FASTER FASHION, SA-STYLE
SA’s textile sector is staging a comeback, as retailers look to locally sourced products to offset dependence on the East
f by mid-January you’re already feeling a little underwhelmed by what 2022 has on offer — a miserly 2% economic growth rate, the Zondo-accused continuing to roam free, wannabe ANC leaders taking pot shots at all and sundry, a still-notdead pandemic and a still-not-alive Eskom — well, there’s some good news. At least one important sector of SA’s economy is in strong revival mode, pushing out ever-larger production volumes and increasing employment numbers by the month.
Just 20 years after China joined the World Trade Organisation and proceeded to flood the world with cheap goods, SA’s clothing, textiles, footwear and leather (CTFL) sector is showing impressive signs of a comeback from the impact.
Equally encouraging is the co-ordination strategy between the government, business and labour that is behind the recovery. There’s no sign of the destructive tensions we’ve come to assume between these key players; instead, there’s a self-interested determination to develop local manufacturing capacity. The potential benefit for the government is employment and economic growth, for trade unions it’s employment and job security, and for retailers it’s secure and more flexible access to supplies.
In a way, the story is the epilogue to
Pietra Rivoli’s excellent 2009 book, The Travels of a T-Shirt in the Global Economy. It tells the story about what happens when the globalisation honeymoon comes to an end.
In SA, what’s happening is that a once flourishing industry is being stitched back together; new up-to-date capacity is being installed, sometimes in the very buildings that were shuttered when demand shifted to Asia; tens of thousands of people are being skilled or reskilled; and the government is moving to make life a little more difficult for manufacturers and importers that flout the rules.
Perhaps inevitably, given trade, industry & competition minister Ebrahim Patel’s involvement, there’s a grand-sounding plan behind this co-operation: the Retail-CTFL Master
Plan 2030. It was launched in 2019, with the key objective of increasing local procurement from 44% to 65% of all CTFL sold in SA.
Though this is the first formalised plan, it isn’t the first time the three parties have worked together, as evidenced by the fact that local procurement had already recovered to 44% by 2019. But the plan was put in place at a critical time in the recovery process.
Ten years ago, the percentage of local procurement was in the single digits. But as costs of importing from China began to
Icreep up, retailers increasingly saw that access to well-priced supplies was not always worth the inflexibility that comes with six-month lead times.
Michael Lawrence, executive director of the National Clothing Retail Federation of SA, which represents the interests of most of SA’s major clothing retailers, says it was evident years ago that the Far East was set to become less attractive. It wasn’t just the steady increase in prices — there were also increases in freight costs and the part played by the dramatic volatility of the rand.
TFG CEO Anthony Thunström reckons lead times were the critical decider. “If executed correctly, local sourcing is hugely beneficial — the reduced time helps inventory planning, which means reduced stock levels and better pricing,” he tells the FM. “Short lead times always win over long lead times.”
TFG is currently sourcing 47.6% of its apparel sales from local manufacturers (as recently as 2019 this figure was 34%), while an additional 23.9% comes from Southern African suppliers. This means just 28.5% comes from beyond African borders, primarily from Asia.
There’s a similar story at other major retailers. SA and regional suppliers account for one-third of all units sold by Mr Price Group. At Truworths, more than 45% of total textile purchases are from SA manufacturers, and Woolworths sources 30% of units sold from SA, with an additional 22% coming from regional suppliers.
As figures from the department of trade, industry & competition (DTIC) show, this all adds up to substantial revenue and employment. According to its most recent stats, the SA retailCTFL value chain generates an estimated R74bn in gross value, equivalent to 1.7% of GDP. That value chain sustains about 212,000 formal jobs, of which 120,000 are in retail stores and 92,000 in manufacturing.
The good news is that the near-shoring trend seems set to continue, and the sector is on course for its 2030 target. This may seem remarkable to those of us fixated on the usual woes believed to be dogging SA’s economic performance, chief of which are an erratic electricity supply, a hostile labour environment and an ineffective government. (Significantly, during several lengthy discussions with corporate executives and labour advisers, none of these issues was raised with the FM.)
Lawrence says that while the move back to Africa began long before Covid hit in early 2020, the response to the pandemic has reinforced the trend. “We have the perfect storm of opportunities for the local manufacturing sector,” says Lawrence, who
What it means: The sector’s recovery is underpinned by coordination between the government, business and labour
believes it has huge investment potential.
Thunström’s goal, which would have seemed risible just a few years ago, is “to find a way to wean ourselves off the East”.
And lest shareholders fear that the traditionally tough-as-nails retailers have gone all soft and patriotic, Thunström stresses that the shift to local sourcing is motivated mainly by business reasons.
It’s not just the long lead times, rising shipping and manufacturing costs and volatile rand that are fuelling the switch back to SA. Woolworths group head of sourcing Lawrence Pillay says there seems to be a shift towards protectionism around the globe, which is making borders troublesome; this, after years when it looked as though borders were disappearing. It has all coincided with a growing awareness of employment conditions and concerns about sustainability and carbon footprints, says Pillay.
Shareholders are increasingly likely to demand that retailers take responsibility for the conditions under which their goods are produced. Being closer to the manufacturer means there’s less chance of getting caught in some headline-grabbing, brand-destroying scandal.
As can be expected, near-shoring strategies come in varying forms.
TFG champions the most engaged form, which is ownership of a large chunk of its SA supply chain. Industry analysts say the group has developed very competent sales and factory engineering teams who have helped ensure it can secure the best mix of price and product.
“They are now the largest clothing manufacturer in SA,” one analyst tells the FM.
Thunström says TFG’s decision to own its supply chain was driven by the desire to shorten the response time as much as possible, and make available the manufacturing capabilities needed to wean the group off the East. Last year, the group went on something of a shopping spree, buying up struggling local manufacturers such as House of Monatic, Granny Goose, Cotton Traders, Radeen Fashions and underwear-maker Playtex.
“We bought Playtex assets out of liquidation,” Thunström tells the FM. “No-one else in SA has the ability to do what it does, we bought it to develop that capacity.”
Buying up assets is only part of the process — there’s also skills development, training and introducing state-of-the-art technology.
Being competitive with the Far East means having top-end, highly responsive manufacturing capacity. While more still needs to be invested in technology, Thunström believes the group’s manufacturing base is already extremely resilient.
“Within a couple of weeks we had bounced back from the damage caused by the riots last July,” he says.
While he acknowledges that beefing up local manufacturing could benefit his competitors, it’s a price he’s clearly prepared to pay.
Pepkor is something of a hybrid, owning one of SA’s largest clothing manufacturing plants, but also contracting local manufacturers to source just over 30% of its clothing, footwear and homeware domestically.
A spokesperson for the company tells the FM that local manufacturers still battle to compete with prices on imported products.
“A big part of our project team’s work is to develop a model where local sourcing can compete with imports,” says the spokesperson, referring to the team set up to work on the
2030 master plan.
Many other retailers favour the seemingly lower-risk contractual option for their localisation strategies.
Matthew Warriner, director of investor relations and stakeholder management at Mr Price Group, believes strong long-term relationships with a network of suppliers allows for the most agile and competitive arrangement. During 2021 the group “on-boarded” 43 new local manufacturing suppliers.
As a value business, delivering competitive pricing is very important, says Warriner, and an effective way to do this is by having sourcing and production flexibility when needed. He reckons this agility helped the group cope with the impact of the riots last year.
High-volume orders, partnership-based relationships and hyperefficient management of the supply chain are the secret, he says, adding that the group has very strict protocols for onboarding its suppliers. The company monitors production sites to ensure its suppliers can tick all the boxes.
Woolworths, which like Mr Price relies on contractual relationships with manufacturers, has taken its monitoring role a significant step further. In a first for SA, Woolworths’ fashion, beauty & home division has just published the names and addresses of all its 360 suppliers, including those that account for its 30% locally sourced products. It’s aiming to increase that to 40% within three years.
Releasing the names means interested stakeholders can do their own monitoring, which is perhaps why only a handful of retailers around the world do so. “Transparency within the supply chain is critical to achieving system change in the global fashion industry,” says Pillay.
Whatever supply strategy is used by retailers, the role played by the government will determine whether the master plan succeeds. A minimum is tightening up the country’s porous borders, which have allowed a substantial “informal” sector to flourish at the expense of the formal players.
“Illegal imports have been the bane of the sector’s existence for decades,” says Lawrence.
Thunström says his company has told the government it must clamp down on illegal imports if it wants investment. He’s encouraged by the signs of progress by the SA Revenue Service (Sars) and the DTIC. He’s also pushing for reductions on import duties for textiles not yet available in SA. “Wherever there are high duties, there tends to be criminality,” he notes.
DTIC minister Patel believes the biggest strength of the master plan is the buy-in of retailers and other stakeholders. But he agrees that high levels of illegal imports are one of its biggest challenges.
“These not only erode domestic market share but place companies that comply with the law and good sourcing practices at a disadvantage,” he tells the FM, adding that the department is working closely with Sars to increase port of entry inspections and improve the robustness of Sars systems.
Patel fears some “partners” may not stay the course as short-term market conditions change.
All in all, it’s an encouraging story — but no happy ending just yet.
If executed correctly, local sourcing is hugely beneficial … Short lead times always win over long lead times
Anthony Thunström