The Foschini Group (TFG), which recently celebrated 75 years as a listed company on the JSE, continues to diversify from the mass women’s market into speciality brands and scout globally for more add-ons following the purchase of two UK retailers over the past 18 months.
The company has changed the way it sources, pays and manufactures to reduce the impact of product inflation on its consumers, which has largely been driven by the deterioration in the exchange rate.
CFO Anthony Thunström says the group’s average product inflation for this year is significantly lower than the 15% touted in the market. At the Foschini brand itself, he says TFG’s expected average product inflation for 2016, prior to the rand collapsing in December 2015, was less than 1%.
"The subsequent movement in the exchange rate has obviously affected that. However, the gap that we have opened remains largely intact."
He adds that there is always more work to be done on supply chain and sourcing, and in terms of negotiating more smartly. "You chip away and find better, more cost-effective ways."
With 22 brands in its portfolio, including UK companies Phase Eight and Whistles, roughly half of which were purchased and then grown, TFG continues to look out for suitable additions.
The plan is to buy more foreign clothing or accessory brands.
The group has expanded from its original Foschini ladies-wear brand, to include jewellery, homeware and furniture, cosmetics, and sports-and menswear. Where it was once focused solely on SA, it is now about Africa, online channels and international expansion, in addition to continuing the local roll-out of its existing brands.
"There are currently a lot of factories across the world with excess capacity.
"If you look hard enough you can find factories in SA, Europe and the Far East that want to keep their doors open and there is definitely an opportunity to negotiate win-win deals that weren’t available a couple of years ago," says Thunström.
There’s been a shift in financial strategy too. Eighteen months ago the company was buying close to 100% of its Far East purchases in US dollars. More than half of that is now in Chinese currency, the renminbi.
"Not every supplier is prepared to do it, but we’ve pushed really hard and we’re now sitting at more than 50% of that buy in renminbi, which has helped us to keep product inflation in check," says Thunström.
There are also "deeper" orders in merchandise. Where the group would have placed an order for 4,000 of a particular style, it has moved more to core product and less seasonal items.
TFG also owns its own local factory, and just over half of Foschini’s ladies’ apparel is manufactured locally.
"Our production with Prestige has ramped up to just over 6m units," says Thunström.
And the group is upgrading a second factory in Caledon, which is scheduled to be up and running by the end of October.
Over the next 18 months, the group will be able to double what it produces locally.
Africa remains part of the growth strategy, but not at any expense.
Thunström says there has been a huge amount of hype around the "Africa rising" narrative. And while TFG has been optimistic about Africa for some time, the group has also been quite pragmatic.
"A couple of things happened. The commodity slump has really hurt any number of African economies ... There’s also been pressure from landlords in Africa to charge uncapped dollar rentals. We’ve pushed back really hard on that. We are quite prepared to — and in fact have — walked away from these sorts of deals."
TFG has been in Namibia, a relatively mature market, for nearly 30 years. Thunström sees further opportunities in Botswana, Zambia and Ghana, as well as in Lesotho and Swaziland, though those are relatively small markets.
The business has recently launched a separate children’s brand, Foschini Kids. The plan is to roll out standalone Foschini Kids’ stores, along with store-in-stores, together with Next stores.
"There is a growing trend, there is a kind of ‘mini-me’ trend in SA and worldwide, [in which] parents love to dress their kids in such a way that it almost reflects on them."
The SA business of TFG is now just more than half cash, following years as a legacy credit business.
"We didn’t get there by accident, this was part of a deliberate strategy we embarked on seven or eight years ago," says Thunström.
"It wasn’t that we didn’t like credit. It was very simply that if you are too credit dependent — well, credit goes through cycles. If you are 70%-odd credit, which is where we used to be, you can be the best retailer in the world, you can have the best product and the best prices — [but] when credit is tight the reality is your business goes backwards and it is then out of your short-term control."
Thunström notes the "really tough retail environment" at present in SA.
He adds that international investors see zero percent GDP growth for the country.
"They see the rising interest rates and fuel prices and they hear political noise. It’s basically a negative outlook from a macro perspective, but that drives us to work even harder and to remain more competitive. We are fortunate in that we have a lot of levers to pull."