SA retailers try on new markets
Local fashion meets interlopers with overseas forays of its own
SOUTH African clothing retailers are finding themselves in a position that chess players call “active defence” — attacking the opponent in the process of defending your position.
In recent months, retailers such as Woolworths, Truworths and the Foschini Group have been “capturing” or acquiring businesses in Europe and Australia to destabilise foreign retail markets as their offshore rivals try to do the same in South Africa.
The Foschini Group — which last week published a 33.6% increase in half-year sales to September — acquired 83% of UK fashion group Phase Eight for R2.6-billion in January.
Truworths, parent company of Daniel Hechter, Identity and Young Designers Emporium, is making moves on Office, a fashion footwear retailer based in the UK. It has made an offer, but the transaction has not been concluded.
Brait, previously linked to Pepkor, parent company of Pep Stores, captured 90% of UK clothing retailer New Look for $1.2-billion (about R17-billion) in May.
Woolworths is reaping the rewards of Australia’s David Jones, which it bought for $2.1-billion last year.
These are signs that South African retailers are seeking revenue elsewhere as they are no longer confident in their domestic market’s economic growth, according to Chris Gilmour, an investment analyst at Absa Wealth & Investment Management.
He does not believe all local retailers are doing well in defending their turf. Aca Joe, Hilton Weiner and Jenni Button, controlled by the Platinum Group, went into liquidation after the onslaught of international brands arriving in South Africa.
However, Jean Pierre Verster, analyst at 36ONE Asset Management, said the Platinum Group’s woes had more to do with management issues than international apparel retailers entering South Africa. Another issue affecting the group was its sourcing of merchandise from overseas, which exposed it to currency swings.
Verster said local players were branching offshore because they had realised they might be at the end of a period of strong growth in the South African market.
International players are not finding the local market easy either.
“International brands find it difficult to hold on to their pricing points and be competitive against local players who have local sourcing ability. Local players can import fabric and have local operations to convert the fabric into garments.”
Gilmour said foreign retailers were rushing into South Africa because they had a vision of springboarding into the rest of Africa from here.
H&M, the Swedish apparel retailer, is the most recent company to open for business in South Africa. Karl-Johan Persson, H&M’s global CEO, said: “South Africa is a market we’ve been looking at for quite some time, knowing it’s the most developed economy in Africa.”
South Africa continues to be the fastest-growing market for the Australia-based retailer Cotton On. Michael Hardwick, Cotton On’s chief financial officer, told Business Times in September that he planned to open 40 stores in South Africa before the end of the year.
Gilmour said foreign retailers were seeing the gap in the South African market, while local players were battling because, for a long time, they had it easy.
He said their system of business was similar to those of furniture retailers. “They made their money off the financing of the items, not necessarily of the garments,” Gilmour said.
That has now changed because credit has become expensive for consumers.
Edcon, parent company of Jet Stores and Edgars, which has suffered losses as its market share shrank significantly, is another example of the forces at play in the sector. Its retail stores underperformed and Absa, which acquired its credit book for R10-billion, was cautious when extending credit.
Gilmour said consumers preferred not to spend their hardearned-cash on clothes and “for them to part with their money, the products have to be of high quality”.
This is where foreign players see a gap. Cotton On’s products are affordable and perceived to be of high quality. H&M has also positioned itself in this manner.
The Foschini Group seems to have seen the pressures coming. The group’s growth in net bad debt declined to 4.4% from 9.9%, it reported last week in its results for the six months to September. CEO Doug Murray said he did not feel the effect of foreign retailers attacking his business because the group was well diversified. Fashion retail brands such as Foschini, Donna Claire, Markham and Fabiani make up only 27% of its business. It has more than 20 brands, from cosmetics to homeware. Its portfolio also includes sport and footwear, jewellery and cellphones.
“One of the reasons we are so diversified, [is] so we don’t get eaten,” Murray said, adding that “retailers that are predominantly in clothing are going to find it much tougher with all these [foreign] retailers coming in”.
Mr Price’s stock fell more than 8% on Wednesday on the news that its first-half profit and sales for the six months to endSeptember increased at a slower rate compared with the previous period due to subdued consumer spending.
CEO Stuart Bird said: “The economy is not in good shape and consumer confidence is understandably low.”
Total revenue grew 9.2% to R9-billion.
Retailers are rushing into SA to springboard into the rest of Africa