Fast fashion drives TFG to look locally
Group plans to expand manufacturing in SA to cut lead times for getting stock to stores
Foschini owner TFG, which recently finalised the acquisition of Jet from Edcon, intends doubling the manufacturing capacity of its local factories in the next five years as it looks to further improve lead times to get ontrend fashion into its stores faster.
Anthony Thunström, CEO of JSE-listed TFG, says the proportion of TFG’s locally manufactured goods varies across its different brands,
“In our sports divisions, for instance, branded footwear products are fully imported as there is no local equivalent. In our apparel brands it can be anywhere from 35% to 55% local.”
About half of Jet’s apparel has traditionally been produced in SA, and Thunström says the plan at TFG is to substantially increase local manufacturing across the board.
He estimates it could double in the next five years.
The group’s two clothing manufacturing factories are in Caledon and Maitland in the Western Cape.
“We have got space to expand our Caledon factory outside Cape Town and we are in the final stages of planning that expansion,” says Thunström.
Local production does not, however, mean unit costs are necessarily lower. Thunström says the key advantage of locally produced apparel is the speed at which the retailer can respond to fashion trends.
“It is not necessarily cheaper because, depending on the commodity and the exchange rate, we seek to be closer to parity to importing something from the Far East.
“The difference is your lead times are so much shorter here. If we decide to manufacture something locally in our factories here, from the time we finalise a design until the product is in our stores averages about 42 days from end to end.
“If you are importing from the Far East, you’re looking at between 140 to 170 days.”
Thunström says speed is of the essence because fashion and tastes “change all the time”.
“To try and guess exactly what colour and pattern dress we are going to sell in six months’ time is fraught with fashion risk.”
Therefore local manufacturing capacity allows the company to respond quickly if it notices certain fashion items are selling quicker than others.
Thunström says the increase in manufacturing capacity at TFG will lead to the creation of more jobs at the group.
Following the purchase of Jet, TFG now employs more than 25,000 people.
TFG is also working to improve stock levels at Jet, which Thunström says has been trading “on sub-optimal levels of fresh stock”.
The stock problem at Jet was not related to the supply chain out of China. Instead, Jet was starved of stock “because even under a solvent Edcon, Edcon had very little money to spend on new stock”.
In addition, when Edcon went into business rescue, the business rescue practitioners released limited funds to buy new stock, given their other commitments such as to pay creditors.
But things are looking up at Jet.
“The new stock that is going in has been selling incredibly well; we just need to put more stock in.”
The market consensus is that TFG acquired Jet at a discount, which will enable the group to invest more capital in the brand.
Thunström agrees that the less-thanR480m price tag for Jet could be seen as a bargain, but says the price reflects that the brand needs inventory and capital investment to get it back to an optimal trading level.
In terms of the deal with Edcon’s business rescue practitioners, TFG agreed to acquire a minimum of 371 of the approximately 500 Jet stores for just under R480m, with options to secure more shops, if possible.
He says the group has now been able to take on board 425 stores, with the possibility of even a few more being added if it is able to negotiate more favourable rates with landlords to make the shops viable. This has meant safeguarding most of the 5,000 jobs at Jet.
Apart from increasing the amount of stock at Jet, TFG is also looking at other ways to improve the brand’s performance.
“Because of the lack of funding, they [Jet] really have had no money to spend on IT infrastructure, so we are bringing them across entirely onto our systems.
“We have a new point-of-sale system which has got much more functionality built into it. We were about to launch that with some of our TFG brands, so we have just reprioritised the launch into Jet.
“They will go onto the new point of sale and that is about a six-month process. That is a big step for them.”
Thunström says the Jet point-of-sale machines were typically offline more than would be acceptable and “way more than TFG would ever want to have”.
“People will be able to shop a lot more easily in a Jet store than they had in the past.”
Jet, which up until nowhas had no online presence, will join the rest of TFG’s brands online.
TFG has 30 brands worldwide, including Foschini, TotalSports, Markhams, Donna, American Swiss, Sterns, Hobbs and Whistles.
As far as Jet’s stores are concerned, Thunström says the ones TFG bought are “well located” but that “many of them need a bit of a refresh and a bit of money spent on them”.
FNB portfolio manager Wayne McCurrie says that Jet having TFG as its owner will help the brand with “better stock availability”, refresh its look and “generally just shake up the brand” because “everything under Edcon was starved of cash”.
Richard Cheesman, a senior analyst at Protea Capital Management, says TFG’s purchase of Jet seems like an “astute acquisition” for TFG.
He added that TFG’s acquisitions have “seemed to hold up”, which is “impressive” considering how “it usually doesn’t end in rainbows and unicorns” for other South African companies.
TFG reports that overall foot traffic at stores is improving as the economy opens up after the Covid-19 lockdown.
“People are coming back and starting to shop more physically than they were a couple of months ago. You can see that around the country.”
Although there are some differences depending on the province.
For example, “the Western Cape has been one of the slowest provinces in terms of people going to eat out, going to restaurants and shopping, while Gauteng has been much closer to back to normal”.
Thunström added that the major tier-one malls were still experiencing subdued footfall, while convenience and smaller shopping centres, as well as strip malls and high street retail in smaller towns and rural areas, were recovering faster.
To try to guess what colour and pattern dress we are going to sell in six months is fraught with risk Anthony Thunström