale and retail sector. As can be seen, the table shows that the overwhelming majority (35.1%) of them have matric as their highest qualification. There is also a high prevalence of those who have obtained BCom degrees. These account for just over 12% of qualifications possessed in this sector.

Table 5 presents the types of training needed by owners/managers in the wholesale and retail industry. It is evident from this table that there is an overwhelming need for conceptual skills, especially in the area of marketing and sales (36.2%), financial management (23.4%) and business management (21.3%).

Table 4. Respondent training needed: retail trade

ACCESS TO CAPITAL

Respondents were asked to indicate whether they had received any business financial support in the past. As figure 4 demonstrates, just over a fifth (21.5%) of the respondents indicated that they had received financial support in the past.

Figure 4. Percentage distribution of respondents by receipt of financial support

Those who had received financial support were requested to specify the type of financial support they received. The overwhelming majority (57%) indicated that they had received a bank loan. Furthermore, almost 14% of them had received loans from members of their immediate family (see table 4).

Table 4. Percentage distribution of sources of business finance

Respondents were all requested to indicate whether they needed any assistance to access funding. To this end, 73.0% indicated their need for assistance in accessing financial support. Furthermore, a similar 73.3% indicated that they needed assistance in financial record keeping (see figure 6).

Figure 6. Percentage distribution of respondents by need for assistance

In accessing financial support

Figure 7. Percentage distribution of respondents by need for training/assistance in financial record keeping

Business Constraints

Respondents were requested to rate on a scale of 1-7 the severity of problems they encountered during the course of their business operation. Average scores were calculated from the resultant ratings on the scale. Subsequently, the problems were ranked from the highest to the lowest, depending on their respective average scores.

Figure 8. Average distribution of respondents by business constraints encountered

As seen from figure 8, a lack of financial support was rated as the most serious constraint facing respondents. This item received an average rating score of 4.94, compared to an average rating of only 2.22 accruing to lack of water. With an average of 4.64, the problem of high transport costs, occupies second position on the rankings with high input costs (ranking of 4.51) in third position.

General Conclusion

The type of training needs as identified by type of training to be offered is guided by the training needs as identified in the paper. The paper revealed that owners and managers of small businesses are predominantly technically skilled and less skilled in the area of business management, and have limited academic qualifications. Specific training required by managers include marketing, financial management (including business financing) and business management.

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