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Newsletter No 03 / 28 January 2022                        

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SA’s textile sector is staging a comeback

By Ann Crotty

Production line: Workers sew garments at the Prestige Clothing factory, operated by TFG in the Maitland district of Cape Town. Picture: Bloomberg/Dwayne Senior

SA’s textile sector is staging a comeback, as retailers look to locally sourced products to offset dependence on the East

If 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-not-dead 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 creep 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 retail-CTFL 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.

If executed correctly, local sourcing is hugely beneficial … Short lead times always win over long lead times

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 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 on-boarding 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.

What it means:

The sector’s recovery is underpinned by coordination between the government, business and labour

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.  FM

New spat over Primark brand

By Katharine Child

Primark: The British retail chain. Picture: Bloomberg/Paul Hanna

Truworths is back in court as part of its almost decade-long battle to use the Primark trademark.

The latest instalment began when local online retailer MyRunway (formerly RunwaySale) started selling clothes from the British chain in SA on December 10.

Started in 2012 by Karl Hammerschmidt and Elmien Smit, MyRunway has grown into a substantial online business — though nowhere near in size to Truworths, one of SA’s oldest retailers.

Days before Christmas, Truworths — which owns 11 stores named Primark that are entirely independent of the UK chain — asked the Cape Town high court to urgently interdict MyRunway from selling Primark clothing.

It argued that this amounted to unlawful competition, was confusing to customers and damaged the goodwill associated with the Truworths version of Primark.

CFO Emanuel Cristaudo is clearly irked at the suggestion that this court suit is a frivolous distraction, even as Truworths grapples with tepid growth and value deflation, with retail sales for Truworths Africa (which excludes its UK-based Office segment) up just 1.4% to R7.4bn for the 26 weeks ended December.

“No decision is made in our business without considering the effect it will have on the profitability of the company. The decision to adopt a trademark that was practically unknown in SA was made precisely with the aim of enhancing profitability.

“We would not be litigating about the Primark brand if it was a waste of shareholders’ money and management time,” he tells the FM.

The wrangle dates to 2013, when Truworths tried to register the trademark Primark. It failed initially because it was already in use by the UK retailer, which has about 400 stores in the EU, Britain and the US. Its trademark is protected in 69 countries, but SA law allows third parties to cancel trademarks that have not been in use for five years or more.

Truworths eventually convinced the Supreme Court of Appeal in 2018 to expunge Primark’s ownership of the trademark in SA.

Its argument is that while Primark registered the mark in 1976, it “has never attempted to use it in SA,” says Cristaudo.

“It’s precisely this kind of scenario that prompted the introduction of trademark expungement provisions around the world. Parties should not be allowed to sit on trademarks for decades — in this case 46 years — without using them, thereby preventing use of those marks by third parties who want to make a genuine business out of them and contribute to the local economy through them.”

To date, Truworths has sold R21m worth of its own Primark products, while MyRunway has sold almost R700,000 worth of the UK version since December.

In court papers, Truworths accuses MyRunway of “confusing consumers and passing off Truworths goods as its own”.

But because Truworths doesn’t own the trademark, it’s not relying on trademark law but legislation that protects the goodwill associated with a brand.

MyRunway has hit back, arguing that Truworths has not shown that it has the legal right to use the trademark, while describing its own use of the Primark brand as “scant” and not deserving of goodwill protection.

Primark UK has offered evidence in the new dispute at the request of MyRunway, and accuses Truworths and its buyers of trying to “improperly benefit from the extensive reputation of the UK Primark brand”.

To add another layer of complexity, Primark reregistered its trademark in SA in 2019 in the face of opposition from Truworths.

This is not Truworths’s first run-in with rivals over trademarks.

It registered the phrase “The look”, and when Pepkor-owned Ackermans used the slogan “The look for less” in an advert, Truworths went to court. But the judge ruled the phrase “the look” was too generic to be protected by a trademark.

All Weather Capital analyst Chris Reddy takes a relatively sanguine view of the Primark saga, saying Truworths does not owe shareholders an explanation unless legal costs become material. “Personally, I’m not too fussed about the issue.”

He says with Truworths trading on a 10 times p:e — cheaper than its competitors — “a whole lot of these types of issues as well as others are already discounted in the price”.  FM

Iconic fashion designer Thierry Mugler dies

Source: Dominique Issermann via Manfred Thierry Mugler’s Instagram account

Celebrated French couturier and designer Thierry Mugler died at aged 73 on Sunday, 23 January of natural causes.

“It is with deep sadness that the House of Mugler announces the passing of Mr Manfred Thierry Mugler. A visionary whose imagination as a couturier, perfumer and image-maker empowered people around the world to be bolder and dream bigger every day,” Mugler’s team announced on social media.

Mugler was considered a pioneer in the fashion field. Dubbed “the godfather of 80s power dressing“, he was best known for structured silhouettes featuring statement shoulders and cinched waists.

He was equally known for his highly stylised, often ‘other-wordly’ themed runway shows.

During his career, Mugler designed signature looks for Grace Jones, David Bowie, Diana Ross, Beyonce, Lady Gaga and Kim Kardashian.

In the early 2000s, he stepped back from fashion to focus on fragrances and costume design. His perfume Angel has become one of the best-selling perfumes of the 20th century.

In 2019, the Montreal Museum of Fine Arts (MMFA) launched the ‘Thierry Mugler: Couturissime’ exhibition dedicated to the designer and his work.  Bizcommunity

                                                                                                                Did you know……..

The most talked about Oscars dresses of all time

Geena Davis, 1992

She may have won acclaim for Thelma and Louise, but Geena didn’t hear much praise for this bustier top-and-ruffled skirt combo.

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