SHOP TALK ZEENAT MOORAD
What with rising unemployment, inflation and interest rates, the current environment is really difficult for retailers. Any doubledigit growth is scarce. When asked about the company’s strongish annual results, The Foschini Group (TFG) boss Doug Murray said something interesting last week.
He noted that the group appealed to a broad sector of the market, from the value end right the way through to the upper end.
This diversification has been a long time in the making, both in its portfolio and by geography (it’s made some UK buyouts), and is slowly giving the group a leg up on competitors.
The company is a totally different animal from what it was in 1925, when the first Foschini store was opened in Johannesburg — it mostly sold cheap clothes imported from the US — and by 1941, when with nine branches it listed on the JSE.
The Foschini Group now has 22 brands, operates in about 27 countries globally and sells everything from eyeshadow to eggbeaters.
Years ago, the company embarked on an internal restructuring to reflect its broader offering, even undergoing a name change. Strict instructions were given to suppliers by then FD Ronnie Stein that all invoices for goods should be correctly addressed to Foschini Retail Group (Pty) Ltd — and not Foschini Services (Pty) Ltd. Failure to comply with this requirement would result in a delay in payment.
True story. They didn’t want to be known as “Foschini’s” anymore, got it?
Having a portfolio of brands which are amassed over time, or a tiered system that caters to a range of consumers across the bands of living standard measures, is a retail strategy employed by other operators in the sector.
Woolworths’ clothing mandate — “good, better, best” — has helped it steal market share from Mr Price and Ackermans as well as a spectrum of high-end operators. It has carved out a nice niche for itself by selling, say, jeans for R250-R700. So if customers need to “shop down” they can easily switch from Country Road to contemporary brand RE:.
This pricing migration creates stickiness between a brand and its customers, so even though times are tough you’re still shopping at Woolies — you don’t have to leave the store to shop elsewhere.
Famous Brands, through its “hi-lo” portfolio, sells fish & chips from R29.90 at Fishaways to R85 at Mythos. Having something for everyone is the best kind of buffer in a slowdown. Back to TFG. Buying Fabiani in 2011 signalled the start of a shift towards a more affluent customer base. The historically creditheavy group also made a move to target cash shoppers when its brands like Totalsports, @Home and Due South (whose customers typically buy in cash) started growing faster than its more credit-oriented brands. As cash customers would have the choice to shop at any of its competitors, the group also started dishing out a loyalty card aimed at attracting footfall through immediate rewards vouchers.
Ultimately, TFG is after an equitable split of both cash and credit. This takes a lot of risk out of the business and should render it more defensive in tough economic and credit cycles.
It leaves rival Truworths as the clothing retailer most heavily dependent on credit sales and, apart from its acquisition of UK footwear player Office (which still has the market puzzled), with little diversification.
If anaemic growth wasn’t enough, the credit market is in flux with the affordability regulations coming in and the subsequent proof-of-income requirements, which are creating all sorts of drama for opening new accounts.
Over-reliance on credit is never a good thing and neither is rigidity. Just ask Edcon. TFG appeals to a broad market, from the value end to the upper end