Newsletter No. 34 7 September 2018
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TFG bucks trend of entry into Australia
By Siseko Njobeni
TFG — the owner of Foschini, Totalsports and Markhams — expects a strong performance from its Australian business in the first half of its current financial year, outgoing CEO Doug Murray said.
TFG, which will issue a trading update with guidance on interim earnings next week, plans to open six stores under one of its SA brands in Australia in October. TFG will open the first five stores before Christmas, and the last before the end of March, Murray said.
In 2017, TFG bought Retail Apparel Group (RAG), an Australian menswear apparel retailer, for A$302.5m.
The expected strong performance from the Australian business validates TFG’s strategy to give management of the business a free rein.
“It has been important to have on the ground competent people who fit with our culture and can be part of the greater TFG,” Murray said.
TFG had confidence in the “solid and stable” management team in Australia, Murray said. “It is not us trying to do it from here. We have seen other people do that and they fail miserably,” he said, without naming fellow retailer Woolworths whose entry into the Australian market has been disastrous.
In the year to end-June, Woolworths reported an after-tax loss of R3.5bn after a R6.9bn impairment of its department store chain David Jones.
Murray said next week’s trading update will give an indication of the success of TFG’s foray into Australia.
“We have a team that is very successful. The numbers will speak for themselves. They know what they are doing,” said the CEO.
Murray will formally step down at the retailer’s annual general meeting and will be replaced by current CFO Anthony Thunström.
“Succession is a process that we signalled to the market approximately two and a half years ago. It is not something that is new to the market. We were pretty sure even that the successor would be an internal candidate,” Murray said.
The company has transformed itself tremendously since he took charge 11 years ago, he said. At the time, the company’s revenue was R7.2bn and had 1,332 stores. It now has 4,034 outlets in 32 countries.
In the year ended March 2018, TFG’s turnover was R28.6bn. Murray said the turnover in the current financial year would be more than R30bn. TFG’s share price has risen from R52 in September 2007 to R176.32 at the close of business on Thursday.
Thunström said TFG was restructuring its British businesses — Phase Eight, Hobbs and Whistles — as a precursor to bolt-on acquisitions in the tough UK market.
The streamlining, which will see the UK entities mirror the business model of their SA and Australian counterparts, entails the centralisation of the back offices of the businesses.
TFG was concerned that the UK businesses were run as three separate ones, “with three head offices, separate accounting systems and separate online systems”, Thunström said. The restructuring will steer the businesses towards a shared service business model. Business Live
SA retailers taking heavy strain
By Philippa Larkin
South African retailers across the board are taking strain, with consumers under pressure due to an unprecedented VAT increases and record fuel prices.
The going is not going to get any easier any time soon for consumers with South Africans expecting a fuel hike next week, thanks largely to a softer rand against the US dollar.
Petrol is expected to increase by between 23 and 25 cents a litre in September, with diesel rising by around 28 cents and illuminating paraffin by 17 cents.
Retail sales growth slowed from 1.9 percent year on year in May to 0.7 percent in June. This was much weaker than the 2.2 percent market consensus, according to recent data by Statistics South Africa.
Ron Klipin, a senior analyst at Cratos Capital, said, “These factors have impacted the listed JSE retail counters, where deflation has had a major impact on food retailers, revenue growth and profits.”
A prime example of this had been the Shoprite group, which had in addition to deflation has had to subsidise food prices in excess of 100 items to assist their lower LSM clients.
These interventions included R5 meal subsidies, he said. In its results for the year to July 1, the retailer reported that diluted headline earnings a share declined by 3.8 percent to 968.7cents a share.
In addition, the group faced a perfect storm scenario due to hyperinflation in Angola, as well as strikes.
Shoprite saw the food inflation decline from 7.4 percent to around 0.4 percent .
Rising unemployment was also a factor in weak results for South African retailers.
At the higher end of the income spectrum, the Checkers division recorded sales increases in excess of 8percent. This showed that there was a certain degree of resilience in this sector of their market, Klipin said.
Meanwhile, Woolworths chief executive Ian Moir said 2018 had been a difficult year for the retailer.
“Significant costs and disruption from transformation initiatives in David Jones and poor performance in our fashion business in South Africa have led to a result for the group that is disappointing. This was exacerbated by challenging economic and trading conditions in both markets,” he said.
Woolworths in the 26 weeks to end December endured a double hit with a R7 billion write-down of David Jones in Australia.
Klipin said again, the difference was in their food division serving LSM 8-10, which proved to be a star performer.
Klipin said Massmart was likewise impacted by deflation in all their categories including durables and foods. In the six months to end July 1, Massmart, Africa’s second largest retail group, with stories such as Game, Makro and Builders’ Warehouse, came under pressure. During the period Massmart reported that its like-for-like sales increased by 1.9 percent to R41.6 billion.
In its results, Massmart cautioned that the current market weakness and deflation in the domestic economy was expected to persist. But Klipin said Mr Price seemed to be more resilient, with their merchandise offer in value for money.
Mr Price said that during the first four months to August 4 of the financial year ending 30 March 2019, the group recorded growth in retail sales and other income of 7.4percent to R7.4bn over the corresponding period in the prior year. The group expected a very challenging environment to prevail until economic growth starts to revive. IOL
Siemens combines tech, fashion in smart project for Africa
German conglomerate Siemens recently launched a unique project called AfroDigital Fabric in Johannesburg to demonstrate how crucial data is in transforming Africa’s urban centres into smart cities of the future. Three famous African fashion designers created 12 extraordinary outfits from data extracted from the cities of Nairobi, Lagos and Johannesburg.
The garments by Kenya’s John Kaveke, Nigeria’s Zizi Cardow and South Africa’s Palesa Mokubung showcase a variety of patterns from power grids, shipping and tonnage to population densities, transport and areas of connectivity, according to African media reports.
The data weaved into the outfits tell a story about each city and how digitalization can transform them.
For example, the data from Johannesburg outlined its magnificent tree canopy, Gillooly’s Interchange and the congestion in Newtown F2F
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